In the payments industry, efficiency is typically measured by assessing the level of Straight-Through-Processing, or STP. That is, the percentage of transactions that are passed straight through the system from start to finish without manual intervention.
Different players in the payment process see STP in slightly different ways (as illustrated below) and this fundamentally affects how the efficiency of the transaction life cycle is managed.
Each player in the transaction process has a different perspective on where STP starts and finishes. For the clearing house, for example, STP starts with receipt of an instruction from the payer’s bank and finishes once those instructions have been passed automatically to a beneficiary’s bank.
The beneficiary’s bank has a different view. STP begins with taking an instruction from the payer, passing it through the clearing house, and ends with ensuring that the instruction correctly reaches an account, and is not immediately rejected.
The payer has an even broader view of STP. The payer wants to make sure that the details on the invoice and the payment details are correctly captured by the business payment processes, passed through the payer’s bank, the clearing house and the beneficiary’s bank, to land safely in the beneficiary’s account. Particularly enlightened payers would also want to make sure that all the information to enable automatic reconciliation of the transaction was included, so that it landed in the correct business system.
This analysis suggests that the only party with a holistic view of end-to-end STP is the beneficiary. The beneficiary is the only participant in the financial chain that wants to verify that the electronic payments coming in are correctly reconciled with the invoice they issued. Any system that does not enable the beneficiary to benefit in this way can only be a partial solution and this is the driver behind calls for standardisation – such as that offered by a switch to ISO20220
How can a payer improve Straight-Through-Processing?
Despite the fragmented grasp of where STP starts and ends, there are two key areas where improvements can be made: preparation and automation. Payments which have been pre-validated are much more likely to reach their destination and therefore checking simple things like the format of bank account data and that the bank codes exist will pay dividends. Further checking that the payee is the intended recipient will avoid the need for costly remedial procedures, there exist commercial solutions to give this confidence.
Automating the payments submission process, using solutions such as Experian Payments Gateway will streamline processes and remove error, as well as improve security and reduce fraud risk. Automated systems also allow for the separation of good transactions from faulty ones, with correct payments processed as quickly as possible, peak performance is ensured.