EDI Specifications for the Banking Industry

As in many industries, the banking sector has also been using the EDI system in recent years. Many banks and financial companies are now benefitting from EDI, and it has become a preferred method of payment. For an EDI transaction, there is a number of standards, protocols and document types used by each industry. What are these for financial institutions?

EDI file types

Let’s start with the file types which can be exchanged in this industry. Depending on the aim, the action and the parties, different ones are used. The most common EDI formats in banking include:

• PAYMUL: Multiple Payment Order – is transmitted by the payer to the payee bank to debit an account for the payer customer and to arrange for the payment of specific amounts to different payees in one lump sum.
• PAYORD: Payment Order – is originated by the payer to the authorized bank, to arrange a payment of a specified amount to the payee for the purpose of settling a specified trade transaction.
• FINCAN: Financial Cancellation – is used to cancel a particular financial transaction requested by the payer from the authorized bank.
• CREMUL: Multiple Credit Advice - is sent by the bank to the customer’s account containing relevant data which the bank holds on the amounts being credited for a specified trade transaction.
• BANSTA: Bank Status Message – is issued by a bank to its customer and/or vice versa and between banks. It is used for all types of enquiries, responses and status information.
• DEBMUL: Multiple Debit Advice – is a message from the bank to its customer’s account indicating specific amounts debited on certain dates.
• DIRDEB: Direct Debit – is a message issued by the creditor to their bank with a request to claim a specific amount from the customer and to credit the amount to an account provided in the relevant message.
• FINPAY: Multiple Interbank Funds Transfer – is a message between banks to request the transfer of funds for the settlement of the related trade transaction.
• FINSTA: Financial Statement – is transmitted between banks to require the transmission of funds in relation to the settlement of the related business transaction.

EDI standards and networks

As in each industry, banking also uses common and industry-specific standards in EDI communication. Standards relate to the rules to be used for the issuance and interpretation of a particular business transaction. The classis standards include:

• EDIFACT
• ASC X12

Among the industry-specific standards, which are used for cash and security management are:

• FIX XML
• NACHA
• SWIFT MT/FIN
• SAP IDOC
• FpML
• ISO 20022 XML

The most widely known is SWIFT (Society for Worldwide Interbank Financial Telecommunication). It includes in its network many banks from all over the world. SWIFT has developed standards and messaging which allow all financial institutions in its network to send and receive relevant financial transaction data in a reliable, standardized and secure environment. SWIFT provides its own set of transactions which include payments, commercial services, and many more. The most popular SWIFT message types are MT, used for international payments, and MX – which is a more recently developed message standard that uses an XML format based on ISO 20022.

There are also other networks used by many banks and companies, mainly in specific regions. These include:

• ACH (Automated Clearing House) – mainly in the US
• Zengin network used for domestic funds transactions in Japan
• PE-ACH (Pan-European Automated Clearing House), which is a clearing house that regulates SEPA-compliant credit transfers and direct debits across Europe

Banking industry – common protocols

Communication protocols are major element of exchanging EDI messages, which are communication technologies for transmitting data in a secure mode between two different systems. These protocols have distinctive features and characteristics, tailored to the specific requirements of an industry, fulfilling security requirements and traceability for the exchange of EDI messages between commercial partners.

In addition to the classic communication protocols used by several companies in different industries (such as FTP, AS2, VPN, OFTP and HTTP), let’s have a look at the dedicated protocols applied by the banking and financial industry:

• FIX (Financial Information eXchange) is an EDI communication protocol designed primarily to standardize and streamline the EDI communications in the area of banking/financial services, and which supports several formats and types of transactions among banking and other financial institutions. This protocol is widely used as an international communication protocol for real-time EDI transactions.
• EBICS (Electronic Banking Internet Communication Standard) is a communication protocol and banking standard primarily used in Europe for transmission of data and payments between customers and banks by using the XML format, which also support the processing of SEPA (Single Euro Payments Area) payment transfers, while accounts can be processed using established formats, leading to seamless communication between all European banks on the basis of a single technology.
• ZENGIN is a country-wide EDI system in Japan, processing national banking operations such as payments, which include Japanese banks and other financial institutions. The transmissions of the data between banks and the Zengin system need to comply with the standard communication protocol known as the Zengin protocol, developed by the Japanese Bankers Association (ZENGINKYO).

Summary: knowing and utilizing EDI helps with process automation and much more

In today's competitive global marketplace, it is vital that businesses can count on a quick and easy way of transmitting payments to each other in accordance with global commonly used standards. The use of EDI in the banking industry means automating day-to-day processes between trading partners, increased security, reduced costs and, most importantly, improved customer experience.

If you would like to know more about what EDI can do for your business, please contact us.