The National Automated Clearing House Association adopted a rule Wednesday that requires most financial institutions to process electronic data interchange payments.
Effective Sept. 18, 1998, all institutions that offer business accounts will be required to send their corporate customers any payment-related information that accompanies ACH payments.
Nacha, a Herndon, Va.-based rule-making body for ACH payments, has long promoted EDI over the ACH network as a potentially lucrative cash management service.
In light of a 1996 law that mandates most payments from the federal government be delivered electronically by 1999, Nacha officials felt the time was ripe to adopt he rule.
"With this rule, any-sized financial institution will be able to conduct banking for vendors of the U.S. government," said Linda Garvelink, senior director at Nacha. "This will really broaden the playing field in providing banking services to government vendors."
The government issued more than 850 million payments in 1996, and with such volume, many vendors faced nightmares with expected increases in electronic payments.
Traditional high costs of EDI software have stopped many banks from developing EDI services. Nacha estimates that only 1,200 banks are able to process such transactions.
Financial electronic data interchange is the automated exchange of payments and remittance information in standard computer formats. Interbank ACH transactions can carry EDI messages.
Barbara Utendorf, vice president at Fifth Third Bancorp, Cincinnati, said corporate perception of the ACH network should vastly improve when the rule takes effect. Many companies nowuse private business networks for transmitting their EDI information.
"Originators clearly want to move money and information together," she said.
Viveca Ware, associate director at the Independent Bankers Association of America, said community banks would have expressed more concern over such a change in the past, but she pointed to the Federal Reserve's effort to develop EDI translation capabilities over its Fedline telecommunications network.
"We think the rule is a very reasonable one," she said. "We are not concerned."
The Fed is reviewing several responses to its request for proposals from EDI translation software vendors. Sarah Green, senior vice president at the Federal Reserve Bank of Boston, said an EDI service should become available during 1998. "We are analyzing the RFPs right now," she said. "We want the banks to be ready to support EFT 99," noting that most financial institutions have Fedline terminals.
John O. Manning, president of Community First Bank of Keosauqua, Iowa, said his institution recently committed itself to develop EDI services, partly as a "defensive move" to retain corporate customers. The bank bought EDI software six months ago. While community bankers have grumbled about the government's mandate, he said they must meet the needs of their corporate customers, or these customers will find other banks that do.
"It helps corporations run their businesses more efficiently," Mr. Manning said. "We have to be there to provide these services."