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Electronic Directions: EDI

Tuesday, July 1, 1997

A CB series covering electronic payment forms and the Fed's efforts to promote them over paper-based methods.

Thanks to two major government initiatives that are currently under way, the term EDI—which stands for electronic data interchange—is no longer an acronym that bankers can afford to ignore.

Because of the timing, the most pressing of the two initiatives is the Social Security Administration's move to include remittance information in its electronic payments to organizations and individuals who receive the payments on behalf of beneficiaries. Implemented this June, the change in payment method applies to all recipients who are newly eligible for Social Security benefits—those who receive payments on the second, third or fourth Wednesday of each month.

This means that, for example, a nursing home that has been used to handling Social Security payments for its patients will now have to divide up a lump sum electronic payment according to the addenda information attached to it. If the nursing home's financial institution is unable to translate this information into readable characters, the home will have no idea how much to credit each resident's account.

Although the amounts received by beneficiaries are generally stable and well known, they will vary when the government's cost-of-living adjustments go through at the first of each year, making it essential for a nursing home, hospital or similar facility to have a financial institution that's EDI-capable.

The second major government initiative that is bringing EDI to the forefront is EFT 99—the government's plan for converting nearly all of the 40 million paper payments it issues annually to electronic form by Jan. 1, 1999.

The plan also calls for payment and remittance information to accompany vendor payments. This information, which is included in addenda records, will be indispensable to vendors since they'll need to determine which invoice the payment is for or if the payment is intended to cover more than one invoice.

The upshot of both of these initiatives for bankers is simple: A financial institution that is not EDI (FEDI)-capable stands a good chance of losing business to one that is. With that in mind, the Federal Reserve Bank of St. Louis this fall will continue a campaign explaining to Eighth District bankers the business opportunities brought by EFT 99—one of the biggest of which is EDI.

To become EDI-capable, contact your software vendor.