Citibank Pushes Transatlantic EDI

While other big cash management banks are looking north to Canada to expand a new electronic payment service, Citibank is crossing the Atlantic.

In an attempt to expand its international cash management services, Citibank is offering an electronic data interchange service to European corporations.

Under this payment mechanism, usually called EDI, banks electronically transmit funds, invoices, and other trading data on behalf of corporate customers.

Motorola Signs On

Using Citibank, Motorola, the Schaumburg, Ill.-based electronics company, plans to begin making payments to suppliers in Europe via EDI. The first Motorola business to use EDI will be a factory in Scotland, which will pay suppliers in Italy.

The EDI program is scheduled to start in September. For Motorola, moving to electronic payments and invoices will enable a more centralized treasury approach and better management of float.

Citibank uses the same software and communications for EDI in the United States that will now run in London, an example of technology transfer that until recently was unusual at the bank.

But it is part of the bank's effort to supply global cash management services, a critical step for banks in this highly competitive business.

Slow Growth

Regardless of banks' EDI capabilities and reach, corporations have been slow to adopt it.

The volume of payments made via EDI is less than 5% of all corporate payments, even at the biggest cash management banks.

Bankers agree that EDI is not yet profitable. Bankers, however, see growing acceptance among corporations. As proof, they point to an 80% rise in automated clearing house transactions that carry data with them - a common way of effecting EDI.

Treasurers Unenthusiastic

One reason bankers give for the slow growth in financial EDI is that corporations' treasury departments are typically the last to use this communications technology.

Other departments use this computer-to-computer communications method to send purchase orders and other trading documents back and forth, usually at a tremendous savings.

Financial EDI, which completes the trading cycle, promises less robust savings.

Concentration on Canada

Citibank's move bucks the trend among other big cash management banks, most of which have focused on Canada as the first country for cross-border EDI payments.

Chase Manhattan, Harris Savings and Trust, and PNC Financial Corp. are among the U.S. banks that recently announced plans to transmit payments and payment data to Canadian banks.

"There is more demand in Europe than in the U.S.," said Mary McKenney, Citibank vice president. European businesses "lag behind in EDI, but I think they will be quicker to adopt the service - they are predisposed to electronic payments."

European businesses settle debts through payment orders, not checks. Citibank executives say the European market may offer faster growth for EDI because of this.

Citibank also has been one step ahead of the competition in making EDI services available to U.S. corporations paying suppliers in Canada.

E.I. DuPont, a Citibank customer, started to use EDI to pay Canadian suppliers in 1988.

Savings with EDI

Financial EDI has benefits, say bankers. A check, said Ms. McKenney, costs a company about $5 on average in overhead to reconcile it to accounts receivable, often taking days.

With EDI, the reconciliation can be as little as two hours, as electronic payments are matched against electronic receivable files.

Those benefits may be more attractive to European managers than to their U.S. counterparts. European businesses, Ms. McKenney said, want to squeeze float out of the trading system.

Citibank has no plans to expand its EDI service into Asia, where it sees little demand.

But some Citibank branches abroad already use EDI. In Brazil, for example, the Citibank branch handles not only electronic payments and invoices, but all trading documents. Chase Manhattan has announced a similar capability in New York.

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