STP enthusiasm wanes as firms question ROI

STP enthusiasm wanes as firms question ROI

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 last week.

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.

In particular, executives remain unconvinced of the case for central trade matching - a key tenet of the T+1 programme. The Global Straight Through Processing Association, formed to develop a shared industry utility for post-trade processing, was forced into bankruptcy late last year due to lack of enthusiasm among fund managers. Rival matching utility Omgeo has since struggled to capitalise on the demise of the GSTPA.

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, manual processes are still prevalent. 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.

While costs savings are cited as the most influential benefit arising from STP, firms have mixed ROI expectations. Respondents projected that the average cost of doing business would drop by one-third, while average labour costs would fall by 39% due to workforce reductions.

However, soft or secondary return on investment (ROI) was considered equally important, including improved customer service, improved internal information flow, faster query resolution and opportunities to cross-sell to existing customers.

Another finding of the survey was that 51% of respondents expect gross revenue to grow as a result of STP. However 35% were unsure of when ROI goals would be achieved.

"Firms implementing STP must establish and understand ROI expectations to be effective," says David Furlonger, vice president and research director for GartnerG2. "The continual expression of concern raised by business leaders over the value of IT emphasises how dangerous it is for financial services providers to rely on perception of return rather than fact. Understanding and calculating ROI from both a business and IT perspective will help focus providers on their long-term value propositions and prevent expensive and potentially catastrophic mistakes."

A PDF of the full survey results can be downloaded here: www.sia.com.

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