Financial transactions are at the very heart of the global economy. Without transactions, there is no economy.
The development and evolution of transaction processes help make all payments easier in all sectors including banking, finance, insurance, and eCommerce. In this article, we talk about one of the major trends in terms of financial transactions - Straight Through Processing.
Straight through processing has come through as a staple transaction method in payments and equities trading since the early 1990s. Since it automates the payment process and gets rid of any associated menial tasks, the entire workflow becomes more streamlined and efficient. The methodology is still evolving and working towards including the most recent advancements in payment, like cryptocurrencies, virtual wallets, and fintech providers.
In layman’s terms, straight-through processing is the act of speeding up financial transactions by eliminating manual intervention from the process. Its mechanism enables the entire transaction to go “straight through”, with end-to-end processing via a single point of control over all elements.
We can refer to STP as capturing the whole transaction electronically at one go - right from the first deal point to the final settlement steps. Traditional financial transactions involve data entry, documentation, and manual communication. Each process would take longer and have higher chances of error or fraud. Whereas the implementation of straight through processing (STP) in a business can increase sales by 30%, saves about 20% of total costs, and reduces order fulfillment time by up to 80%.
Implemented completely, STP automates the entire transaction workflow, reduces operational costs, and eliminates settlement risks. Its applications and benefits can be looked at as a whole and separately in each industry, as we will discuss later.
One example of STP implementation in a major company is that of Amazon. Amazon has had its own online payment processing service since 2007, called Amazon Pay. It uses data from the company’s consumer base to provide users with a secure option to pay through their Amazon accounts, even on external merchant websites. Third-party eCommerce websites can add this payment option to their checkout page through the Amazon Payments SDK.
STP (straight-through processing) has brought about massive changes in several industries. Apart from the obvious sectors like banking and finance, industries like software and eCommerce have also implemented this process to revolutionize their functioning.
These sectors use straight-through processing as part of their daily activities.
The advent of internet banking has paved the way for straight through processing, with people opting for digital transactions rather than visiting a bank branch in person. By integrating banking systems with ERP and treasury workstations, the traditional leased lines are being replaced by automation. This is further helped by the creation of customer user groups that provide secure platforms and consolidated messaging standards, in exchange for payment information.
However, more integration and technological advancement is needed to combine ERP with banking software and reformat the information for processing by banks. To achieve that, many corporation banks have started using hybrid databases that validate bank routing codes.
Another advancement in the banking sector can be seen through digital currencies. Central banks in the US, including JP Morgan and Signature Bank, have moved towards accepting digital currencies and blockchain-based transactions, as proven by the JPM coin, a new digital coin prototyped by JP Morgan in 2019.
The most widespread use of STP is perhaps in finance and securities trading. It helps orders to get processed, confirmed, cleared, and settled almost in real-time. Earlier, stock settlements were carried out manually. The seller would often hand-deliver stock certificates to the buyer and receive money.
With straight-through processing, the entire trading process can be automated and done electronically within two days. This is known as the T+2 cycle, meaning two days from the day of trade. It requires securities codes and brokerage accounting codes for the transaction to go through smoothly. However, this approach needs to get more mainstream to be considered universal.
The highest average use of STP in the insurance sector is for property and casualty insurance, with life or annuity lines. Even then, STP is not used more than 35% in totality. When implemented, STP benefits insurance transactions in the following ways:-
One sector that has benefited massively from STP is eCommerce. With this approach, businesses can authenticate users online, complete the whole payment process automatically, and set shipping and delivery details.
For this to work perfectly, sellers need a flexible transaction solution that can partner with AmEx, Visa, PayPal, and other payment platforms. This also includes offering EMIs, credits, and other payment schemes through a single sale point. Almost all the eCommerce giants, like Amazon, eBay, Alibaba, etc., have enabled STP on their websites so that users can complete the transaction without any delays or manual interventions.
Other smaller companies can also license STP solutions directly from vendors to implement in their websites. Combining bank routing information with company payment systems can decrease payment errors massively and increase STP rates by 95%.
Straight through processing is extremely beneficial for financial processes and transaction cycles. This is because:-
By opting for STP, you can future proof your company and enable a more sustainable environment. If implementing complete STP is not feasible for your business, you can opt for internal STP levels. This means you can license external software to be integrated with your software systems at a level that can optimize the company’s benefits.
This can be done on an individual level or by partnering with groups of firms to improve translation automation quality and reduce the costs as a community through external STP. It also reduces the percentage of failed payments as errors and false write-offs are reported immediately, instead of wasting days for manual intervention and eventual rejection.
In today’s dynamic business world, filing and archiving official documents in the digital form makes it handy, and works wonders in the future or in unforeseen circumstances.
Optical Character Recognition (OCR) is the technology to convert an image of text into machine-readable text. It is the underlying technology for various data extraction solutions including Intelligent Document Processing. However, OCR is not smart enough to figure out the context in a document - it works simply by distinguishing text pixels from the background and finding a pattern. This limitation could cause inaccuracy in captured data that could directly impact the output of your data extraction model.
Accounts payable is a key financial function for any business. Corporations can have thousands of suppliers; even for relatively smaller businesses, the number of suppliers could be in hundreds. All the invoices they receive from these suppliers come in multiple formats, layouts, and templates - some semi-structured, some unstructured. Therefore, firms expend time and resources to capture invoice information through manual data entry and verification of accounts payable. Manual data entry is not feasible in the long run, definitely not on a large scale. Before we talk about how intelligent invoicing solves the problems associated with manual invoicing, let’s discuss the challenges in much detail.
As most of an organization's information is available in an unstructured format, processing it requires an automated system that can handle documents with minimum human interaction. OCR is one such technology, but its scope is limited as it requires human interaction and is highly dependent on the layout and structure of the document to be processed.These limitations are overcome by Intelligent Data Extraction.Using artificial intelligence, the Intelligent Data Extraction technology extracts data from documents and transforms it into useful information through the extraction process. It functions as a singular tool for extracting information from any type of document and aids in optimizing company operations.