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In the previous article, we have already seen what straight-through processing is and how it is different from the usual commercial lending processes adopted by commercial banks. We now know that straight-through processing is a futuristic technology-based business model which all commercial banks are working towards.
Right now, the model is not used in many places. However, given the speed of technological advancement, it is highly likely that this model will gain traction within a short span of time.
Hence, it is important for the commercial banking industry to be completely aware of the functioning of this technology. The straight-through processing model needs to be scrutinized before it is adopted.
Before any commercial bank decides to adopt straight-through processing, it is important for them to understand the pros and cons of adopting this model.
The end result is that the operational cost is significantly reduced. This reduction in operational cost either allows the commercial bank to increase its profits or they can reduce its lending rates and capture a larger market share! Hence, straight-through processing plays an important role in the strategic management of commercial banks.
Also, straight-through processing requires the creation of a single database. Hence, the system supports data coherence. Also, regulatory compliance can also be automated by enabling sharing of data.
The process is designed to be touchless and automated. Hence, the system is designed in such a way that it can obtain the required information from a centralized database and can function without human intervention.
Since straight-through processing allows for extensive capturing of data, it can be said that it plays an important role in the research and development process as well.
Straight-through processing is associated with a significant reduction in the processing time required by commercial banks. It is for this reason that straight-through processing is considered to be a competitive advantage by many commercial banks.
Straight-through processing is a marvelous technological innovation. However, it also has its own drawbacks. Some of these drawbacks have been discussed below:
The commercial bank is expected to add several layers of software to integrate the system and allow for smooth transmission of data between the different systems. The problem with a complex system is that it can be expensive and time-consuming to fix once it breaks down. Hence, outages in the commercial banking system can prove to be very difficult to handle.
The fact of the matter is that straight-through processing has more pros than cons. This is the reason that this technology is likely to flourish and become mainstream in the near future. However, this does not mean that there are no issues.
Commercial banks will have to ensure that the significant drawbacks associated with straight-through processing have been mitigated before it is rolled out on a large scale.
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