Electronic Data Interchange and Electronic Funds Transfer

AuthorCindy Victor, Rhoda Wilburn

Page 218

Electronic data interchange (EDI), or electronic data processing, is the electronic transmission of data between computers in a standard, structured format. Electronic funds transfer (EFT) is the term used for electronic data interchanges that involve the transfer of funds between financial institutions.

EDI has allowed companies to process routine business transactions, such as orders and invoices, more rapidly, accurately and efficiently than they could through conventional methods of transmission. While EDI has been around for decades, it wasn't until the late 1990s that this basic principle became a driving force in the rollout of electronic commerce, corporate extranets linking suppliers and customers, and related network-based technologies.


EDI has been present in the United States in some form since the mid-1960s. Businesses had been trying to resolve the difficulties intrinsic to paper-dependent commercial transactions. These difficulties include transmission speed (because of delays in entering the data onto paper and transporting the paper from sender to receiver); accuracy (because the data had to be recreated with each paper entry); and labor costs (labor-based methods of transmitting data are more expensive than computer-based methods).

In 1968 a group of railroad companies concerned with the accuracy and speed of intercompany transportation data transmissions formed an organization called the Transportation Data Coordinating Committee (TDCC) to study the problem and recommend solutions. Large companies such as General Motors and Kmart also reviewed the problems, which arose when they used their intracompany proprietary formats to send electronic data transmissions to outside parties. Because each company had its own proprietary format, there was no common standard among transmitting parties. A company doing business electronically with three other companies would need three different formats, one for each company.

By the 1970s several industries had developed common EDI programs for their companies within those industries, and a third-party network often administered these systems. Some examples of these systems include ORDERNET, which was developed for the pharmaceutical industry, and IVANS, which was developed for the property and casualty insurance industry. While these systems were standardized for each industry, they likewise could not communicate with other industries' proprietary systems. By 1973 the TDCC began developing set of standards for generic formats to handle this problem.


EDI is quite different from other types of electronic communication. It is unlike a facsimile transmission (fax), which is...

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