Technology is fuelling a fast-paced culture and the payments space is no exception, with clients increasingly expecting speed and efficiency to be integral components of their transactions. Ross Jones, Product Line Manager, Global Payments, Treasury Services EMEA, BNY Mellon, discusses how straight-through processing (STP) addresses these needs and how 100% STP rates are possible with the right strategy in place.
Technology advancements are transforming the finance industry, enhancing speed, convenience and transparency. The pace with which these new developments are unfolding and the extent of such change is subsequently driving expectation for change itself; for solutions that improve and improve again. This is true for banks’ clients and the banking industry as a whole, with banks increasingly exploring the possibilities of fintech and investing in innovation.
The blockchain is dominating headlines in this respect; its distributed ledger properties potentially have the ability to alter the entire payments process as we know it, and it is subsequently attracting huge levels of interest. Indeed, it has been predicted that US$1 billion will be spent by large financial institutions on the blockchain in the next two years. Yet the concept is still very much in its nascency, and there is uncertainty regarding how it can support corporate payments.
It is therefore important that banks simultaneously invest in strategies that are accessible and able to be harnessed now; capable of addressing client needs and adding value to their transaction experience today. With speed and efficiency fundamental in this technology-fuelled world, and with global payment volumes soaring – propelled by emerging-market strength – banks need to ensure they can support such capabilities, allowing clients to transact with ease and maximise global payment opportunities.
STP: a work in progress
Key to this is an effective, automated end-to-end processing system – the somewhat-overlooked but hard-working engine that lies beneath the shiny hood of global commerce. Ideally, such a system should eradicate unnecessary delays and enable transactions to take place seamlessly.
Of course, straight-through processing (STP) is already a key bank offering, designed to ensure end-to-end payment settlement occurs as efficiently as possible (ideally without the need for any manual intervention), thereby reducing transaction times, as well as settlement risk and operational costs.
Certainly, STP has been extremely effective in improving overall transaction speed, yet many transactions (cross-border payments in particular) remain subject to unnecessary delays due to incorrect or missing information. When such instances occur, the payment is often rejected and rectification (such as data re-entry) is required. Not only does this result in inconvenience for the client, but needless costs can also be incurred if, for example, beneficiaries claim for non-receipt, interest charges and late shipment of goods.
Continued investment into STP optimisation and the prevention of payment exceptions is therefore paramount for maximising processing efficiency – and supporting the increasing volume and complexity of global payment flows.
Prioritising efficiency; prioritising STP
This can be achieved by adopting a pre-emption strategy based upon knowledge and technology. The first step is to educate and support businesses in gaining a clear understanding of the fundamental requirements of country-specific payment guidelines; working together to ensure clients feel confident regarding the input of essential information to help guarantee a successful payment first time.
More importantly, however, it is advisable for banks to create a safety net within their own systems; a means of catching any incorrect or incomplete transactions before they reach clearing. Ever-evolving technology capabilities are facilitating such payment format validation techniques. This helps to identify errors and omissions, enabling rectification prior to the payment being sent, thereby saving significant amounts of time and helping to prevent costs incurred through beneficiary “delayed payment” claims.
Optimising STP in this way will be particularly advantageous in improving efficiency when transacting with countries such as Russia and the Philippines, where payment rules and requirements are particularly intricate. What’s more, especially in the case of the most widely-used currencies such as euros and US dollars, this pre-emption strategy could even enable 100% STP rates to be realised.
Fintech is helping to drive increased competition across the finance sector, which means adopting a client-centric approach is all the more vital. And with efficiency a key client requirement – and globalisation driving trade volumes and cross-border payments – banks must be able to facilitate effective, automated, end-to-end payment processing irrespective of currency, and strive to achieve the highest possible rates of STP. By providing faster payment execution and minimal exceptions, banks can enhance clients’ working capital and cash management capabilities and add significant value to their entire transaction experience.
The views expressed herein are those of the author only and may not reflect the views of BNY Mellon. This does not constitute treasury services advice, or any other business or legal advice, and it should not be relied upon as such.