Welcome to our fourth blog article in the History series. So far we have discussed healthcare, logistics, and retail. The use of EDI in the financial industry encompasses quite a few sub-industries: education (student loans), banking, government and insurance to name a few. Furthermore, the globalization of our industries and commerce has forced us to rely on EDI in such a way that without it, our economies would simply collapse. The exchange of money between countries, companies and governments is 100% dependent on electronic data interchange - from payments, to currency conversions to taxes and everything in between.
As we have already discussed, EDI came about because of the railroad industry. When the TDCC (Transportation Data Coordinating Committee) standards were modified to fit the needs of the grocery industry, the banking industry was sniffing around at the same time. By 1981, standards for the banking industry had also been published. Since then, as stated by www.edibasics.co.uk, "The growth of international trade has created interdependencies between buyers and suppliers across geographies, resulting in the globalisation of the financial supply chain." EDI makes this globalization possible.
When banks are involved in the EDI process, sometimes the term "financial EDI" (FEDI) is used. Other terminology when referring to EDI within the banking space include "originators" and "receivers." Ken Kinlock over at www.barrysbest.net writes, "In financial EDI, a bank acts as the financial intermediary between originators and receivers for both the actual payment and the associated payment data." In this case, originators are the sending party or buyer, and receivers are the receiving party, of payments and/or other financial data. The benefits and limitations are similar to other industries. Benefits include less errors, better security and limitations of course include lack of EDI capability within the industry and cost of implementation.
Some common EDI transactions you will see in the financial space include:
EDI 139 - Student Loan Guarantee Result The EDI 139 is used is used by guarantee agencies (guarantors) to inform a lender, a school, or both as to the status of a student loan guarantee.
EDI 144 - Student Loan Transfer and Status Verification This transaction is used by lenders and guarantors to send or receive information regarding a student loan's transfer of ownership.
EDI 154 - Secured Interest Filing This transaction is used to file Uniform Commercial Code (UCC) financing statement forms, liens, judgments and other statements of secured interest, and to exchange secured interest filing information.
EDI 812 - Credit/Debit Adjustment This transaction is the EDI version of a credit memo or debit memo. It is multi-directional and is used to notify a trading partner of adjustments and/or billbacks.
EDI 820 - Payment Order/Remittance Advice The EDI 820 is used to notify a trading partner of the intent to pay an invoice. It can also be used to order a financial institution to make a payment to a payee.
EDI 821 - Financial Information Reporting This transaction is used to report balances, detail and summary financial transactions, and other related financial account information.
EDI 823 - Lockbox The EDI 823, an electronic version of a paper lockbox, is used to transmit incoming payment information and totals from a bank or any other lockbox service provider to a lockbox owner.
827 - Financial Return Notice This transaction is used to communicate to the originator that an 820 transaction cannot be processed by the originating financial institution.
828 - Debit Authorization The EDI 828 is used to provide information from a payer to the financial institution regarding debits that the payer has authorized against its account and/or accounts and is often used in conjunction with ACH and/or EFT payments.
829 - Payment Cancellation This transaction is used by a payer to cancel a previously authorized electronic payment from a financial institution prior to funds being released.
As we have seen with these History of EDI blog articles, EDI touches so many industries, it's hard to imagine a world without it. Most people don't realize what's happening in the background of their financial transactions. Every time you use your debit card, every time you pay a bill online, every time you place an order with your favorite online store, EDI is running in the background making it all possible. Many of these transactions set off a series of events moving through various systems and organizations - likely YOURS. So as data integration gets more and more complex, it will become that much more important to ensure that you eliminate manual processes, scrub your data, and use that data to maximize efficiency.