Under the service, which made its debut in May, Huntington collects the electronic payments and forwards the information to client banks' corporate customers. Huntington reasons that the more corporations it gets to use the system, the more potential there is for electronic data interchange transactions among its own customers.
"We are offering a service for the smaller bank's corporate customers that they would not have otherwise," says Bob Sega, vice president of the Columbus, Ohio, bank's cash management unit.
Only 35 to 50 bank holding companies offer EDI, Mr. Sega says, which does not make it easy for corporations that are eager to use these emerging systems for handling payments and related documentation electronically. The major stumbling block for financial institutions is the high cost of communications software and hardware, which Mr. Sega pegs at roughly $50,000.
"Software is expensive," he says, "and the connectivity issues are complicated and time- consuming."
Mr. Sega speaks from first-hand experience. The $16.5 billion-asset Huntington, which has reputation as one of the most technologically innovative banks, has offered EDI capability to its own customers for four years.
For the last two years, the system has been operated in-house. Huntington' s provider, Sterling Software of Dallas, is a parmer in the new EDI service. Under this arrangement, Sterling provides integrated software and network services. Huntington serves as the collector and disseminator of information. The bank is "transparent," meaning the subscribing bank's customer does not know the informarion is being supplied by another Huntington' s bank customers can choose to receive information electronically by mainframe, personal computer, or fax. The service is convenient, Mr. Sega says, because data do not have to be rekeyed, reducing the chance for errors. Receiving corporations also avoid mail delays and learn their financial positions sooner, allowing for quicker adjustments of payments or shipping mistakes.
This is what happens: With permission from the bank subscriber, Huntington retrieves batched automated clearinghouse files with remittance information from the Federal Reserve and from associated clearinghouses. The information is processed, formatted, and relayed to the corporate customer, which can then use it to simultaneously update its receivables and cash position and reconcile its accounts.
Mr. Sega says he recognizes that as an EDI prorider, the bank has to actively educate prospective customers as well as market to them. "We do educational forums for the smaller banks so they can resell this product," he says. "Corporations are concerned about the communications and what the flow of work will be. They also want to know what the benefits are. Is it cost cutring or revenue generating? They want to know what wlil happen to their float."
Part of Huntington' s strategy in addressing these concerns is to cast the information interchange in a new light.
"We try to make the corporate originator or receiver understand that they are going from 'us against them' to a partnership relationship," Mr. Sega says. "As far as float, we try to sell it as 'float neutral,' where neither party is going to gain or lose, because the credits and debits are going to hit at the same time."
As EDI becomes more widespread, Mr. Sega tells corporations that not being able to accept or make payments using this method may drive some of their customers away.
"In the case of a large corporation that is forcing its suppliers to become EDI capable, then it' s a matter of saving a customer relalionship," he says. Corporations that use EDI also gain from being able to handle more transactions with the same amount of staff, and pave the way for attracting new customers with heavy payment volumes, such as hospitals. Once the EDI service takes off, Mr. Sega says, the bank is looking at linking subscribers to other Huntington cash management products such as its SmartWindow balance reporting system.
"Under this concept, the bank could send us a file containing the balances of their corporate accounts and transactions," Mr. Sega says. "We can then show these transactions through our secured SmartWindow system."
SmartWindow users can initiate funds transfers or stop payments electronically or by phone. The system also provides automated clearing house access for direct payroll, debit, cash concentration, and other corporate payments. Huntington also offers cash management customers image-based lockbox processing.
The bank also helps promote EDI, albeit on a very small scale, as a member of a national check dearing house association it helped found in 1992. The National Clearing House Association is encouraging electronic check clearance that will further reduce the costs of clearing checks for its members.
The association operates in all 12 Federal Reserve districts and handles about a million items a day. Terry Geer, senior vice president at Huntington, says volume is growing at a rate of 20% a month, which has strong implications for the success of electronic check clearance.
The executive acknowledges that there are obstacles retarding acceptance of this type of EDI. Software compatibility, a unified system of rules and regulations, and industrywide agreement on transmission times across different time zones are all issues that have to be settled.
Nevertheless, EDI continues to make its inexorable move into daily bank business, with banks like Huntington helping to push it along.
