The rising demand from cash management clients for financial electronic data interchange services has sent top EDI software vendors scrambling to meet the needs of their banking clients.

Though experts say that only about 50 of the nation's banks are truly EDI capable, prominent technology vendors, such as Sterling Software and Servantis Systems Inc., are working overtime enhancing and developing systems in anticipation of more financial institutions entering the business.

"EDI and electronic commerce seems to be moving faster," said William W. Hymes, president of Sterling's Banking Systems unit. "I believe that's because the corporations are driving it and banks are responding to the market demand."

Financial EDI, the exchange of payments and related information in standard computer formats, is a potentially lucrative fee-based service targeting corporate accounts payable and receivable departments.

Experts said it improves upon labor-intensive operations such as handling paper invoices and posting remittance information sent with trade payments.

It is perhaps unsurprising that corporate cash management customers are leading the charge in financial EDI.

Many corporations have been using EDI services through value-added networks for years. Adding electronic payment capabilities to the nonfinancial services of the VANs seems part of a natural evolution.

However, the relatively low number of corporate participants in financial EDI has caused many financial institutions to put off investing in new systems until demand grows.

But, with indications that corporations favor banks over VANs to package remittance information together with payments, experts believe that more financial institutions are bound to get involved in financial EDI in the coming year.

"The concept is basically pretty simple," said Robert W. Heard, a vice president at Sterling. "It's to enhance the customer's loyalty to the bank, and to increase fee-based services."

In anticipation of this trend, Sterling Software, the leading provider of financial EDI software to banks, has repackaged several of its services and products.

Among the new products from Sterling is Vector Enable, a software distribution system that allows banks to arm their corporate customers with software that will allow them to use EDI.

Another new product, called Vector Reach, is based on the company's Vendor Implementation Program, or VIP, which is a match-making service that connects banks' trading partners.

A third product is Vector Delivery, a connection to Sterling's commerce network that allows banks to deliver EDI transactions in machine-readable form.

Richard Bort, an EDI specialist and owner of a cash management consultancy, said the recent activities by Sterling and others may mean that vendors are shedding their conservative nature.

"Maybe the vendors are doing more work (because) they are speculating that the market will be there," said Mr. Bort, whose firm is based in Sherman Oaks, Calif. "This is a lot of existing technology that's finally being packaged in a usable way."

Despite the positive aspects of Sterling's development of a proven software system for financial EDI, experts said the company's pricing could use a dose of healthy competition since its dominance of the financial EDI market is nearly total.

"From a bank-EDI operating system standpoint, (Sterling) is the only game in the country that has a real leadership position," said one source. "(Sterling) knows that, and they can charge whatever they want."

However, competition may be on the way.

Officials from the EDI Bank Alliance Network Exchange, or Edibanx, are prodding Servantis Systems of Norcross, Ga., to develop a competing EDI interface.

Edibanx, an initiative of the Chicago Clearing House Association and 13 large cash management banks, is a payment system designed exclusively for financial EDI. It began operations last October.

Sources said Servantis was an easy choice because of its dominant market share of its Paperless Entry Processing operating systems for automated clearing house transactions.

One banker from Connecticut noted that Servantis "missed the boat" by not having a viable financial EDI product on the market earlier. "Who would have been better than them, with their market share of ACH processing?" asked Mark J. Havlik, a vice president of Shawmut National Corp.

But others felt that, with the recent uptick in interest in EDI, the company may enter the market just in time.

Although Servantis' initial foray into developing an EDI product was not generally accepted by the market, the company has responded to the Edibanx call with its recent announcement that it will study the feasibility of an interface with Edibanx.

Company officials said they have formed a team to develop an EDI system that would meet Edibanx's requirements.

"We've discussed this project with many of our customers, and they are very interested," said Bruce Brooks, a senior vice president with Servantis. "Participating with the project would involve enhancing our financial EDI software to a new level."

Adding to the push financial EDI is getting from software vendors, the National Automated Clearing House Association recently announced a new electronic commerce strategy aimed at enabling banks to get more of their corporate clients involved with the service.

With these and other initiatives like it, EDI will likely experience significant growth in the coming year, experts said.

However, the time is rapidly approaching when bankers must either participate in the process or watch it pass them by.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.