What is Straight Through Processing?

Mary McMahon
Mary McMahon

Straight through processing is an automated approach to payment processing used in the financial world for activities like handling trades at brokerage firms. This approach streamlines and accelerates the process, making same day processing a possibility and reducing many of the risks associated with financial transactions. It requires the use of automated systems at each stage. Such systems are not universally available and thus, straight through processing is not always an option for a transaction.

Man climbing a rope
Man climbing a rope

In straight through processing, the details of a transaction are entered initially into an electronic system. Automated functions take over, sending the details down the line to parties involved in the transaction. This data can be transmitted in a very short period of time and no human beings are required to enter or doublecheck the information, with the computers handling all of the details. This allows the transaction to be processed extremely quickly. If there are legal restrictions on how transactions can be performed, a human may be required at a particular stage to ensure that the transaction is compliant.

One advantage to using straight through processing is that it reduces transaction risk. All parties involved must provide payment immediately and also submit the materials being sold instantly. This reduces the risk that a transaction will not be completed properly. In addition, the instantaneous nature allows for real-time pricing and feedback, allowing people to get better prices on transactions. The use of automated systems cuts down on transaction costs as well, allowing people to pocket more of a profit on their transactions.

The removal of delay puts the settlement date on the same day as the transaction. For both buyers and sellers, this is a distinct advantage. Under older payment processing systems, it could take as many as three days to settle and finalize the transaction. Intervening events could cause problems with the transaction, ranging from misunderstandings about funds availability to people backing out of contracts after the fact.

Systems used for straight through processing are constantly under improvement. The systems must be highly accurate, stable, and secure to ensure that they will process transactions safely and in a timely fashion. Failures of automated systems can create a ripple effect as transactions back up. Companies that provide such systems usually offer 24 hour support to their customers, with on-call technicians available to address problems rapidly by fixing the system or providing alternate methods of transaction processing while the system is inspected and restored.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a wiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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