Straight-through processing: Difference between revisions

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{{original research|date=January 2019}}

{{informal|date=October 2024}}}}

'''Straight-through processing''' ('''STP''')<ref name=Investopedia/> is a method used by financial companies to speed up [[financial transaction]]s by processing without manual intervention (straight-through).

==PaymentsBackground==

Straight-through processing exists in numerous areas of financial services, such as payments processing.<ref name=globaltreasurer2007>{{cite web |author=JRobert McKay |title=Payment STP Through High Quality Data |url=https://www.theglobaltreasurer.com/2007/11/22/payment-stp-through-high-quality-data/ |website=www.theglobaltreasurer.com|date=22 November 2007 }}</ref><ref name=aisystems>{{cite web |title=Adaptive Intelligent Systems: Proceedings of the BANKAI workshop, Brussels, Belgium, 12-14 October 1992 |url=https://books.google.com/books?isbn=1483298159 }}</ref><ref name=inputicenter>{{cite web |title=Vendor Analysis Program |url=http://www.inputicenter.com/wp-content/uploads/2015/12/VAP1996-1992CtoE.pdf |website=www.inputicenter.com}}</ref>

Payments may be non-STP due to various reasons<ref name=finextra>{{cite web |author=Ganesh Guruvayur |title=Challenges around STP in Payments |url=https://www.finextra.com/blogposting/8728/challenges-around-stp-in-payments |website=www.finextra.com|date=2 January 2014 }}</ref> such as missing information, information which that is not in a machine "understandable" form (such as name and address rather than a [[Bank code|code]]), or human-readable instructions, e.g. "Please credit urgently") or simply falls outside of rules for which the bank allows automatic processing (for example, payments of large value or in exotic currencies).

Traditionally, making payments involves many departments in a bank. Both initiating a payment to be sent and processing a received payment may take days. In the past, payments were initiated through numerous "human-friendly" (akaalso known as paper-based) means, such as a human through a paper order, over the phone, or via fax.<ref name=globaltreasurer2004>{{cite web |author=Deepak Pareek |title=Rising to the Challenge: Five Barriers to STP in the Treasury Department |url=https://www.theglobaltreasurer.com/2004/11/22/rising-to-the-challenge-five-barriers-to-stp-in-the-treasury-department/ |website=www.theglobaltreasurer.com|date=22 November 2004 }}</ref> The payment order was input into the bank's payment system, then confirmed by a supervisor. This confirmation ensured an accurate match of input versus order before sending the payment. When multiple banks, countries or currencies were involved, the process often took several hours. When the complexity of the payment was higher, the amount of labor increased and additional human intervention resulted in more risk of errors, longer processing time, and higher costs.

In most cases, banks levy charges for non-STP payments or for manual repairs. Alternatively, banks may not charge on a "per repair" basis, but rather levy heavier [[Fee#Banking|fees]] for [[Correspondent bank|correspondents]] that provide lower quality (lower STP) payments.<ref name=globaltreasurer2005>{{cite web |title=Non-STP Fees - What's Really Happening and Why? |url=https://www.theglobaltreasurer.com/2005/04/04/non-stp-fees-whats-really-happening-and-why/ |website=www.theglobaltreasurer.com|date=4 April 2005 }}</ref>

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STP was developed for [[equities trading]] in the early 1990s by James Karat in London for automated processing in the equity markets.

The process before STP was very antiquated: sales traders would have to fill in a deal ticket, blue for buy and red for sell. The order was invariably scribbled and mostly unreadable. Upon receiving the order, the trader would often execute an incorrect investment on the market. A runner picking up the ticket to input the order into the system in order to send out a contract note. For example, if the client wished to purchase 100,000 shares, but the trader only executed 10,000, the runner would send out the contract for 1,000. In those days, there was a T+10 [[Settlement (finance)|settlement]] so any errors were "fixable". However, with the new introduction of T+5, the settlement arena changed, and STP was born. To reduce the exposurerisk of risk, failed settlement, there could only be one "golden source" of information and that it was the responsibility of the sales trader to be correct as they had the power to correct any discrepancies with the client directly.

The goal of STP is to reduce the time it takes to process a transaction, in order to increase the likelihood that a contract or an agreement is settled on time. The concept has also been transferred into other sectors including energy (oil, gas) trading and banking, and financial planning.<ref name=Investopedia>{{cite web|url=http://www.investopedia.com/terms/s/straightthroughprocessing.asp|title=Straight Through Processing - STP|publisher=Investopedia|accessdate=16 February 2012}}</ref>