Most technology is not new – it has simply just been wrapped up and marketed better than the business before and this is the case with ‘straight-through-processing’ or STP.
STP broadly refers to the way businesses strip out manual processes or physical activities and so they can be digitally automated end-to-end.
The holy grail for banks, STP is used to automate and remove manual intervention in payments, increasing accuracy and reducing head count and costs. The former CTO of Westpac once described it as ‘exception based processing’ i.e. humans get involved only if automation flags something out of the ordinary.
Former Fed Chief Paul Volcker once famously said. “The only thing useful banks have invented in 20 years is the ATM”
The ATM is an early example of STP that provided consumers with a new way to interface with banks in turn reducing thousands of staff in hundreds of branches.
Straight-through-processing & Fintech
‘Open banking’ or ‘API banking’, is one of the truly game changing advancements in the fintech industry. If mandated in Australia, as it has in Europe, it will significantly increase the STP within the SME and corporates sector, allowing businesses to become leaner and more competitive.
Open banking will allow fintech’s to access banks customer data, allowing them to build user interfaces on the top of bank infrastructure (imagine using Facebook or Google to pay your bills).
Before now, banks have typically created financial silos and forced customers to use financial data only in their service. However, customers are increasingly using third party banking apps, or other financial services that are not offered by their own bank.
Open banking has the possibility of creating a tsunami of new products and service offerings allowing any fintech to eat the banks lunch!
Illustrating the possibilities in small business banking, is accounting software superstar Xero who will soon have daily direct account transaction feeds for some 100 financial institutions Globally. These bank feeds facilitate the automatic bank reconciliation feature in Xero, which in a recent survey of Xero partners, 71% said is their favourite feature on the platform.
For corporate customers – only beginning to accept the virtues of cloud software – are also now expecting to have the same access to instant banking facilities, enabling them to interact with the bank directly and other financial services providers from their enterprise resource planning (ERP) or legacy systems.
One banking product that is calling out for greater STP is business foreign exchange (FX) where data is kept in multiple disparate locations (ERP, bank, spreadsheet) and where businesses typically have multiple providers.
The process flow for a business with multi-currency needs entails downloading reports from ERP in to spreadsheets, contacting their bank to get a report on their open positions, manually entering payments in to online systems and speaking to FX dealers on the phone to take out hedging contracts. This manual, clunky process could be significantly automated using STP.
The loans and mortgage industry is another Bank ‘white-whale’ for STP where there is massive opportunity to take both consumers and banks out from underneath a mountain of paperwork and dramatically improve the user experience through digitisation and automation.
Open banking and the advancements in API’s in the financial services industry have the potential to massively increase the use of STP by SME’s and Corporates – technology once only available to large institutions. Its impact will allow businesses to become leaner, more agile and free up resources so they can better compete in the global marketplace.