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Government and finance industry urge caution on XML

The XML world received a double-dose of sobering news, as reports from both the U.S. General Accounting Office and NACHA, an electronic payments organization, urged their constituents to move cautiously on any commitment to XML. Both reports cite XML's bright promise but express concerns about its stability. Nonetheless, recent events suggest the industry has begun to get the message and started addressing these concerns.

Market Analysis
Page Three: Government and finance industry urge caution on XML

GAO recommendations
While the GAO may have views about the state of XML standards, it is hardly in a position to influence their development one way or the other. However, the report recommends a series of actions to develop an overall strategy and better focus the development of XML in the government. The strategy, according to GAO, needs to address the following.

  1. Developing a process for identifying, coordinating, and presenting consolidated government-specific needs before XML standards bodies. The report say the process could be patterned after the process used for EDI in the government, or extend the current EDI process to include XML.
  2. Transitioning the pilot registry under the XML Working Group into an operational resource for federal agencies, and setting policies to support the registry and encourage effective participation by agencies
  3. Ensuring that agencies' business needs for XML are part of the agencies' overall IT enterprise architectures and corresponding budget requests, and that agencies indicate their use of XML standards in the standards sections of that documentation.

NACHA council investigates XML for electronic payments

While GAO is a public sector agency, NACHA is a not-for-profit trade association that develops operating rules and business practices for the nationwide network of automated clearing houses (ACHs) and for other areas of electronic payments. Bank clearing houses were established first to process checks and other paper financial instruments from originating to receiving institutions.

The automated clearing house, as the name implies, automates the clearing process. In the ACH network, individuals, companies, or financial institutions send transaction data to an originating depository financial institution or ODFI, licensed to interact with an ACH. On the receiving end, a receiving depository financial institution or RDFI, also chartered to work with ACHs, receives the payment data and forwards the data to the receiving bank, company, or individual. Originating banks or individuals cannot initiate ACH transactions without authorization from the receiver.

Payment instructions and remittance data are sent through the ACH network in batch/store-and-forward mode and in high volumes. According to NACHA, in 2001 the ACH network handled some 8 billion transactions worth more than $22 trillion. NACHA expects the volume of electronic payments to reach 15 billion by 2006.

NACHA's Internet Council final draft report on XML addresses the question, should the ACH enable the exchange of XML remittance data? Payment instructions cannot travel through the network without accountability; they need associated remittance data describing each transaction to account for each payment. NACHA's rules require the remittance data to go in addenda records that adhere to the ANSI Accredited Standards Committee (ASC) X12 standard for EDI, or some other NACHA-endorsed format. In some cases the remittance data and payment instructions travel together through the network, in other cases the network carries only the payment instructions, while remittance data travel through a separate route.

Calling in the SWOT Team
To answer the question of whether XML messages should carry the exchange of remittance data, NACHA's Internet Council used an analytical technique listing the strengths, weaknesses, opportunities, and threats, abbreviated SWOT. With this technique, the Council summarized the current business-to-business technologies, based largely on EDI as follows:

Strengths –Businesses prefer to send the remittance data and payment instructions together, which the ACH network is well-prepared to handle. The volume of EDI data through the network has increased significantly in recent years, and the growing volume of electronic payments for businesses offers important revenue opportunities for service providers.

Weaknesses –While electronic payment volumes for businesses have increased, the penetration of electronic payments remains low compared to paper checks. The report cites a Gartner Inc. study (Avivah Litan. "The Unmet Demands of B2B E-Payments." 23 August 2000. ) that finds only 14% of corporate payments are made electronically. The Council attributes this lower level of activity to the high costs of EDI. The high EDI costs also reduce the profit potential to service providers.

Opportunities –The use of Internet-based EDI, often using Web interfaces, can reduce the costs of electronic payments to smaller businesses and provide at least the potential of expanding the market for electronic payment services.

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