Magazine article American Banker

Pentagon Hopes to Switch to Electronic Payments

Magazine article American Banker

Pentagon Hopes to Switch to Electronic Payments

Article excerpt

The Department of Defense is planning an aggressive push into electronic payments for its gargantuan contracting program, a move that could be a boon to banks.

The Pentagon hopes that electronic data interchange (EDI) will enable it to process payments and invoice information more efficiently.

Though much ballyhooed for its potential cost-saving and revenue-generating abilities, EDI has been implemented by only a handful of financial institutions.

Demand Not Yet Significant

Bankers have been wary of getting involved in the process because, with the exception of a few industries such as automobile manufacturing, few businesses are demanding the service from their financial institutions.

However, according to the Department of Defense, that may soon change.

As part of a program to streamline payments to vendors supplying military equipment, the Department of Defense said it planned to move 90% to 95% of its contract payments to an electronic format in the next four to five years.

"For all those banks that wonder, will there be a market for this, I reply that we have over 300,000 contractors out there that we plan to move to electronic payment mechanisms by 1996," said William L. Blumberg, a financial management analyst for the Department of Defense's finance and accounting service in Crystal City, Va.

Opportunity Seen

"That represents hundreds of billions [of dollars] in payments - a decent launching pad for the business," Mr. …

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