A cadre of financial companies has teamed with EC Co., Palo Alto, Calif., in an attempt to boost acceptance of electronic data interchange.

The effort so far has resulted in a product aimed at giving banks an alternative to owning and operating expensive systems for financial EDI - the business-to-business exchange of payments and related information, such as invoices.

The offering consists of EC Co. software and network services that would be managed by Compuserve. It is expected to be in full operation in the second quarter.

Bankers have long contended that electronic data interchange could be a lucrative business. But because relatively few cash management clients are using it, and costs are high, few banks have made it profitable.

EC Co. says it believes its product can help banks solve both problems. Robert Sega, a vice president at Huntington Treasury Management Co., described it as "something the market has been waiting for."

He added that with scarce resources, "a plug-and-play solution makes it very easy" for banks and other corporations to conduct electronic commerce.

The companies that are working with EC Co. on the service include Huntington Bancshares, Columbus, Ohio; Compuserve, owned by H&R Block, Kansas City, Mo.; Dun & Bradstreet Information Services, Murray Hill, N.J.; and Thomson Financial Publishing Inc., Skokie, Ill., which produces American Banker and other publications.

EC Co. executives said they hope a national marketing effort will help them enlist other banks to help run the service. Eventually, they hope to connect more than eight million U.S. businesses, targeting those with $5 million or more in annual sales.

Company officials are billing the software and accompanying services, which are in final testing stages, as a bank-run, value-added network for automating corporate payments.

When funds or messages are exchanged between companies, both their banks would earn percentages of the fees that EC Co. would charge.

"This is going to be a bank-led initiative," said Andrew Duncan, president and chief executive officer of EC Co. "We've already met with 25 banks and are entering into contracts with them."

Though many banks see financial electronic data interchange as a potential cash cow, and many of the largest cash management customers demand electronic services from their banks, data interchange traffic is slow. According to Dun & Bradstreet, less than 1% of the 50 billion corporate transactions conducted in 1995 were electronic.

The lack of widespread acceptance of electronic data interchange has created a Catch-22: Banks do not want to spend millions on the systems until they see that demand can justify it, but the number of companies engaging in electronic data interchange is likely to remain low until more banks become EDI-capable.

As many banks sit on the fence, nonbanks have crept into the business as providers of so-called value-added network services. The providers include Sterling Software Inc., Dallas; Harbinger EDI Inc., Atlanta; and General Electric Information Services, Rockville, Md.

EC Co. plans to collaborate intensively with banks. This cooperative attitude is one of the things that officials said attracted Huntington to it.

"We are trying to keep the banking franchise together," said Mr. Sega. "A lot of people have gone after our markets."

The service, as officials envision it, would give corporations EC Co. software to originate transactions that are sent to EC's network hub.

After receiving an order for a transaction, EC Co. would send the financial part of the transaction to the originating company's cash management bank, which then would pass funds to a receiving corporation's cash manager via the automated clearing house network.

The textual part of the transaction - invoices and other billing information, for example - would be sent directly to the receiving corporation's electronic mailbox over EC Co.'s proprietary network, which will be managed by Compuserve.

The EC Co. software then "plugs" the dollars and data together into the receiving company's accounting system, Mr. Duncan said.

EC Co. is not alone in wanting to get bankers more involved in the electronic data interchange process. Other bank-led initiatives in the arena include the National Automated Clearing House Association's Rapid EDI program, which is a low-cost, receive-only service currently being tested at Citizens Bancorp., Laurel, Md.

"What's different about this is and Rapid EDI is that (ours) is a product for smaller banks that have not invested in EDI software," said William Nelson, an executive vice president at the clearing house association. "The EC product is more of a corporate product. It allows you to integrate with 14 different software accounting systems, which is phenomenal," he said.

Mr. Sega said the EC Co. service can easily can coexist with the offering from EDI Bank Alliance Network Exchange, a fledgling payment network operated by the Chicago Clearing House Organization. He said the two entities are targeting different market segments.

Kevin Curtis, an analyst for Boston-based Yankee Group, who recently saw a presentation by EC Co., said he expects the banking industry to embrace the company's products. The strength of EC Co.'s offering is its combining money and data into the same transaction, he said.

Mark Stuparich, a vice president at Chase Manhattan Corp., said the service is likely to help the industry build electronic funds transfer volume. Like Mr. Nelson, he said he was impressed with the software's ability to integrate with different accounting systems.

"Large corporations are moving into (accounting) systems like Oracle and SAP, and we have been asked more than once if we have a standard interface," he said. "In the past, we've really had to answer, 'No, this is something you are going to have to build internally.'"

Mary Anne Francis, a vice president at National City Corp., Cleveland, said the service "has a good shot" at success. "There will be instances" where banks "should be willing to take a look at a product like this."

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