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Jeremy Chan
US Fed and OCC outline regulatory objectives for this year Read more
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Idris Nagri
Although Electronic Data Interchange (EDI), which is the intercompany digital exchange of business documents, has become an information-sharing standard, technologies such as Optical Character Recognition (OCR) remain relevant alternatives. How is it that a technique initially developed in the late 70s, used for visually identifying characters in the text and translating that into a computer code, can still (at least to some extent) compete with a modern data management solution that is much more elaborate?
In general, OCR seems to have what it takes to do the job – it can help automate various data exchange processes; it can perform compliance verification; it can be used for many different types of documents, including letters, invoices, delivery notes, and purchase orders; it also allows for easy onboarding and document management (a file is sent via e-mail, then OCR works its magic).
As exciting as it sounds, OCR has a fair share of limitations. For example, you cannot be 100 percent sure that data extracted from a given document is correct when you use it. You will always need to verify that piece of information. It is a matter of an economic trade-off between automatisation and mismanaged documentation. Plus, compared to EDI, OCR is more expensive (in the long run; getting started with EDI requires a relatively bigger investment). Not to mention that most OCR systems do not support "right-to-left" languages.
Let's now take a closer look at EDI. Not only is it a perfect solution for large corporations (to exchange documents both internally and externally via systems that are not interfaced with one another), but it also supports countless document types. Although some companies say that onboarding poses a challenge, getting your partners and clients to jump on the EDI bandwagon usually results in building stronger business relationships, so – in the end – it is definitely worth the struggle. Plus, "struggle" is too heavy of a word. Onboarding can be user-friendly if the process is well-designed. And there are EDI platform providers, such as Comarch, that are perfectly aware of that.
It would be hard to imagine a prosperous company operating without an EDI system these days, given that we are all so interconnected. Running a business in 2021 means you need to follow the technological progress as closely as possible – and then find a way of using the latest solutions, such as data exchange platforms, to your advantage.
So, how do you approach "OCR-to-EDI" migration?
Every company interested in EDI should focus on the segmentation of their supplier/customer network first, which is the analysis of all internal document exchange processes. If you do the segmentation correctly, you will meet all partners' and clients' needs. At this stage, it should also be determined the exchange of what type of documents (payment advice, orders, price catalogs, inventory reports, sales reports, transport instructions, and so on) need to be automated.
The first group should comprise partners with whom you exchange large amounts of business documents each month. Those would be the best candidates for the EDI implementation. Of course, you need to consider that some may not have an appropriate IT infrastructure to introduce EDI. Thus, you must discuss such matters with each of them and find out what their options are. Well, that's the price you pay for the seamless and cost-effective electronic document exchange.
The second group should consist of smaller trading partners, with whom the exchange of documents happens occasionally. Here, the best solution would be using a WebEDI application. Why? Because your suppliers don't need to invest in their IT infrastructure to send and receive EDI messages and do so efficiently. The only downside of this approach is that somebody must perform manual work to bridge the gap between trading partners' internal systems and the web application. Fortunately, modern WebEDI solutions provide many features that can make a strenuous job like this feel like it's a walk in the park.
The needs of the final group can be addressed – wait for it - with OCR! That's right. Considering it should be a group of partners that share only a small number of invoices with you each month, OCR will be perfect for that. Those partners are less likely to invest in an EDI solution as they usually exchange paper or PDF documents.
What it all means is that both EDI and OCR can help your company improve its business efficiency and reduce operational costs. Thus, the most important decision you need to make (if you want to go digital) is to choose the right system; one that will meet your company's (and your business partners') needs and expectations. And remember, there are many different EDI and OCR solutions out there – so make your choice count.
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Leanna Reeves
Derivatives market participants must begin to rely on fallback rates, Isda’s head of benchmark reform contracts told a conference this week.
“Firms really need to think about active transition,” said Ann Battle. “Having robust fallbacks is a vital step. It is a safety net.”
On January 25, Isda’s Ibor fallbacks came into effect for any contract referencing the standard interest rate derivates definitions.
Based on Risk-Free Rates (RFRs), the fallbacks include spread adjustments to reduce the chance or contract diverging too far from counterparties.
Battle said the work of the Alternative Reference Rates Committee (ARRC) and other working groups has shown that RFRs are arguably the most suitable rates for derivatives.
The fallback mechanism made available by regulators means market participants can use the RFRs to design a “safety net” and provide further clarity within their legal contracts.
“That does not mean that you then have to live through the event as described in the definition. It puts you in a safer position, then you can go appropriately discuss and negotiate with your counterparty,” said Jason Granet, managing director and head of Libor transition at Goldman Sachs.
“There’s massive momentum underway here,” said Scott O’Malia, CEO at Isda. “By the end of 2023, so many of these US Libor trades are going to be rolling off. Libor’s days are numbered.”
On March 5, the UK’s Financial Conduct Authority (FCA) confirmed the cessation of Libor immediately after December 31, 2021, for sterling, euro, Swiss franc and Japanese yen settings, as well as the one-week and two-month US dollar settings. The remaining settings under US Libor must be ceased immediately after June 30, 2023.
Regulated firms should focus on the operational transition by increasing the usage of alternative rates and must not use the interbank rate for any new contract this year now that they have nine months until the discontinuation of Libor.
“The biggest challenge to this point has been getting contractual terms. Now we have to execute what is in the contract. The shift has gone from getting the terms right to operationalising set terms,” said Granet.
Randal K Quarles, the Federal Reserve’s vice chair for supervision, echoed the need to cease any Libor-based settings.
“These announcements are absolutely not meant to support new Libor activity or continued business as usual. Instead, they are meant to completely end the new use of Libor while allowing a significant portion of legacy contracts to roll off before the key dollar Libor tenors stop publication,” he said at an event held by the ARRC yesterday.
In January, RFR-linked Interest Rate Derivatives (IRD) DV01 increased to $2.9bn compared to $2.4bn the prior month, marking a slight uptick of the fallback protocol, according to ISDA.
In a report published on March 22, ARCC highlighted the “tremendous progress” made in transitioning away from the US dollar-based Libor within the last year but revealed that there remained products, including business loans, that had not ceased the usage of the interbank rate.
From the end of March, the ICE Benchmark Administration will cease the publication of all sterling Libor settings – a deadline that Granet deems “realistic.”
“The market has had very strong movement and transition for a long period of time. It’s an inevitability,” he added.
The deadlines published by the FCA will also enable market participants to navigate tough legacy issues appropriately. As protocols and fallback languages are adopted, the market is able to “pin down” what is true around trough legacy, according to Granet. Read more
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Jeremy Chan
Heads of the BIS, Bundesbank and Fed wary of digital currencies Read more
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