Value-Added Network (VAN)
A network that facilitates electronic data interchange (EDI) between businesses
What is a Value-Added Network (VAN)?
A value-added network (VAN) is used by businesses to exchange information among each other. The main goal of a VAN is to facilitate electronic data interchange (EDI) between businesses. The VAN sits on top of an existing common carrier. The carrier provides additional services on top of the infrastructure called value-added services. Hence, the name value-added network.
A VAN is a closed network, which means that only members of the network can access the data. VANs are not connected to the wider internet and use a different infrastructure.
Typical provider of VANs include:
- Telecommunication companies
- Industry groups
- Specialized service providers
- Large companies
Types of Value-Added Networks
There are three types of VANs, based on how the computers in the network are connected:
1. One-to-One
The one-to-one network is a connection between two businesses exchanging data.
2. One-to-Many
A single business connected to multiple other businesses, e.g., a major retailer connected to its different suppliers.
3. Many-to-Many
Multiple businesses connected to one another. This is the most common type of network used in the financial markets since there are many market participants connected to each other via a single venue.
Benefits of VANs
Value-added networks enable electronic communication between businesses, taking advantage of available technological benefits, as listed below:
1. Error correction
VANs help in error correction, as they reduce human involvement, and improve recordkeeping. They can perform checks at the transaction level and ensure minimal error.
2. Improved exchange
The exchange of data becomes real-time with VANs. This improves decision-making and record-keeping and provides essential business intelligence to generate insights about operations.
3. Secure
Electronic data transfers can be made securely using encryption. All communication between businesses can be encrypted to protect business secrets.
4. Standardized
VANs transfer data using standard formats, such as XML and CSV. They allow the data to be read by the various Enterprise Resource Planning (ERP) software used by companies. They also enable the use of newer technologies without making changes to existing technology.
Challenges for VANs
Value-added networks are extremely useful. However, in the age of the internet and highly developed communications capabilities, there are some considerations, including:
1. Building costs
As stated before, VANs are standalone networks, which means a company would need to hire specialized individuals to build the network, as well as pay for the infrastructure. On the other hand, internet-based systems come with most of the infrastructure already in place and need only the software work to be done.
2. Maintenance and upgrade
Technical and specialized staff is required to keep the network running. Moreover, upgrading is also difficult due to the unique nature of the networks. In comparison, internet-based technologies are much easier to maintain without requiring a very high degree of technical sophistication.
More Resouces
CFI is the official provider of the global Commercial Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional CFI resources below will be useful:
