Start-Up EDI Network Seen Underdog Against National Clearing House

Nick Alex counts himself among a group of bankers who believe the industry needs an alternative to the automated clearing house's electronic data interchange services.

The NationsBank Corp. senior vice president helped design Edibanx, a financial EDI system, to give banks that alternative.

Formally known as the EDI Bank Alliance Network Exchange, Edibanx is an initiative of the Chicago Clearing House Association and 13 top cash management banks, including BankAmerica Corp., First Chicago Corp., and NationsBank.

While competition between the two systems is bound to create favorable pricing and service offerings, some bankers said that Edibanx will have a tough time wresting business from the automated clearing house, which already processes 300 million corporate-to-corporate EDI transactions annually.

Edibanx is still in its infancy, having handled only several hundred transactions in 1994.

"Today, I don't know if there is competitive advantage of joining Edibanx," said Mary Ann Francis, vice president with Cleveland-based National City Corp.

Ms. Francis, among others, observed that the automated clearing house was already accepted by businesses and the government.

"The ACH network is the network of choice for EDI transactions," she said. "It's already there and used extensively, so why not build upon it?"

Critics of the clearing house services say the network was designed for small-dollar transactions, and as such is not well-suited for EDI transactions.

Trade-related information currently sent over the automated clearing house network has to be wrapped within the association's standard CTX format, creating unnecessary extra steps for corporations sending transactions.

Edibanx, officials said, was designed exclusively for financial EDI without that so-called re-enveloping process involved in the automated clearing house format.

"The ACH was designed for corporate-to-consumer payments," said JoAnn Becker, senior vice president with the Chicago Clearing House Association.

Mr. Alex said he supported Nacha's initiative with MCI, which aims to spur the use of EDI by making a more affordable product. He said the effort may"enlighten" many smaller institutions that need more persuasion to take the EDI plunge.

But he also noted that the association's mentality takes into account the interest of many institutions. Edibanx' membership was kept intentionally small to allow it to be fleet of foot.

"I still don't think, because of the nature and composure of Nacha, that they can accomplish what Edibanx has done," he said.

Mr. Alex further added that a mandated rule change requiring association banks to become EDI capable "will be fought and impossible to enforce."

"I don't think there is a comprehensive electronic commerce solution that can be mandated upon the membership of Nacha," Mr. Alex said.

In defense of Nacha's system, an association official pointed out that corporations that make many financial EDI transactions will also generally have many trading partners. This requires a universal system like the automated clearing house, he said.

"Corporations are looking for a seamless way of making their payments," said the Nacha official, who requested anonymity. "They don't want to choose different formats and different rules and different settlement times."

However, Nacha officials predicted that there will likely be increasing commonality between the systems because "the banks that belong to Edibanx are also some of the biggest (ACH) network users."

There are several other differences between Edibanx and the association's EDI services.

The new system has end-to-end acknowledgement, an earlier finality of payment, and the ability to send raw X12 data over the network without limiting the number of addenda records to 9,999 as in the automated clearing house's corporate trade exchange format.

But there are advantages in using the automated clearing house, bankers said. It has four settlement times during the day, while Edibanx only has one. Also, settlement with the clearing house is achieved through an account with a Federal Reserve Bank, while Edibanx settles through an account with a correspondent bank.

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