STP: Automatic or manual drive -- which would you choose?

Straight-through processing initiatives in securities industry back offices are stalling in the absence of an industry-wide compliance deadline and clear ROI, according to a Securities Industry Association panel convened in New York in August. Aneet Shah comments in this IT-Director.com column.

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STP: Automatic or manual drive -- which would you choose?
Straight-through processing initiatives in securities industry back offices are stalling in the absence of an industry-wide compliance deadline and clear ROI, according to a Securities Industry Association panel convened in New York in August. The panel heard that scepticism among securities industry executives about the assumed cost-benefits of STP and the scrapping of the SIA-mandated T+1 deadline had slowed progress in back office automation projects.

The New York meeting was presented with the results of a joint GartnerG2/SIA survey of 184 financial services providers in 21 countries worldwide about their STP initiatives. The survey revealed that although two-thirds of respondents have launched at least one STP initiative or are planning one by year-end 2003. Forty-two percent of all transactions continue to be paper-based and almost 40% of firms manually enter data at least twice for the same transaction.

Despite a slackening in the pace of reform, STP investments are continuing. The survey showed that some organisations, particularly in Europe and Asia/Pacific, plan to spend one-quarter of their total IT budgets on STP this year, and a majority of respondents anticipate STP-related spending will increase by 21% in 2004.

The panel seems to have interpreted the results as an indicator for lack of enthusiasm for automation of processes within the industry based on the fact that there is no industry-wide compliance deadline, such as the T+1 deadline and there is no clear ROI.

On the first point about lack of compliance - what about Basel II and in particular operational risk management? Although there is still debate about certain aspects of the new Basel Accord, it is inevitable that this will come into force. It has opened the eyes of financial institutions to reviewing their business models, infrastructure and processes - will this not lead to STP related projects?

The other point is about the lack of clear ROI - I think it is not the lack of clarity but more the lack of tangibility of some the benefits and the timeframe for the benefits to be realised. The most obvious benefit is cost savings in terms of resources, better product pricing and application management but there are soft benefits that indirectly increase the value of the business, such as improved customer service, improved internal information flow, faster query resolution and opportunities to cross-sell to existing customers. Any financial institution considering STP must establish the business case and value proposition before making the investment. This will set the expectations for both the business and IT functions.

In my view, STP investment can be likened to the decision one makes when buying a car - should I buy an automatic or a manual? The answer depends on the usage and affordability- if you are going to be using it in heavy traffic conditions involving many gear changes would you not be better of with an automatic? Similarly, for larger firms involved in complex business and volatile markets STP has to be the way forward, if you are a smaller player you would find it difficult to justify the spend to automate all your processes. BUT like in the front office, with the introduction of order routing systems with evolution and time automation in the back office will come to the smaller players as well as these solutions become more affordable.


Copyright 2003. Originally published by IT-Director.com, reprinted with permission. IT-Director.com provides IT decision makers with free daily e-mails containing news analysis, member-only discussion forums, free research, technology spotlights and free on-line consultancy. To register for a free e-mail subscription, click here.

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