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Straight through processing implementation : Some case studies

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Competition is coming from new providers of Banking services. Electronic channels have created new entrants in the banking arena, including insurance companies, brokerages, retailers, technology providers, and other non-bank commercial companies.

Although Banks are also exploiting the low-cost electronic channels being tapped by non-banks, notably the Internet, banking companies remain burdened by the costs of maintaining branch networks and legacy systems. To compete, Banks must change and diversify into new fields of business, while at the same time, they are forced to enlarge the scope of services they support.

In order to keep a competitive edge and therefore to be in the position to answer new business opportunities, Banks have to ensure that their message processing capabilities remain very flexible and easily upgradable. Moreover, processing capabilities must remain secure, consistent and cost-effective.

The effect of implementing automated repair of messages for STP can be clearly measured through an analysis of the increase in the rate of automatically processable messages. When such an analysis is performed on payment traffic either within a Financial Institution, or by its correspondents, after the implementation of automated STP repair, significant levels of improvement are revealed. The consequences of this improvement are an increase in efficiency,

a money-saving due to a decrease in manual interventions, and a decrease in charges from Correspondents for manual processing.

Back-Charges to the U.S.
The savings in terms of labour costs can be very significant - with either significant direct savings in the head office, or decreased manual intervention required in branches - depending on the organisation of the Financial Institution in terms of processing architecture (centralised or de-centralised). Of course, back-charges from correspondent financial institutions are particularly sensitive to the implementation of automated STP repair. For example, unqualified messages to the United States may incur costs of about 10,- USD per message - up to as much as 20,- USD - depending on the correspondent Financial Institution. Therefore, if automated STP repair can increase STP qualification rates to the U.S. from 25% to 75% (very reasonable figures, with 80-85% being frequently achieved), back-charges from the U.S. are decreased by 2/3. For financial institutions with high-volumes to the U.S., these savings are very significant; consider: only 80 messages to the U.S. per working day - 250 working days per year - 75% unqualified - at an average cost of 10,- USD per unqualified message = 150.000,- USD per year. Thus, savings of 100.000,- USD per year is achieved (only considering back-charges from U.S. correspondents).

Eliminating STP: Straight-To-the-Printer
When a British Uuser of our STP technology in London chose to acquire automated STP repair, incoming SWIFT payments were being processed "Straight-To-the-Printer". There was no significant benefit in translating the incoming SWIFT payments from one system, into the internal format of the payment application on another system, when high-levels of operator repair (incoming STP rates were approximately 25%) and validation was required, for processing by the payment application. With the introduction of automated repair, the user observed a significant increase in the number of incoming payments that could be processed straight through - to approximately 75%. Thus, the user has taken this opportunity to implement an electronic link between its SWIFT message switch and its payment application - providing an intelligent connection for the large volumes of payments that no longer required manual repair.

Return on Investment
Cost justifications and pay-back analysis of the implementation of automated STP repair products are easy to carry out. A German user's implementation of our STP technology in Frankfurt, in three separate STP systems within three different processing environments (Incoming SWIFT payments, Outgoing SWIFT payments, and National-formatted payments), underwent pay-back analysis. The total of internal and external costs of the financial institution (for all three systems) was paid-back in less than 3 months of operation.

Integration and Connection with Legacy Systems
The implementation of STP products must be achievable within the actual processing environments of financial institutions - both for Legacy systems and modern-IT architectures. The need for financial institutions to integrate these disparate processing environments is increasingly large. In many cases, financial institutions are re-engineering their business processes. Middleware solutions have a significant potential to improve the integration and connectivity. The goal of middleware solutions in this context is that connectivity is more manageable, implementation is reusable, and data exchange can be more suited to the business requirements.

The automated conversion of formats of messages exchanged on various external and internal networks is an absolute requirement. Software that can automatically perform format conversion between the format received from the ordering customer and the format necessary for onward processing is necessary. As described above, the possibility that the conversion is based on content provides financial institutions with greater flexibility.

Intelligent format conversion allows financial institutions greater flexibility in the formats that can be received from their customers and automatically processed by their own applications, the first step in End-to-End Automation. In most financial institutions, existing systems are designed to process messages or files, in particular, proprietary messages that comply to pre-defined formats and standard conventions. In most cases, formats and conventions are hard-coded or strictly codified in tables which implies that any functional modification remains expensive and insecure. By introducing content-based message processing to automatically convert, to validate, and to codify these messages within a secure, highly flexible and user-friendly system, financial institutions will reduce the percentage of messages that will require manual handling; they will reduce enormously the possibility of errors; and, moreover, they will decrease the development time that is usually required to implement a new functionality, a new message, or an updated format.

Some amount of intelligent processing is required to ensure the integrity of the message content. Many financial institutions are considering including the integrity checks at the level of the customer interface (at the customer's location or at the financial institution). These integrity checks would generally be limited to verifying the validity of codes and references in the message and the correctness of free-text references mentioned by the customer. This "minimum" check allows the financial institution to be pro-active - informing the customer during customer input or at the time of input into the financial institution's systems, if there is a problem in the information that would require manual intervention for processing and risk delaying the processing of the order.

Intelligent Processing Systems represent the most secure way to achieve the best STP rate within a financial institution. Numerous global changes are influencing Banks in the lead up to 2001. Technology is evolving at its rapid pace. "Technology is the business." Competitive pressures, consolidation, and sophistication of customer requirements are forcing Banks to manage costs more efficiently. The Internet is influencing the way that Banks, Corporates, and private customers live and work; global growth has brought strong industry growth. The multiplicity of external electronic networks and the format requirements of external service providers are key issues in the Bank's strategy to integrate IT and Business Strategies. To keep business competitive the STP issue for finanacial institutions is no more a need, rather nowadays an absolute necessity.

Patrice Vogt
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