Getting Smart with STP
By Jeremy Payne
October 24, 2004

Summary: Few banks have realized straight through processing’s full potential and understand how BPM can help them reap its benefits. Jeremy Payne argues the case for ‘smart’ rules-based STP.

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The argument for banks to implement straight through processing (STP) as part of their business processes is clear. Yet few banks have realized STP’s full potential and understand how BPM can help them reap its benefits. To get to grips with this hesitance you need to understand the complexities of the current malaise.

First, let’s overcome the misconception that simply increasing the percentage of transactions that are processed straight through is the sole objective of STP programs. That’s only one of the objectives. What about the transactions that don’t process straight through; that fall out of the automated processes as an exception for manual intervention? In most institutions, exceptions handling and investigations is still very manual, involving lengthy, complex processes that may take several days to complete. Manual business processes are simply not coping with the huge amount of exceptions, creating an increasingly large backlog. This is obviously having a negative impact on client relationships. Banks are continuing to invest huge amounts of money in handling exceptions manually, when in fact they should be investing in systems that improve efficiency, not systems that simply destroy it.

As well as the evident lack of control of investigations, by using such a reactive method of exception handling there is little or no opportunity for analysis of business processes. With no effective process analysis, banks only have a limited idea as to where problems exist. The task of addressing the causes of manual intervention is therefore unlikely to be fulfilled and problems will remain.

Problems of manual intervention
There is a multitude of problems associated with current manual intervention that is plaguing investigations and exceptions management. Manual solutions are both extremely time consuming and prone to human error. There is also very little recording of telephone enquires and logging of SWIFT-based enquiries. This obviously leads to time and money wasted on staff retracing their steps to the original transaction. In more extreme but realistic cases some transactions are even lost.

Staff compliancy also represents a major problem. The bad apples of the bunch are cherry-picking their work to address the easiest investigations to solve. More complex exceptions are therefore being avoided to chase staff targets, ultimately souring relationships with the bank’s clients. Further problems can come from invisible boundaries between a bank’s departments, with each department chasing their own targets and not the organization’s as a whole. Department exhaustion and investigations backlogs have become industry standard so banks are simply accepting it as part of everyday operation.

This is particularly surprising considering the increasing challenges banks are facing to meet the regulatory demands of legislation such as the Basel II Capital Accord. There is a firm emphasis on tightening the risks associated with cross-currency and cross-border transactions and a bank’s own internal methodologies. When STP can be applied to exceptions and investigations as well as the original transaction to simplify and organize investigations, reduce exceptions backlogs and produce an audit trail, the business case for continued manual intervention is extremely weak.

STP benefits are known, so why no investment?
For banks, like most other companies, to remain competitive they must be proactive rather than reactive in their business thinking. Forward thinking banks are starting to consider STP as the only viable option to improve investigations handling.