3. Overview of Schemes of Business-to-Business Electronic Payment

3. 1 Three Schemes in Business-to-Business Electronic Payment

There are mainly three schemes in the business-to business electronic payment: F-EDI, VAN-EDI (Value Added Network EDI), and Internet EDI. Each scheme has advantages and disadvantages (Table 3-1).

Table3-1: Advantages and Disadvantages of Each Scheme

3. 2 F-EDI

3.2.1 Marketplace Structure

The F-EDI user marketplace can be segmented into three main categories:

3.2.2 Major Players

Large organizations have driven the development of F-EDI for corporate-to-corporate trade payments. They have led the migration away from paper-based (check/invoice/U.S. mail) systems to automated electronic payment systems. According to a Phoenix-Hecht 1996 survey of 1,300 companies with sales exceeding $100 million, the number of companies using F-EDI increased from 25% in 1994 to 40% in 1996. In 1994, two-thirds of companies with sales exceeding $2.5 billion utilized F-EDI. In turn, half of the companies with sales between $1 billion and $2.5 billion used F-EDI. For companies with sales less than $250 million only 35% utilized F-EDI. Of those companies surveyed in 1996 that were not utilizing F-EDI for exchange of trade payments and related information, 38% responded that they planned to do so within the next two years (See Figure3-1, 3-2 for the growth of no. of companies and transactions).

Figure3-1: No. of Companies that use F-EDI in US

Source: Volpe, Welty & Co.

Figure 3-2: No. of Transactions of F-EDI in US

NACHA, *Projected 1997 volume

3.2.3 Advantages and Disadvantages of F-EDI

Advantages of F-EDI are:

Disadvantages of F-EDI are:


3.3.1 Factors for VAN-EDI Emergence

Most exchanges of F-EDI were made via direct mainframe-to-mainframe communications between two trading partners when EDI was first introduced. This means that companies have to use similar hardware and communications protocols, at the same transmission speed, and transmit at the same time of day. As the number of EDI exchanges increased, complexities and diversification of F-EDI increased. Value Added Networks (VANs) evolved in response to these problems.

3.3.2 Key Players

GEIS, AT&T, and Sterling are among the largest VAN service providers in the U.S. marketplace. The majority of larger corporations currently utilize VAN services.

3.3.3 Advantages and Disadvantages of VAN-EDI

Advantages of VAN-EDI are:

Disadvantages of VAN-EDI are:

3.4 Internet-EDI

3.4.1 Expectations for Internet Based EDI

As the number of companies using Internet for their business goes up, it is natural to think that these companies try to use Internet as an EDI network. According to Forrester Research Inc. of Cambridge, MA, 57% of 40 large companies they surveyed consider the Internet as EDI network, and 7% of them are already piloting. On the other hand, still 36% of them do not consider Internet as an EDI network. Although this numbers include both electronic payment and non-payment exchanges, this means there are still some concerns about Internet security and reliability among companies (Figure 3-3).

Figure 3-3: Portion of Companies Considering Internet as EDI Network

Source: "Will the Web Kill EDI?" a 1996 survey of 30 large
companies by Forrester Research Inc. of Cambridge, Mass.

A lot of companies are expecting Internet to be the replacement of current F-EDI and thinking that the Internet will play a significant role in the growth of business-to-business electronic commerce and the use of EDI/F-EDI. The Internet offers benefits that provide the solution for EDI's current shortcomings. The comment by B.Edelman, VP of Marshall Industries represents this corporation's perspective:

B. Edelman, V.P. Marshall Industries Electronic Components Distributor

3.4.2 Key Players

PNC Bank, Banc One and Bank of America started providing Internet based F-EDI services. TransLink Services, TSI Software, Softshare are software vendors who provide services from data mapping to EDI management and translation systems.

3.4.3 Advantages and Disadvantages of Internet-EDI

Advantages of Internet-EDI are:

Disadvantages of Internet-EDI are:

Figure 3-4: The reasons for not piloting internet-based EDI

Source: "Will the Web Kill EDI?" Forrester Research Inc.

1. Introduction
2. Definition of Business-to Business Electronic Payment
3. Overview of Schemes of Business-to Business Electronic Payment
4. Drivers for Business-To-Business Electronic Payment
5. Conclusion