how straight through processing differs from traditional payments
the traditional method of sending money involved multiple departments both on the initiation and receiving end of the transfer that could take days to complete payment would first be initiated via the phone or a software program the payment settlement details would have to be confirmed by a person at both companies via the phone email or fax the settlement details were then manually input into a payment system and later confirmed either by a supervisor to ensure accuracy before releasing the payment before ach and swift payment transactions were then sent via telegraphic message using a special code the process could take anywhere between several hours to a few days to even initiate depending on the details involved international payments to emerging economies for example must often meet stringent criteria with supporting documents that meet local regulatory requirements and laws before a transfer can be completed as a result several people may have been involved both on the initiating and receiving end of the payment as well as employees from any intermediary banks involved telegraphic transfers had a higher propensity for errors delays and increased costs also the lack of automation caused instability as well as lack of exact processing expectations which created problems for suppliers and customers trying to make timely business payments as you can imagine stp was a big help for businesses it could streamline the accounting process for companies particularly in accounts payable and accounts receivable it helped in the tracking and collection efficiency of money to and from business partners and customers it reduced the number of errors involved with accounting functions and improved working capital cash flow efficiency it also aided in improved business analytics since companies can track client behaviors and spending patterns as well as costly delays or errors by the customers or the system e commercestp allows businesses to authenticate their customers on the web sell them a product initiate a payment and set delivery of the product all with just a few clicks e commerce sellers must have a transaction solution which may be multi faceted e commerce platforms can partner with brand providers like visa mastercard american express or discover they may also partner with a fintech like paypal the offering of payment plans and installment credit is also becoming more popular through fintechs like affirm sales efforts can be enhanced since online systems have the potential to offer products and services to a customer automatically through a single point of sale with a multitude of payment choices all done online one example of a leading company that has implemented straight through processing is amazon com the online retailer has remained focused throughout its existence on removing any obstacles to customers purchasing products on its website amazon has excelled in making use of automation technology and sophisticated algorithms to serve its customers and drive revenue cryptocurrenciescryptocurrencies are also an up and coming form of stp for transactions cryptocurrencies are electronic transfers that don t require manual intervention the greatest benefit of cryptocurrencies is that they remove the need for a holding company intermediary crypto funds can be transferred from one person to another directly on a unique network example of how straight through processing saves moneylet s say bank abc processes around 200 funds transfers per day and currently does not have a straight through processing system in place through analysis the bank has calculated that for every 200 payments processed 20 payments are processed incorrectly or 10 of the payments the bank is charged 20 for each payment that is not processed properly the fee is assessed by the receiving bank or correspondent bank since they have to correct the payment instructions or perform manual entries to fix the error here are the numbers after implementing a stp system the payment errors decreased to 1 per 200 paymentswith a stp system accurate settlement and routing information can be saved in the system avoiding manual entry of payment details and costly errors for the bank and customers stp in securities tradingin the modern day nearly all secondary market securities trading involves electronic processing there can be some human intervention on the front end in placing trades but for the most part electronic systems do all the work this is where stp comes in any transaction in the secondary market requires a trade settlement process which is associated with stp this means millions of stp transactions per day for stocks bonds mutual funds exchange traded funds pink sheet trades etc all financial service companies have some form of back office staffing responsible for the management of trade settlements done through stp the nasdaq was launched as the first electronic stock exchange like at a bank electronic trade transactions are monitored by back office employees trades may be flagged or stopped due to coded security measures which then may require the intervention of a human for the most part securities trades are completed including the exchange of an actual certificate within two days in 2017 the securities and exchange commission mandated a t 2 settlement for securities trades 4 in securities trading the stp process refers to the full t 2 cycle with stp the entire process from start to finish can be done electronically without human intervention stp for securities trading requires the need for securities codes as well as the use of brokerage accounting codes similar to the coding needed for bank and routing numbers electronic systems operate through code identifiers which facilitate a full electronic processing cycle other innovationscomputers mainframes electronic exchanges and the internet are all improving the opportunities for stp processing and innovation technology is also helping to improve the actual processing time of a full stp cycle some areas that are benefiting from improved technological advances for stp include underwriting and payrolls creditors have the opportunity to fully automate underwriting using stp to do this coding is used to set lending parameters authentications and approvals this can make credit extension nearly instantaneous upon submission of an online application payroll systems also benefit from stp electronic time tracking logs allow for an easy flow through of authorization and approval which can then be followed by direct deposit in the payrolls business many fintechs are partnering with businesses to provide workers with options for daily direct deposit payments which helps solve cash flow challenges 