The ABCs


by Amy Bussler

   ELECTRONIC BENEFITS TRANSFER: at first glance, it�s not exactly a phrase that strikes excitement in the hearts of most ISOs. But there�s much more to EBT than you�d think, including some significant revenue opportunities.

A Brief Primer

   EBT is the process by which states allow payments for various types of government-assistance programs to be made electronically, rather than by issuing paper checks or coupons. The most well known instance of EBT is the food stamp program.
   Several years ago, the USDA mandated that states switch from paper food stamps to electronic transfer. Consumers are able to swipe a debit card at the point-of-sale, instead of keeping up with paper coupons. Currently, 42 states are fully online with EBT for food stamps and most of the rest are pending.

What�s On An EBT Card?

   Many things! Food stamps are just one aspect of EBT. Many states also make the following cash benefits available via EBT cards: Social Security, Supplemental Social Security Income, Veterans Compensation or Pension, Civil Service Annuity, Railroad Retirement and Federal Salary.
   Harold Petersen, Product Specialist at SHAZAM, explains, "Basically, an EBT card is just like any consumer�s debit card. A debit card can be linked to two accounts � a checking and savings account. Similarly, an EBT card can be linked to a food stamp and/or cash benefits account." The merchant selects the appro- priate transaction to run (food stamp or a cash benefit purchase) to determine the right account to debit.

How Are Funds Transferred?

   Funds are transferred by ACH. For both the state and the merchant, this has proven to be a terrific means of reducing fraud and paperwork, while speeding the reimbursement process. For the ISO, the security of ACH funds are especially attractive � no more chargebacks!

What About The Hardware?

   When the government rolled out EBT for food stamps, most states offered free terminals to merchants who wished to participate. However, this terminal can only be used for EBT purposes, not for regular credit or debit transactions. Thus, merchants may end up with two separate terminals on their countertops � one for credit/debit and one for EBT.
   One opportunity for ISOs is to convince the merchant to add EBT to their normal credit card terminal. With EBT as another application on the merchant�s terminal, the ISO can receive a transaction fee, just as with a normal credit or debit transaction. Bob Bucceri, Immediate Past Chairman of the EBT Industry Council and a consultant to the Electronic Funds Transfer Association, notes, "One benefit of EBT acceptance is increased sales to the ISO, because consumer purchases are done electronically through a POS-initiated transaction. Under the old paper-based system, the ISO didn�t get a chance to benefit at all from the consumer using food stamps."

EBT Limitations

   It�s true that EBT, in the sense of "food stamps," can have a limited appeal for many ISOs. A majority audience for food stamps is large grocery and drugstore chains � not exactly the target market of many ISOs.
   However, even in the realm of food stamps, there are opportunities right now. TransFirst is a processor based in Boulder, Colorado. Melissa Piccolo, Technical Support Specialist, notes, "A good number of our ISOs provide EBT services to regional and individual grocery stores. One thing many people don�t realize is that it doesn�t require �star wars� style terminals to support EBT � a Tranz 380 can handle many states� requirements just fine."

The Cash Cow

   ATMs are set to profit mightily from EBT cards. If a state or financial institution allows ATM surcharges, then an EBT cash withdrawal can be surcharged just like any other transaction. Considering the vast number of recipients of cash benefits across the country today, it can be a significant source of revenue for ISOs that sell ATMs.

Is It Ethical?

   Some folks have wondered if it�s ethical to surcharge cardholders who are obviously economically disadvantaged. One justification for doing so goes back to the rationale behind the original welfare reform act of 1996. Harold Petersen says, "When we met with the State Directors of EBT programs early on, we were told the purpose of welfare reform was to move welfare recipients into the mainstream of American society. The fact is, ATM surcharges are a normal part of money transactions. If an EBT cardholder doesn�t want to pay a surcharge, there are certainly alternatives. He or she could open an account with a financial institution and have their cash benefits directly deposited."
   In a heart-warming nod to social responsibility, some measures have been put in place to guard against EBT abuses. For instance, the state of Minnesota passed a law banning EBT card acceptance at ATMs located in casinos. Petersen adds, "This does not stop the EBT cardholder from using the ATM across the street from the casino."

Opportunities In EBT

   Looking toward the future, EBT will be expanding far beyond food stamps and cash benefits. One new horizon is child care subsidies. With child care subsidies via EBT, consumers can swipe a card at a care provider location to pay for benefits. Just as with food stamps, this would prove immensely beneficial to both care providers and states in reducing paperwork and fraud, while speeding reimbursements.
   It�s not yet known whether the hardware situation will play out exactly as it has for the food stamp market, but it seems likely. Bob Bucceri says, "The exciting nut to crack for ISOs would be the sales and installation of the terminals to care provider locations." If states are mandated to provide terminals at no cost for participating child care providers, then ISOs may have the opportunity to upsell them an all-in-one terminal that will process their credit card transactions in addition to EBT.

In Summary

   Keep in mind that EBT is already much more than just food stamps. Cash benefits programs, such as welfare and social security, provide opportunities right now for ISOs to benefit from transaction fees through regular transaction terminals and ATMs. It�s uncertain how the ISO opportunity will shape up for new markets such as child care subsidies, but it will be fascinating to find out.