Payment STP Through High Quality Data
With extreme fluctuations in the stock markets and the uncertainty of worldwide economies, business are under pressure to cut costs, optimise performance and improve their bottom line. To achieve this, many companies are focusing on attaining the most beneficial commodity available – high quality bank routing reference data. Having poor data quality can adversely affect the performance of an organisation and, in the end, may be the deciding factor in a sink-or-swim business atmosphere. With the financial industry moving toward nearly 100% electronic transactions and facing countless new regulations on a regular basis, achieving high payment straight-through processing (STP) rates, which enable automated transaction processing, has never been more important. Payment STP is not an optional business enterprise; it’s a necessity and, therefore, so is having the highest quality data in order to achieve it.
With a growing dependence on information, it is disquieting to see how little businesses are doing to manage their data. Many organisations are not placing sufficient resources behind these processes and falling behind on new regulatory requirements. With countless new regulations, and directives such as the single euro payments area (SEPA), which requires frameworks, rules and standards for euro payments, bank routing reference data management has become more than just a full-time job within many financial institutions. Organisations find it challenging to dedicate the resources necessary to make sure their data is accurate, let alone enrich or improve it. This creates lower quality reference data, which can cause a high percentage of transaction errors – negatively impacting a financial institutions’ payment STP rate.
Costly transaction errors are largely caused by manual gaffes – the lack of bank routing data standardisation within an organisation, not spending enough time and resources on high quality data management and/or a lack of automation. The manual errors are largely composed of the transposition of numerals and letters of the routing codes, data format errors, transaction messaging data in wrong fields, invalid data, etc. – in other words, mistakes that can be avoided.
While it is difficult to measure the true costs of poor data quality, the key to payment STP is to concentrate on high quality bank routing data management. Obtaining bank routing data from experts for whom this is their core focus ensures higher payment STP rates and allows your organisation to focus on what you do best – providing quality products and/or services. Having an automated outsourced data management group standardise and centralise your data allows you to increase your efficiency while reducing risk, saving time and money and increasing payment STP.
Vendor-provided data of critical bank routing codes not only manages and supplies data. Since supplying data is a huge industry in and of itself, vendors must stand out from the crowd and provide other services. Many of these companies consolidate, validate, scrub and enhance reference data. In addition, they might also provide ongoing support, technology, additional applications, performance measurement reviews and many other services.
With regard to financial transactions, it is vital for bank routing data to be accurate, timely and accessible. High quality data means having the best data management technology that is up-to-date and current with industry standards. The data files must be able to transfer without any interruptions. Data scrubbing, accuracy and meeting standard regulations is imperative. The list goes on. The fact is that high quality data is something that is usually transparent. When a transaction goes through without any bumps, something is working. The key to understanding the importance of good quality data lies with an examination of the costs and benefits associated with bank routing data quality. Fewer problems and higher payment STP rates is a sign of a good, high quality data vendor.
Making sure that you have necessary data is really only half the battle. A financial institution must have mechanisms in place to understand what it is that data is really telling them and how that information impacts its usability. To illustrate this point, let’s examine the Bank Identification Code (BIC). According to the website of its registration authority, SWIFT, the BIC is “a unique address which, in telecommunication messages, identifies precisely the financial institutions involved in financial transactions.” BICs are used to identify SWIFT network participants as well as non-participants – SWIFT network participants have ‘connected’ BICs while non-participants’ BICs are ‘unconnected’. To facilitate euro payments in SEPA, the payment instruction must have an International Bank Account Number (IBAN) as well as a connected BIC. To achieve this necessary mapping, an IBAN needs to be parsed to ascertain the bank routing code. Then, this bank routing code needs to be matched with the proper SWIFT-connected BIC. In the various countries using IBANs, there are roughly 220,000 bank routing codes associated with financial institutions. Across those same countries, there are only about 62,000 BICs and, of those, only about 20,000 are connected. So, in this example, it’s clear that simply having the reference data is not enough. An organisation must know what the various data elements represent, how they are related and how they need to work together in order to produce payments capable of straight-through processing.