APIs vs. EDIs: Which Choice is Best?

A seamless data flow is vital for consumer-packaged goods (CPG) manufacturers, insurance companies, government agencies and other organizations that largely rely on legacy technology. But what powers the exchange of information? Two main technologies—APIs (application program interfaces) and EDIs (electronic data interchanges)—play a role in data transfer, but their capabilities and benefits differ widely. For companies looking to modernize, one stands out.  

EDIs vs. APIs: The Evolution of Data Transfer Technology 

To understand which approach is best for ambitious organizations, let’s first define the main components of an API versus an EDI.  

EDIs: The Original Data Conduit 

An EDI is a data transfer tool that connects two systems, often used in industries like manufacturing, logistics, and certain healthcare segments. Originating in the 1960s and 70s, EDIs standardized data exchanges between organizations, but haven’t evolved significantly since.  

Their original intent was to speed up the manufacturing process to meet the needs of just-in-time manufacturing. Manufacturers could use EDIs to order parts from their supplier quickly and without the need for duplicate order entry. Here’s what defines EDI: 

• Uniform File Formats: EDIs use specific formats like EDIFACT or X12, supported by VAN or FTP protocols.   

• Batch Processing: Data transfer happens in intervals, limiting flexibility and causing delays. EDI works much like a clearing house, where all transactions are transmitted to a central location and distributed out from there. 

• Industry-Specific: EDI is well-established in industries requiring strict compliance and regulatory standards, such as healthcare, where transaction formats and sequences are well-defined. 

• Secure but Older Protocols: EDI is secure but often relies on older protocols (like AS2 or VANs) rather than the newer security models used in APIs. 

Although functional, EDIs demand specialized knowledge and are costly to maintain. The batch processing method is particularly restrictive for companies who need real-time updates. These characteristics have made EDIs unsuitable for organizations that need real-time access to information, especially as they struggle to keep up with digital transformation needs. 

APIs: The Next-Gen Data Connector 

APIs, by contrast, have evolved to address the limitations inherent to EDIs, offering a dynamic, efficient solution for data sharing. Here’s how APIs are redefining connectivity:  

Real-Time Data Exchange and Responsiveness 

APIs offer real-time data exchange, which is crucial for industries that thrive on up-to-the-minute information. This immediacy supports better decision-making and enhances overall service delivery, particularly in sectors like finance, insurance, and e-commerce. 

Cross-Platform Compatibility 

By leveraging common data formats like XML and JSON, APIs can facilitate communication across diverse systems. This flexibility eliminates the need for complex, custom integrations, resulting in a more cost-effective deployment. 

Use of Widely Known Protocols 

APIs utilize familiar protocols such as HTTP and HTTPS, streamlining the process for developers. This familiarity reduces the learning curve and simplifies the implementation and maintenance of data connections. 

Security 

Modern security standards such as OAuth and JWT are integral to APIs, ensuring data access is both secure and controlled. This is a significant improvement over traditional EDIs, which may not be as robust in their security measures. 

Versatility and Point-to-Point Communication 

APIs shine in their versatility, enabling integration across a multitude of applications ranging from CRM and e-commerce platforms to social media and cloud services. The direct, point-to-point communication model of APIs contrasts with the clearinghouse model used by EDIs, enhancing connectivity and performance. 

Seamless Integration and Operational Efficiency 

APIs enable seamless integration between various business systems. This promotes operational efficiency by automating data flows and reducing the reliance on manual processes. Faster, more accurate data exchanges--vital for maintaining competitive advantage—are the result. 

Let’s use insurance as an example. How might real-time data flow improve an insurers operation? There are a few ways it could benefit them and their customers: 

1. Customer Experience: Customers expect 24/7 access to information and status updates. Real-time updates make that possible. 

2. Sales and Service Efficiency: Brokers rely on accurate commission data to manage policies and assist employers effectively. An APIs cross-platform compatibility allows them to access data from other systems to gain that perspective.  

3. Claims Processing Speed: Adjusters and administrators need up-to-date information to expedite claims, assess risks, and provide superior customer support. Point-to-point data access through APIs accelerates those services.  

In a modern insurance market, it’s essential for providers to embrace data fluidity. APIs empower them to do so, providing the flexibility to respond to customer needs and market trends quickly. 

API or EDI: Which is right for you? 

The choice between an API and EDI depends on the specific needs of your business and the nature of the data being exchanged. 

While EDI can be useful for businesses that rely on a lot of legacy technology, its rigid structure, high maintenance costs, and batch processing may not be aligned with the demands of a digitally reliant world. 

APIs are much more flexible and adaptable, making them suitable for a wider range of use cases. They can also be customized to specific business requirements, enabling innovative solutions and integrations with various systems. 

Ultimately, if your business uses legacy technology and doesn’t have the infrastructure or budget to modernize, EDIs are still a necessary choice. If, however, you are modernizing operations with Cloud-based applications, then APIs will deliver the customization and real-time processing to move you forward. Overall, moving to APIs is the most scalable option for the long-term, if you can swing it.  

Concluding Thoughts 

Electronic Data Interchanges have supported specialized industry needs for decades, but consumer demands are forcing a shift beyond these standards. Businesses in every sector must consider the benefit of APIs for real-time data exchanges and up-to-date security standards.  

IPaaS platforms like StarfishETL support a more seamless API transition with visual mapping tools and AI functions that guide faster outcomes. To learn more about what an EDI to API transition might look like for your company, contact us at sales@starfishetl.com.