Bankers often quip that electronic data interchange is the wave of the future-and always will be.

The largest institutions bought into the technology early, hoping to reap the rewards as corporations moved to electronic commerce. Until recently, most banks have found the technology too expensive to justify.

The lack of EDI capability "has been a weakness in the banking industry for years," said William Nelson, executive vice president of the National Automated Clearing House Association, the Herndon, Va., trade association responsible for developing rules for the automated clearing house network.

That may soon change.

Under the mandate requiring most federal payments to be made electronically by next Jan. 1, government agencies increasingly will use the automated clearing house and EDI to make more than 856 million annual payments to businesses and individuals.

Banks now must either buy financial EDI technology or risk losing the business of corporate customers who get government payments.


The threat and opportunity of EFT '99 were abundantly clear at a recent electronic commerce conference in Anaheim, Calif., sponsored by Nacha and the Treasury Management Association.

"The government initiative became a catalyst," Mr. Nelson said.

Under the rule that Nacha adopted, banks must be able to pass along payment-related remittance information to corporate customers by September.

"For many small companies, this will be their first introduction to electronic commerce," said Robert W. Allen, vice president of the Federal Reserve Bank of Kansas City. "This may serve as an entree toward becoming more knowledgeable in electronic commerce."


The potential plight of smaller banks has not been ignored by the Federal Reserve. It is developing affordable EDI software that will be adapted to Fedline, the Federal Reserve's telecommunications service.

Banks use Fedline to order Treasury securities and cash and originate electronic funds transfers, among other things.

The Fed apparently will declare Bottomline Technologies Inc. the winner of a contract to develop this software.

Assuming the deal becomes final, it would be "the first time, to my knowledge, that the Fed has ever bought software from the outside," Mr. Allen said.

Bottomline Technologies, Ports-mouth, N.H., develops ACH and EDI software. It has a contract with MCI Communications Corp. to supply low- cost EDI services to banks. That deal was struck in 1994 at the behest of Nacha.

John C. Insko, vice president at Bottomline, said the MCI contract would remain in force but will probably play second fiddle to the much bigger Federal Reserve effort.

"Our next step is to go through the software and have the Fed tell us what they like or do not like, and how to modify it," Mr. Insko said.


At the electronic commerce conference, Nacha officials were optimistic that their long-standing effort to promote EDI was finally going to pay off.

Officials gave EFT '99 credit for boosting volumes through the first three quarters of 1997 by 129% over the same period the year before.

Nacha leaders estimated there were 4.5 million EDI payments in 1997, growing at rates far above the 20% to 30% of years past.


Many sessions were devoted to marrying the ACH and the Internet.

Bankers were intrigued by growth projections and eager to expand the payment alternatives. Internet commerce was about $200 million in 1995 and $2.6 billion in 1997, according to Jupiter Communications of New York.

"I think we need to be honest and self-critical," said E. Alan Holroyde, executive vice president at Wells Fargo & Co. "It is a terrible indictment of the industry that the only way I can do business with is with my credit card."

He said the ACH has many things going for it, such as its ubiquity among banks and its ability to carry information in standard EDI formats.

But he said the ACH still needs many enhancements if it is to handle the spontaneous types of transactions likely to come over the Internet.


Surprisingly little attention at the meeting was devoted to credit cards, which observers said will become important for catalogue-based transactions.

When combined with the emerging security techniques of digital signatures and digital certificates, credit cards will be "very important as a payment settlement mechanism,' said Anne M. Friedman, vice president of Chase Manhattan Corp. "It is ubiquitous, it is global."

"I am hoping that our industry will latch on to more card-based transactions" said Charles Wickendon, electronic commerce manager at NationsBank Corp. "I really see the pricing structure there being a lot more bank friendly."


Nacha released a book on several payment types, such as credit, debit, and digital currency.

The report, "Management of Risks Created by Internet-Initiated Value Transfers," examines the concepts of credit, operational, and fraud risk from a legal and regulatory standpoint and looks at how they would be affected by time, volume, and speed of payments.

Nacha officials said the report can guide banks as they consider their future electronic payment services.

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