It is widely accepted in the banking and securities industries that higher levels of straight-through processing (STP) enable financial institutions to save costs, reduce their operational risks and improve customer service. However, each financial institution or industry body tends to develop its own understanding of STP, resulting in no single, authoritative definition.
For example, the European banks, in response to the EU Regulation on cross-border payments (in force since 1 July this year), have developed the Credeuro convention, which mandates the use of the MT 103+. According to this convention, the MT 103+ with BIC and Iban is mandatory in Europe, for the message to be considered STP.
Swift defines STP as "the handling of messages without resort to manual intervention or message repair, except for reasons of policy". Definitions given to Swift by its customer banks during STP Reviews vary, including "intervene as little as possible, receive the minimum of enquiries possible", "using your hand only once - preferably the customer's hand" and "straight through from customer to customer".
Despite the differences in definitions, two dominant issues emerge when designing STP solutions: message quality, which depends on the quality of the formatting and of the underlying information and message processing, which needs to be automated end to end.
Message quality
STP is often considered only in terms of bank-to-bank transactions that take place exclusively between banks and financial institutions. In this context, STP relies on the correct formatting of instructions or messages according to either an industry defined or proprietary standard.
According to the quality analysis made on Swift traffic, the two principal causes of low STP rates in payments instructions are: incorrect identification of the beneficiary bank and/or incorrect identification of the beneficiary customer.
Improving the quality of the message and the underlying data that is encoded will help to achieve higher STP rates. However, it will not address how the information in the message is captured and processed by financial institutions and relayed to parties further along the chain.
Processing quality
To obtain well-formatted instructions, financial institutions will often have to engage in costly manual processes, which can have a profound impact on STP as a whole. The quality of processing within the financial institution and the other parties involved in the processing chain from end-to-end need to be taken into account.
When analysing banks' operational efficiency, Swift has found that a "good messaging STP rate" does not necessarily mean that the related processing operations are conducted in a low-cost, risk-free and automated manner.
An inadequately designed system infrastructure or poorly designed or managed procedures usually require additional staff. In many cases, staff involved in payments operations are re-keying, searching and sorting information in disparate registries and databases because systems are not integrated or are incompatible.
Moreover, in most financial institutions staff members dealing with various functions related to payments are located in different workspaces and there is little, if any, communication between teams.
Improving message quality
Initiatives to improve message quality are closely related to the implementation and use of Swift standards. In recent years, Swift has implemented stricter message profiles, such as the MT 103 and the even stricter MT 103+, in order to increase STP levels.
Since 1999, Swift standards design has been focusing on modelling techniques and XML-based standards, next to the well-established FIN MT standards. This new methodology ensures that the formatting of the instruction meets the information needs related to a given transaction and that the data elements can be reused for a series of related messages, ensuring STP in the end-to-end transaction chain.
How these standards are deployed and how they relate to market practice has a significant influence on STP. One of the key activities of Swift's Standards Department is monitoring local, regional and international market practices and participating in discussions with other standards-setting bodies.
Message validation provides an essential link between the usage of the Swift network and the usage of Swift standards. It forces all the relevant players to adhere to predictable rules. The level of validation implemented on the Swift network reflects the various requirements of the Swift community, respecting regional and institutional needs. This is reviewed on a regular basis.
Enabling financial institutions to measure the quality of their messages is also important in achieving higher STP levels in the payments industry. Swift has developed analysis tools and benchmarking information, such as Transaction Watch, which was launched in 2001. Transaction Watch measures the quality of messages against a set of defined rules, based on established market practice. It can also benchmark an institution's performance in terms of traffic quality against worldwide, country or peer group averages.
Improving processing quality
To improve the quality of processing, Swift has focused on three areas:

• Raising the quality of applications that support Swift standards
  Software vendors play a key role in ensuring high quality payments processing. Swift's involvement with vendors includes ensuring that as many applications as possible support Swift formats. In addition, there are a series of labels that are awarded to applications that meet a clear and specific set of criteria. . These labels are referred to as SwiftReady, SwiftNet Ready and SwiftAlliance Plug-in labels, all of which are aimed at helping financial institutions to identify third party products that comply with Swift's format requirements.
• 
  Deploying end-to-end (XML) standards
  A fundamental objective of the methodology for the design of Swift XML standards is to take into account all the processes related to the transaction from end-to-end. This means that the syntax developed can be used by all parties involved in the transaction and encourages smooth interoperability of systems.
• 
  Conducting on-site STP Reviews
  Assessing the quality of a payments process is very simple in principle, but complex to implement. To overcome this, Swift has developed the STP Review service, in which a Swift team works onsite with a bank in order to evaluate levels of operational efficiency and make recommendations for improvement. During the past five years, Swift has conducted more than 60 STP Reviews in 16 countries. The reviews provide the opportunity to achieve structural cost savings. They also identify and suggest ways of mitigating operational risk and help banks adapt their operations - including not only Swift operations, but also non-Swift related processing such as cheques and domestic batch payments - to the market's best practice in terms of operational efficiency.

In conclusion, whilst definitions of STP may be markedly different, addressing the issues of messaging quality and message processing is a fundamental step in achieving an improved STP solution.