The Holy Grail of the tech boom - according to some ironic historians with selective memories - was the paperless office. It was a noble aim that has never quite come to fruition. Straight-through processing (STP) is an ancestor of this ideal and has evolved, when properly implemented, into an extremely useful way of improving the handling of large volumes of data. Although not a brand new concept, it has recently gained ground among profit-pressured companies looking for new ways to squeeze out inefficiency from their data handling.
Paper forms no longer stay in hard copy format for long at Kaz Business Services (KBS) in Australia, for example. After being opened, mail - in particular, notifications of superannuation contributions from employers representing more than four million employees - is scanned, fed through an OCR (optical character recognition) engine, and used to generate transactions that are automatically processed according to business rules. In an ideal situation, the transaction is processed and entered into the system completely without manual intervention.
Capitalising upon STP has been a key focus for KBS, a business process outsourcing (BPO) provider that bought out giant Australian Administrative Services in 2000.
By using systems to enter and process information from standardised forms, the company has been able to automate menial data entry and re-task staff that would otherwise have spent their days in the fog of data entry.
A successfully operating STP environment has reduced KBS's administrative costs, giving it a competitive edge in a BPO market where a growing number of companies offload paperwork to providers so they can focus on value-added tasks like investing. "With STP and OCR technologies in large volumes, we've been able to achieve very high cost savings," says Brian Peacock, head of IT at KBS. "The other benefit is quality: With less human intervention we get a greater success rate. Efficiency is becoming a major factor in superannuation and STP is vital to achieving that aim."
Taking the STP concept even further, KBS recently rebuilt its website to give its customers self-service capabilities. Online access to application information, status reports and other relevant information completes the STP cycle by allowing superannuation forms to travel from employer to KBS and back again - in summary or as detailed reports - with no more human intervention than the simple act of opening a letter.
Red tape removal
Red tape-plagued financial services and superannuation industries have been early to jump on to the STP bandwagon. In some cases, it's simply to reduce their own costs.
Others have used STP to produce a competitive advantage by improving the speed of financial transaction settlement from the current T+3 (three days after the trade) to T+1 (next day).
Long a stated goal for the global financial services industry, T+1 processing has been an elusive one as each trade involves manual processing overheads, compliance checks and the inevitable complexity of gathering enough information to confirm transaction integrity. This process has been hard to compress into a 24-hour timeframe. The problem is so significant the US Securities Industry Association recently backed away from a 2005 mandate for T+1 processing across the entire industry.
Challenger Wealth Management in Australia has found a way to T+1 after spending years reworking its back-end transaction processing systems. The company - which administers more than A$11 billion on behalf of 100,000 plus Australian investors - is in the final stages of building a straight-through processing environment that will help it meet industry best practice and achieve the T+1 Holy Grail.
Getting there has required a considerable amount of work, particularly around the implementation of the SimCorp Dimension back-end system. An integrated solution that encompasses financial management esoterica ranging from treasury and funds management functions, Dimension was implemented as Challenger pulled its back-end processes in-house after years of outsourcing them.
Its goal: To gain better control over its data, simplify administration and improve its competitive positioning in the market.
In a company like Challenger, a major function of the systems is to ensure transaction integrity: To confirm orders for purchases and sales come from the right people, that they don't violate existing business policies and legislative requirements, and so on. Given historical variations among the technological sophistication of the many industry players, paper and fax have been de facto standards of communication for years. This is a major contributor to the persistence of the T+3 time frame.
However, by consolidating its data into a single repository under Dimension, Challenger has been able to automate most of that information exchange. Post-trade compliance checks now flow through the STP system's automated workflow processes according to carefully defined business rules; exceptions are flagged and resolved by human beings.
"The biggest benefit is the mitigation of risk," says Graham Moore, head of investment systems at Challenger Wealth Management. "By moving to an exception handling basis rather than having staff running processes, your error rate drops down and risk drops.
