In this technology-driven era – which has spawned new buzzwords “distributed ledger” and “blockchain” – speed and efficiency in commercial payments should remain integral components of banks’ offerings.
Straight-through processing (STP) plays a key role in decreasing transaction times, and while improvements have certainly been made in this respect, avoidable delays and unnecessary costs persist. Yet this doesn’t have to be the case. By using pre-emption, guidance and validation STP can be truly optimised, with 100% STP a possibility – particularly in the most widely-used currencies.
Technological advances are driving ever-increasing client demand for speed and efficiency, with payment flows streamlined, straightforward and undertaken with ease. Concurrent to this, the global payments market is expanding at a rapid rate. Emerging market growth is continuing to fuel global trade and investment flows, and the volume of cross-border payments is expected to soar over the coming years.
As a result, the payments space is becoming ever-more complex and demanding. If banks are to thrive in the digital era and take advantage of global payment opportunities, they must be able to provide sophisticated solutions that align with this developing payments environment. Central to any solution should be a smart, efficient, automated end-to-end processing system with validation based on solid market information that enables transactions to take place seamlessly and without unnecessary delays.
STP has always been an integral part of a bank’s operating model and product offering.
It aims to automate the payments process wherever possible – encompassing the entire transaction from initiation to settlement and reconciliation. This means that the speed and efficiency with which transactions can be completed is significantly enhanced, and settlement risk and operational costs reduced. Ideally, once a payment is initiated it should need no further manual intervention in order for the funds to reach the final beneficiary account.
That said, while significant headway has been made in improving transaction efficiency, payment exceptions (errors caused by incorrect or missing information) continue to require manual intervention, such as data re-entry. This creates inconvenience and costs for clients; for example, beneficiaries can subsequently claim for non-receipt, interest charges and late shipment of goods, all due to delayed or failed payments.
As technology fuels demand for better, faster and easier solutions, banks must ensure they are able to facilitate effective end-to-end payment processing and optimise STP rates – enhancing efficiency, working capital, and the overall client transaction experience. Certainly, continued commitment to improving STP rates is essential, both to address the growing complexity and leverage the opportunities of increasing global payment flows, ultimately providing real value to clients.
The next level: optimising STP
The digital era is forging ever-increasing technological capabilities. Through investment, expertise and working closely with clients, banks can support a strategy that pre-empts discrepancies – essentially, reasons for “non-STP”. Such an approach can help to eradicate delays and potential claims, thereby truly optimising STP capabilities.
The provision of clear, easy-to-follow country-specific payment rules and guidelines that outline the minimum information required for a transaction to be processed is the first step to achieving this. Clients are equipped with the knowledge and guidance that ensure the foundations are in place to initiate a successful payment.
Yet what is paramount is that banks themselves are able to identify transactions that are entered incorrectly or, more importantly, where market-specific information is missing. This is particularly the case in countries such as Russia and the Philippines, which have particularly intricate specifications.
Payment format validation optimises STP by flagging up transaction errors in a bank’s own system – i.e. prior to reaching the clearing stage – meaning that they can be rectified and omissions investigated and enriched before the payment is sent. Delays and costs can therefore be avoided, resulting in faster execution and fewer exceptions.
Certainly, banks need to strive to help their clients achieve as high an STP rate as possible. With the provision of detailed and current currency level payment information requirements, in addition to systemic pre-emptive validation, the notion that banks might achieve 100% STP levels could be realised. This is especially true for the clearing and post-clearing stages, and is attainable in emerging currencies as well as those that are most widely-used.
As more non-bank payment providers enter the market, it is more important than ever for banks to invest in client-centric, value-added solutions. With speed and efficiency a key priority for clients, and with globalisation driving trade volumes and cross-border payments, it is in banks’ interests to be able to provide solutions that optimise payment settlement times – regardless of currency.
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