Straight through processing: What is it & what are the benefits for businesses?

STP has revolutionized traditional payment processing. By eliminating time-consuming and error-prone manual tasks, your business can achieve faster payment processing, reduced costs, improved accuracy, and more robust risk management.

But how does STP work, exactly? In this article, we’ll explain everything you need to know about STP, including how it works, its industry-specific benefits, and how it can help your business drive growth and deliver better results. We’ll also describe how you can streamline your payment processing with unified solutions like Checkout.com.

What is Straight Through Processing (STP)?

Straight through processing (STP) is an automated approach to handling business transactions, helping businesses quicken payment processing without sacrificing security.

By minimizing manual intervention, it can improve efficiency and reduce operational costs, making it particularly beneficial for business owners who want to optimize processes, increase productivity, and enhance customer experiences.

Unlike traditional card payment methods, STP is buyer-initiated rather than supplier-initiated. Also, in traditional payment workflows, there are often multiple manual steps involved in processing transactions, such as data entry, verification, and reconciliation, which can induce errors, delays, and additional costs.

STP removes or automates these manual steps, allowing transactions to flow seamlessly from initiation to completion without human intervention.

How does Straight Through Processing work?

STP works by automating and streamlining business processes, enabling seamless payment processing from start to finish. Here's a step-by-step explanation of how STP typically operates:

1. Data capture
   The process begins with the capture of transactional data. This can be done through various electronic channels such as online forms, mobile applications, electronic data interchange (EDI), or APIs. Your customers can enter the data directly, or it can be generated from internal systems.
2. Data validation
   Once the data is captured, it undergoes automated validation processes that verify the accuracy and compliance of the data based on predefined rules or business logic. Validation checks may include data format, consistency, and rule-based validations, and if any errors or inconsistencies are detected, the system flags them for resolution or rejection.
3. Routing and processing
   After successful validation, the transaction is automatically routed to the appropriate systems or workflows for further processing. This step involves the integration of different systems, such as order management, payment processing, or inventory management systems. The transaction is seamlessly passed from one system to another, with minimal or no manual intervention.
4. Exception handling
   In some cases, there’ll be transactions that need manual intervention. STP systems typically have built-in mechanisms to identify these exceptions, such as whether it’s sending funds to the intended recipient. The system either automatically resolves simpler exceptions or routes more complex cases to human operators for further investigation and resolution. The goal is to minimize the number of exceptions and keep manual involvement to a minimum.
5. Data enrichment
   During processing, STP systems can access external data sources to enrich the transactional data, which can improve the quality of the transactional information. This enrichment can include retrieving additional customer information, validating addresses, or performing credit checks.
6. Integration and reporting
   STP systems integrate with various backend systems, such as enterprise resource planning (ERP) systems, customer relationship management (CRM) platforms, or accounting software. The payment data is seamlessly transferred to these systems, updating relevant records and triggering downstream actions. Real-time reporting and analytics capabilities allow you to monitor transactional activity, generate reports, and gain insights for decision-making.
7. Confirmation and notification
   Once the transaction is processed, STP systems generate confirmation messages or notifications to inform relevant parties. These messages can be sent to customers, business partners, or internal stakeholders, ensuring transparency and providing real-time updates on the status of the transaction.

Compared to the definitions on this page, STP can have slightly different implications and requirements when applied to the insurance and trading industries.In the insurance industry, STP refers to the automated processing of insurance policies, claims, and related transactions, while in the trading industry, it’s all about the automated processing of trade orders, execution, and settlement.

Traditional payment processing vs Straight Through Processing

Traditional payment processing and straight-through processing (STP) are contrasting approaches to payment transactions. Traditional payment processing involves manual data entry, paper-based documentation, and other manual verification methods.

In the traditional method of sending money, the process involved multiple departments on both the initiation and receiving ends of the transfer, usually resulting in significant delays. To initiate the payment, individuals would either make a phone call or use a software program.

The payment settlement details would then be manually confirmed by people from both companies through phone calls, emails, or faxes, which would then be manually entered into a payment system and subsequently reviewed by a supervisor to ensure accuracy before the payment is released. This entire process, from initiation to settlement, could take several hours to a few days, depending on the complexity of the transaction details involved.

In contrast, STP is an automated approach that removes manual intervention. It leverages automated data capture, electronic documentation and communication, automated validation and approval, electronic payment methods, straight-through routing and settlement, automated reconciliation, and integration with backend systems for seamless data flow and real-time reporting.

STP delivers faster processing, improved accuracy, reduced costs, enhanced efficiency, and better customer experiences compared to the manual and semi-automated nature of traditional payment processing methods.

Examples of Straight through Processing in payments

These are the most common examples of STP in payments:

Payment authorization

In STP, payment authorization refers to the automated process of verifying and approving payment transactions, which involves validating the cardholder's information transaction amount, and running security checks against predefined rules or risk management systems.

Automated payment authorization ensures quick and secure processing without the need for manual intervention, reducing the risk of fraudulent or unauthorized transactions.

Automated payment routing

STP enables automated payment routing, where transactions are automatically directed to the appropriate channels or financial institutions for further processing. This includes routing payments to the correct merchant accounts, payment gateways, or acquiring banks based on predefined rules.

