Straight-Through Processing (STP) Explained
In a perfect system, all payments distributed and received by a business would be accurately reported and require no human intervention. A customer would pay through an online portal, and the payment would be applied to an existing balance and/or would initiate a product delivery.
Straight-through processing aims for this payment utopia, and today we’re going to talk a bit about what straight-through processing really means and how your business can start applying its principles.
What is straight-through processing?
Straight-through processing (STP) is simply payment processing that is completely free of human intervention. The entire point is to eliminate all manual, and therefore physical, interactions that need to take place when conducting any sort of money transfer or payment.
By removing human touch, the natural benefits of STP automation include faster processing speeds, fewer errors, lower costs, and better service for customers.
There isn’t one way to incorporate STP transfers and automation to a business — each business’s path to straight-through processing is unique. It’s helpful to think of it more as an ideal as opposed to a process. Many businesses can benefit from adopting more STP protocols, and you should be approaching your payment system design with straight-through processing in mind.
Whether it’s automatic cash application matching to tracking and transferring secure routing information during wire transfers, there are a variety of system improvements you can make to reduce human touch in your payments flow.
Who uses straight-through-processing most often?
Corporations, large B2B businesses, and banks have the most to benefit from implementing straight-through processing automation since they handle the highest amounts of money. Creating unique payment solutions isn’t an easy or cheap task, and many of the savings presented by STP aren’t worth the opportunity cost unless you’re dealing with high transaction volumes and amounts.
Businesses of this size and nature usually have wide markets, and STP is particularly useful for international payments. When conducting wire transfers or other deposits across countries, the process is often slowed down by a variety of international, national, and local laws.
Instead of having humans check for credit and debit balances, STP software simply doesn’t work if the balances & requests aren’t doable. This reduces error and the risk of fraud.
What kinds of labor can STP replace?
Straight-through processing can eliminate the need for:
- Phone verifications
- Fax processing and document transfer.
- Sending wire transfer details across departments.
- Verification by supervisors.
- Any and all manual touchpoints during a transaction.
And the list goes on. Again, STP isn’t a specific system; it’s an approach to a system that is defined by a lack of manual interaction. The more and more you can reduce physical touchpoints, the less and less labor you have to use to accomplish certain actions. And that time adds up in big ways — especially when you stretch those benefits out over a decade and reduce small, repetitive tasks that interrupt critical thinking.
How do I get straight-through processing?
You can start working on straight-through processing internally and/or work with companies that specialize in it. In the end, your path to STP will involve stitching together multiple pieces of software.
Examples of companies that help provide or improve STP processes include:
- Merchant services companies
- Payment infrastructure consultants
- Cardmember Associations
These companies can help you streamline online invoicing by creating an automated matching system to apply payments to customer accounts, provide a secure customer vault to eliminate the need for customers and employees to communicate on repeat payments, and assist with many other STP processes.
By working with VISA’s STP program, you can eliminate the need to contact and pay your suppliers on a regular basis by using their secure processing. After you provide payment instructions to your bank, VISA will pass it through for processing and pay your supplier automatically for your shipments, and then VISA will send a secure receipt to your desired email address.
This will help you strengthen vendor relationships paying on schedule and gives you the power to initiate payments reliably & quickly.
On the other side, STP from a seller’s perspective can streamline your selling process and unlock better interchange rates for STP transactions. VISA also provides a lot of seller benefits like guaranteed payments and improves your PCI compliance by removing security risks from your hands.
VISA is just one such apparatus for employing STP automation in your business, but it could be a good place to start. Here are a few more tips on getting started with STP.
Tips for implementing STP in your business
1. Start with an internal analysis.
Talk with your developers and accounting team and figure out where your worst bottlenecks are. You want to identify the biggest areas for improvement. Ask your accountants what takes up the majority of their time and what manual processes they wish they could eliminate. Take that feedback and build an overarching picture of the structure of your payments.
Once you have that in hand, choose your top priorities and see if it’s something your team should handle internally or outsource. Then either designate a team to tackle the internal changes and/or finding an outsourced payments partner to help you.
2. Find an expert if needed.
If you don’t have a resident payments expert on your staff, then working with an expert could help you find issues in your system you aren’t aware of and help you build a more comprehensive straight-through processing system.
You could also start with your existing payment partners and ask them how you two could work together to improve your payment flow. If your partner is unresponsive or doesn’t want to engage in this project with you, then it may be time to consider a new provider — the best ones feel like partners!
3. Remember STP doesn’t happen overnight.
The path to STP requires consistent and long-term effort. That’s why you need to create a priorities list and work from there. By starting with the highest impact items, you’ll see more of the positives and motivate yourself to continue adopting STP practices.
4. STP isn’t always possible.
Manual payments for most businesses will still be a necessity, but we encourage you to look at optimizing them to the extent of your abilities. Whether it’s using lockbox services or accepting more payment types to reduce physical payments, there is almost always room to better your payment processing.
The bottom line on straight-through-processing
Straight-through processing is an approach to payment processing designed to eliminate human touchpoints. By limiting or getting rid of manual payment processes, your business can save money on labor, reduce fees, and provide a better customer experience.
STP is a journey, but by outlining your payment infrastructure and utilizing existing STP solutions or developing your own, you can work your way toward a more automated payment system.
Tidal Commerce uses STP-focused software to deliver the best payment processing and merchant services on the market.
Our payment experts work with your company to install unique, efficient merchant services that improve your customer experience, reduce your fees, and boost your ROI. From contactless payments, to ACH, to the best online gateways, to a diverse set of third-party integrations, we help build the best STP system available.