Electronic data interchange remains an elusive frontier for wholesale bankers.
The concept, involving computer-to-computer transmissions of invoices and other business documentation in standardized formats, has been championed by numerous trade groups outside of. banking. The banks' electronic payment systems seemed a natural adjunct, creating a business opportunity for corporate bankers around the notion of financial EDI."
To National City Corp., EDI is still seen as "the next phase" of its electronic funds transfer business.
"Five years ago, we felt that if we did not offer EDI, our customer base would shrink," said Mary Ann Francis, the Cleveland-based bank's vice president and manager of electronic products. "EDI allows us to meet our existing customers' needs while giving us the opportunity to develop a totally new marketplace."
Lawrence Forman, a manager in Ernst & Young's cash management practice in New York, said EDI represents a mere 0.5% of the banking industry's overall cash management revenues.
Mr. Forman said the jury is still out as to the ultimate effect EDI will have on the industry, because there not a clear set of transaction standards.
Definition Unclear
"The water is still muddy because there is not a clear-cut industry definition of what EDI is and supposed to do," he said. "If we asked 30 different banks what EDI is, we would get 30 different answers.
"There are Some banks that can receive the transmissions but have to process the instructions on paper," Mr. Forman continued.
The technology for electronic data interchange is not new, but more and more bankers are focusing on how to use it.
Recently, the Chicago Clearing House introduced an electronic payment and remittance service with the goal of increasing the efficiency of Financial EDI.
The service, called EDI Bank Alliance Network, or Edibanx, was developed in response to corporate treasurers' asking for a better way for banks to offer a full range of cash management products.
'It is the natural evolution in the payments process, which has seen great growth in shipping and order invoices," said Robert Friedman, president of the Chicago Clearing House. "This ties everything together, allowing banks to offer more options to their corporate customers."
Mr. Friedman said the clearing house has gotten a great response to Edibanx. It is the first time banks from outside the Chicago Federal Reserve district have participated with the eight member regional association, including BankAmerica Corp. and Shawmut National Corp.
But to some industry insiders, things are not so rosy at the Chicago Clearing House.
There have been some complaints that the cost of joining the group is too high and will limit participation to the top 50 banks.
Others say the system is to hard to use and that the Chicago Clearing House has not provided adequate documentation for its operation.
"Essentially they have a better product, but they lack the critical mass to complete all of our customers' transactions," said Frank Zalesky, vice president and EDI manager at Norwest Corp. in Minneapolis. "The value is limited to the degree of participation; as long as they have a small group of banks signed UP, people are going to have to seek alternatives."
Donald Hollis, executive vice president of First Chicago Corp., said the banking industry has "a marvelous" opportunity to link all 20,000 depository financial institutions to serve the corporate market.
Consistency Is Key
But he conceded that the lack of national standards is a problem.
"There are myriad ways to report information, with some being less complete then others," said Mr. Hollis. "I would like to see a consistency for information as it goes in and out among all parties. The key is to have consistency in information integrity, with ease of information interpretation."
Mr. Hollis said he sees the industry getting better at processing information but that there needs to be an insurance of quality across the institutions.
"We need to educate bankers to understand the potential they have with working with the clearing houses and the incentive they have to improve information quality," the Chicago banker said. "Currently, we are at a point of inflection - if we make a quantum leap in quality we will increase transactions. One will move the other."
Robert Payne, a managing partner at the EDI Spread the Word consulting firm in Dallas, said the financial EDI concept originated when General Motors Corp. requested eight of its banks to receive instructions from the company to pay vendors while also providing remittance data.
"There has been relatively small growth in the industry, which was characterized by one payer, which did not start a mass movement toward the service," he said. "At the time, some of the banks signed on while more did not."
Mr. Payne said there has lately been a movement to get more institutions and businesses involved in the industry.
"There has been an increase in customer demands for the service," he said. "But they have realized that it is not an area of great growth, which means that there is also not much room for growth in revenue."
PNC Bank Corp. has seen "a lot" of growth in financial EDI in the last five years, said vice president Susan Rapp.
"We have noticed many companies installing systems in businesses where there is a large amount of invoices," she said. "Inventories and businesses are growing, which means there is an increase in paper, and one of the ways to cope with that is EDI."
Ms. Rapp said PNC provides its customers with interfaces to the bank that help improve the payment cycle.
"We would like to see customers asking for more institutions to perform the service," Ms. Rapp said. "Once businesses are ready to turn over the checks and let us make the payments, we will be doing the entire job. All they will have to do is authorize the payments - but all of the payments will come from the bank.
"EDI is allowing us a number of opportunities to bring us closer to the receivables and payables sides of our customer's business then ever before."
Eliminating Paper
Gene Friedman, a vice president of applied technology at Chase Manhattan Corp., said EDI is simply a means to eliminate paper from everyday workflow.
It can "create a different type or payment paradigm," the New York bank official said. "We are using EDI internally with certain customers and are actively participating in the merger of information standards so that everything will be done the same and we can increase usage."
Chase sees changes constantly taking place, but they are not moving the EDI business in a single direction.
"EDI plays to a different tune in a world populated by paper," Mr. Friedman said. "The key to success will be a movement that maintains and supports standards in transmissions."