It also positions us for growth: If we need to process large volumes of transactions for funds, an STP environment will enable us to get there a lot faster and to assimilate that growth."
The path to STP
Implementing an STP system requires a lot more than installing a specific product, however. Many niche providers of superannuation systems, for example, advertise their STP capabilities widely. But successfully implementing such a system also requires a well thought-out infrastructure that includes a single, centralised data store; a transaction message broker capable of directing traffic through the STP environment; and customised links to esoteric data sources and destinations including the global SWIFT financial transaction network.
Off-the-shelf STP platforms may provide these links to commercial services, but picking a platform is the last priority. While STP implementations can be completed in three months, even getting to the starting blocks can require companies to go through an excruciating and often revelatory process of introspection.
For an automated system to be able to perform business processes such as account creation and credit scoring, you need to have a crystal clear understanding of just what your company's business rules might be.
To keep accuracy high, it's also im-portant to understand at what point the system should give up trying. In a properly designed environment, STP handles the majority of transactions but also knows when to pass a case file on to a human agent for completion. Relying on the system to make decisions about the content of unclear data will, in the long term, produce unclear results and undermine the entire point of the STP exercise.
In a way, STP is an outgrowth of the enterprise application integration (EAI) market that has been quietly subsumed into application architectures throughout the years. Just as integration was essential to the success of enterprise resource planning (ERP) systems, it is critical to the straight-through flow of information through a business process.
While it's been popular within the financial services industry, however, STP isn't only about esoteric back-end processes. AMP Financial Services, for one, is building STP capabilities around a Siebel eBusiness Applications-based customer portal. AMP uses the system to capture and process both quotations and applications for AMP products in real-time.
Upstart banking provider ING Direct, for its part, has been working with consultancy AlphaWest to automate the handling of customer applications that, given the company's lack of physical outlets, involved the cross-correlation of information from a variety of customer-supplied and commercial information sources. Accounts are created automatically, with missing information flagged and referred to call centre operators who contact customers directly.
By modelling business processes in STP systems, STP can also be a major driver for business change by supporting the introduction of additional products. Since the business rules are already encapsulated, new products become variations on a theme rather than completely separate entities requiring new systems. This improves responsiveness and competitiveness in industries where a few margin points can translate into huge savings.
The in-house curse
Although it's been within the financial services argot for nearly a decade, STP has been difficult and time-consuming to implement, largely because the lack of out-of-the-box systems means it requires considerable in-house development effort. This, in turn, has led many managers to baulk at the thought of the actual business change required to make STP happen.
Certainly, in both scope and cost, STP has the potential to become a major issue within companies. But a careful, measured approach can deliver benefits for a select range of business processes, with gradually expanding scope seeing improved benefits over time. As KBS and other companies are finding, the addition of web self-service can be important in completing the loop by giving end customers direct access to the fruits of the STP process - in real-time.
"We like to think of it as the virtual cycle," says Patrick Liddy, head of sales, marketing and strategy with National Custodian Services (NCS), a division of the National that handles more than A$350 billion in assets on behalf of a range of customers.
Years of in-house development have given NCS a highly automated STP environment where paperwork is automatically processed, with information forwarded to external bodies as necessary. Companies like AUSMAQ have attempted to build centralised hubs that would facilitate interoperability between different industry players, but difficulties in achieving consensus on data standards have stalled such efforts.
In the meantime, STP remains a highly internalised and customised solution. And while Liddy concedes it's unlikely paper will be eliminated any time soon, he believes that the right STP environment can take away most of the rest of the pain.
"It's the interfacing that's really the important thing of making those technologies work together as one unit. Information goes around and it's all electronic," says Liddy.
"We can take [transactions] right from the settlement, all the way through to the multi-currency system and into the data warehouse, to the registry system, then publish it on to clients' websites - and it's done on a daily basis. We couldn't do that unless it was STP; that's where STP is the nirvana."
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