In Defense Of The Legacy Technology Of EDI

EDI, or electronic data interchange, has garnered somewhat of a negative reputation amid recent years of dramatic FinTech innovation.

The technology first emerged in the 1970s as a way to digitize information sent from one business to another that had traditionally been sent on paper. Now, half a century later, the goal largely remains the same as well as a critical component of ongoing enterprise modernization. Yet, for some innovators, EDI is too outdated to effectively propel that digitization in the 2020s.

In B2B commerce and payments, the exchange of data from one firm to another is critical for just about every workflow that occurs, from purchase orders to reconciliation. Application programming interfaces (APIs) and other methods of data integration have emerged as key features in new FinTech solutions that promise to streamline the flow of information across business partners in a more effective way than EDI.

Yet Todd Gould, CEO and founder of Loren Data, said that what the market often overlooks about the legacy of EDI is that the technology’s long history is actually a competitive advantage.

“The fact that the technology has been around for a long time in itself is not necessarily a bad thing,” he told PYMNTS. “It can be innovative and move things forward.”

The Bridge Between Enterprises

While EDI first emerged decades ago to support digitization of information exchanged from one organization to the next, Gould noted that the tool was not necessarily considered a game changer until its use by Amazon to transform the way the retail landscape operated.

It was Amazon’s ability to recognize the potential within EDI to facilitate data exchange between all players within the supply chain that allowed the technology to take on a new role within the modernization of the enterprise.

“Amazon didn’t need a new technology,” he said. “They took existing technology and utilized it in a way that was far more powerful than it had been used in the past.”

Today, he said, EDI has matured to the point where it can handle excessively high volumes of information, which is key to the transformation of the retail landscape. Rather than facilitating the transmission of information about one B2B purchase order for 100,000 T-shirts, for example, EDI can facilitate communication between enterprises for 100,000 individual orders for a single T-shirt.

As such, EDI has proven itself robust and agile enough to not only handle evolving demands for seamless data exchange within the B2B landscape but to actually fuel that transformation, said Gould.

The Value Of Legacy Tech

In the midst of intensifying digitization of B2B commerce and payments, the exchange of data between corporates has never been more vital nor valuable. There are countless ways that businesses can move information between each other, however, leaving some to question whether EDI remains relevant and effective.

FinTech innovation is often fueled by finding a better way. Progress relies on identifying what’s wrong with the old and fixing it with the new. Yet, according to Gould, it’s the long history of EDI that makes the technology so valuable in the context of B2B communication.

For data exchange between organizations to work, both sides must cooperate to adopt the same standards and mechanisms to send and receive, ingest and understand that information. Thanks to EDI’s longstanding history, many organizations have already adopted its framework.

“The power of EDI is that the work has been put in,” he said. “To remove EDI means you have to relearn everything, figure it out and get a lot of people to cooperate. With EDI, that work’s already been done.”

That’s not to say that technology can’t embrace modernization. Gould acknowledged there is the opportunity for the technology to continually improve and drive up its value, but the core burden of streamlining how data is presented and interpreted has already been achieved. As such, EDI can be an invaluable tool to support the exchange of critical information on invoices and electronic payments for the purposes of automation, reconciliation and more.

“EDI is at the core” of B2B commerce and payments modernization, added Gould. “It’s being rediscovered as a fundamental way to do business in this space between enterprises.”