Automated routing ensures efficient and accurate processing, minimizing delays and errors that were previously associated with manual routing.

Payment settlement

Payment settlement in STP is the automated process of completing financial transactions, transferring funds, and updating account balances. It involves the transfer of funds from the payer's account to the payee, typically facilitated by the ACH (Automated Clearing House) or payment service provider. STP systems automate the settlement process, ensuring timely and accurate completion of payments without manual intervention.

International payment processing

STP plays a crucial role in international payment processing, where transactions involve cross-border transfers and currency conversions. STP systems streamline the complex processes associated with international payments, including compliance checks, anti-money laundering (AML) screening, regulatory requirements, and currency exchange rates.

Through automation, STP facilitates efficient and accurate international payment processing, reducing manual effort, and enabling faster transactions across different countries and currencies.

Know your customer (KYC)

KYC is when your business verifies the identities of customers in order to prevent fraud, money laundering, and other illegal activities. STP systems automate the KYC process by integrating with identity verification databases and regulatory watchlists, offering quick and accurate verification of customer identities, document authentication, and risk assessment.

Automated KYC in STP also ensures compliance with regulatory requirements while minimizing manual effort and expediting customer onboarding processes.

The benefits of Straight Through Processing

STP offers many benefits for businesses, including:

Automate payment processing

STP enables automated payment processing, which significantly speeds up transaction processing times. By removing manual intervention, these electronic payments are processed swiftly, reducing delays and improving overall operational efficiency. Automated payment processing also ensures accuracy and minimizes errors, leading to seamless and reliable transaction handling.

Improve operational efficiency

STP improves operational efficiency by streamlining your business processes and removing the need for manual tasks. Specifically, it removes the need for manual data entry, verification, and reconciliation, allowing you to allocate resources more effectively. With automated workflows and straight-through routing, your transactions should flow seamlessly, minimizing bottlenecks, and optimizing the use of resources.

Cut costs

STP systems can help your business cut costs by minimizing manual labor, reducing the risk of errors and associated costs, and streamlining workflows. With automated payment processing, your business can handle higher transaction volumes without the need for additional staff. Meanwhile, you can reduce administrative and operational costs by eliminating paper-based processes and manual interventions.

Reduce fraud risk

One of the most essential parts of STP is how it helps mitigate fraud. Automated validation processes in STP systems can include fraud detection mechanisms and compliance checks, in which they compare transaction details against your predefined rules, perform anti-money laundering (AML) screening, and cross-reference with accounts on watchlists.

Better user experience

STP contributes to an improved user experience for both your employees and customers. For businesses, STP systems offer faster payment processing, enabling prompt customer service and order fulfillment.

Meanwhile, your customers should experience quicker payment confirmations and seamless transaction processing, leading to higher satisfaction and brand loyalty. With STP, your customers can enjoy efficient and hassle-free payment experiences, leading to positive interactions with your business.

Which businesses should implement Straight Through Processing?

STP can be beneficial for a wide range of businesses across various industries. Here are a few real-life examples of businesses that can benefit from implementing STP:

Financial institutions

Banks, credit card companies, and other financial institutions can significantly benefit from STP, allowing them to automate reconciliation, payment processing, and transaction settlements.

All of these should lead to faster and more accurate financial operations. If you work in the financial sector, STP can help your business reduce operational costs, improve customer service, and bolster risk management and regulatory compliance.

Ecommerce companies

Online retailers and ecommerce platforms can leverage STP to streamline payment processes. With automated payment authorization, routing, and settlement, these companies can improve the efficiency of order fulfillment, offer faster transaction processing, and improve the buyer experience. STP also helps ecommerce businesses manage high transaction volumes, minimize errors, and reduce the risk of fraud.

Travel and hospitality

If you run an airline, hotel, or travel agency, you can use STP to improve the efficiency of booking and reservation systems and reduce processing times, resulting in better customer satisfaction. STP can also facilitate seamless international payment processing and currency conversions, which is ideal for catering to a global customer base.

Supply chain and logistics

STP is ideal for companies involved in supply chain and logistics. STP can automate payment routing and settlement to ensure timely payments to suppliers, while reducing delays and improving stakeholder relationships.

STP also enables real-time tracking of payment transactions, enhances inventory management, and streamlines order fulfillment, resulting in smoother operations and improved supply chain efficiency.

Healthcare providers

Healthcare institutions, such as hospitals and clinics, can benefit from STP by enabling faster claim adjudication, accurate payment reconciliation, and efficient revenue cycle management. By implementing STP, healthcare providers can reduce administrative burdens, improve cash flow, and enhance overall financial operations.

Streamline your payment processing with Checkout.com

By leveraging Checkout.com's STP capabilities, you can streamline your payment processing, increase efficiency, reduce costs, and deliver a superior payment experience to your customers.

How does it work? It couldn’t be easier. Our flexible global payments platform offers a comprehensive solution that allows you to accept payments from anywhere and access a wide range of local payment methods. With our regional expertise, you can capture more value in every transaction, increase sales, and optimize costs.

Talk to our sales team for more information about our integrated tool.