Chase to Offer Full-Service EDI
Attempting to jump-start a new method of handling corporate business, Chase Manhattan plans to offer a service designed to increase the use of its computers for cash management.
The service, the most comprehensive of its kind, will make the bank a central point in the swapping of electronic documents and payments between corporations.
Cash management banks are scrambling to increase the adoption of a little-used payment service called electronic data interchange, or EDI. In this service, a bank sends or receives electronic funds coupled with electronic invoices.
Pioneer Among Money-Centers
Chase is the first money-center bank to declare it will send and receive all electronic trading information, including invoices and purchase orders - a service typically provided by an outside communications company.
"Over time, an increasing portion of commercial transactions will flow through electronic payments, as opposed to checks," said Jack Rosenstock, senior vice president at Chase, which considers cash management a core business. "Our goal, with no uncertainty, is to be the leading EDI bank."
Some bankers applaud Chase's boldness, but others say its new service will not lift the barriers to EDI, which are found primarily at the banks, not their customers.
Chase plans to become a "one-stop shop," or middleman for all swaps of electronic trading information - from purchase orders to payments.
Payback Delayed
Big cash management banks such as Chase Manhattan and First Chicago have spent hundreds of thousands of dollars to build information systems that can funnel electronic funds and payment data between trading partners. With relatively few payments being made via EDI, the payoff is still down the road.
"The benefits of EDI are quantifiable on a case-by-case basis, but momentum has been slow to build," said Mr. Rosenstock.
Virtually all industries in the United States use EDI, whether for purchase orders and invoices or for payments. But research from the Bank Administration Institute indicates that only 1% of a major corporation's suppliers can handle payments made by EDI.
To boost the use of EDI, Chase plans to play a bigger role in corporate trading, including giving technical aid to their customer's trading partners.
Part of the plan calls for Chase to handle the transmission of electronic invoices and purchase orders. Rival bankers said they would rather not compete with communications companies, sometimes called value-added networks. Because most corporations began using EDI for trading documents, they already have contract with value-added networks for this transmission service.
Customers Show Interest
But Chase sees opportunities. Mr. Rosenstock said customers tell him they would rather deal with a single source, rather than a bank and a value-added network. And according to EDI Research Inc., Chicago, corporations are willing to consider using a bank to pass along electronic purchase orders and invoices - the bulk of EDI volume.
Another way Chase believes it will speed the adoption of EDI is by getting its customer's suppliers ready. "A trading partner has to get his suppliers to play with him," said Mr. Rosenstock. "The readiness of the suppliers has been one of the impediments."
Chase plans to consult with these suppliers, aiding them on technical issues. The bank will also sidestep the suppliers' need for information systems by offering to send the payment information via fax or the mail. Other banks say they already consult with customers' suppliers and can provide payment information in a variety of ways.
Other banks see little in Chase's plan to ease the use of EDI. "I don't know if it addresses the barriers that keep financial EDI from growing," said Carol E. King, vice president at First Chicago Corp., a leading EDI bank. "Not all banks can handle payment and remittance detail well, and therefore the corporation originating payments has a difficult time in getting payment made to its entire vendor base."
