As the world has become more digital and commerce has increasingly moved online, the decades-old electronic data interchange (EDI) technology has garnered a sullied reputation, especially with more direct-to-consumer (D2C) brands looking to sell products through enterprise retailers.
“It was formed with pre-internet assumptions, and because it’s a standard, it’s very hard to change,” Roger Kirkness, co-founder and CEO of supply chain software company Convictional, told PYMNTS in an interview.
For example, he said, EDI doesn’t have a document type for sharing eCommerce content, which means companies need to either hijack the meaning of an existing document or use a separate process, thereby slowing B2B transactions.
Over $5 trillion-worth of B2B trade per year occurs using EDI, which means for the most part, companies are “bound to a standard that is basically, in many ways, no longer relevant and yet also unchangeable,” Kirkness said.
“As the way that companies have traded with each other has changed, [EDI] has not kept pace,” he added.
The use of EDI also often acts as a roadblock to D2C companies that want to move into third-party sales through enterprise retailers such as Staples, Harry Rosen and Scandiborn. EDI is incompatible with modern sellers’ use of application programming interface (API)-based eCommerce platforms such as Shopify, meaning that D2C brands typically must build a new, parallel tech stack for B2B sales.
“It’s like, we can put more money into ads, or we can make this six- to 12-month investment,” Kirkness said. “They’re going to put it off pretty much as long as possible.”
What Convictional aims to do, though, is act like a “Google Translate” between buyers who use EDI and suppliers who use API, Kirkness said, which allows purchase orders to stay consistent and accurate.
“We’re not a marketplace,” he said. “We’re not intermediating that commercial relationship. We’re simply providing the rails.”
As of right now, Kirkness said Convictional relies on Stripe to provide the payment rails, but something the company will likely do “sooner rather than later” is factoring invoices for both sides.
“If you’re selling to a major retailer, the invoice is quite assured of being paid,” he said. “It may be late, but ultimately, it will get paid. So, you can take some of that money off the table in the form of factoring the invoice. And that concept applied to what we do is actually a very clean gap-to-bridge.”
A Momentous Shift
Kirkness and his co-founder, company President Chris Grouchy, are both former Shopify Plus team members who helped launch Shopify’s wholesale channel, which Kirkness said opened their eyes to the problems that D2C companies were having with B2B commerce.
“Our belief is that the easier you make it to trade, the more trade will happen,” he said.
Kirkness compared the shift away from EDI in retail and B2B commerce to the API shift happening with financial services, allowing institutions to connect seamlessly with both businesses and customers. Similar to that transition, EDI won’t go away overnight, but it will be a long-term migration, which can be facilitated in part by Convictional.
“We’ll connect via EDI, but we’ll also connect via API, and over time, they’ll shift their usage toward the APIs,” Kirkness said. “It gives them a migration path.”
Convictional recently raised $6.7 million in Series A funding, led by venture capitalist Lachy Groom, who also led the company’s 2019 seed round out of Y Combinator. Convictional plans to use the capital to invest primarily in research and development to expand its platform and grow its network of connected suppliers and retailers.
Convictional is not the first company to seek ways of marrying EDI and API; Orderful, a tech startup founded in 2017, is also focused on facilitating data exchange between buyers and suppliers in the supply chain in an attempt to accelerate the time it takes for B2B vendors to integrate with corporate systems.
Read more: Supply Chains Explore the API Opportunity
“The technology isn’t that hard,” Erik Kiser, Orderful’s founder and CEO told PYMNTS in an interview. “What’s really challenging is the communication between two organizations and lining up schedules so that the company and supplier can actually start trading data.”
A Decade Behind
Some, however, say that the long history of EDI is actually a competitive advantage. Todd Gould, CEO and founder of Loren Data, told PYMNTS that the fact that the technology has been around for a long time “in itself is not necessarily a bad thing.”
“The power of EDI is that the work has been put in,” Gould 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.”
From Kirkness’ viewpoint, though, EDI is too far behind other eCommerce infrastructure and software.
“EDI is much further behind in terms of maturity and the modernization effort by probably 10 years,” he said. “I think it’s like, whatever potential people saw 10 or 15 years ago for things like eCommerce and web-based payment gateways is what I see when I look at what’s going on with EDI.”