EBT: Nationwide Expansion Underway
policyworks.gov
by Jonsi Stone, National Automated Clearing House Association
Electronic benefits transfer (EBT) is sweeping the country with increasing speed. Hardly a month goes by without one or more States initiating an EBT project. Eight States have implemented Statewide programs. Fifteen more have begun the process of phasing in implementation. EBT can be used to deliver both food stamp and cash benefits. Instead of receiving a food stamp coupon or a check, recipients are given a plastic card with a magnetic stripe that can be used at ATMs or point of sale (POS) terminals.
EBT is popular in locations where it has been implemented. For financial institutions, EBT increases the volume of ATM transactions and expands the POS market. When fully implemented on a nationwide basis, the EBT Council estimates that EBT will generate 1.3 billion transactions a year. For recipients, EBT eliminates the stigma associated with using food stamp coupons in a grocery line, makes accessing benefits more convenient, and makes benefits more secure through the use of a personal identification number (PIN). It saves governments millions of dollars by eliminating the cost of printing food stamp coupons that are used once and destroyed, and it eliminates the need to have coupons delivered by armed guards and stored in vaults at distribution centers. Merchants no longer have to accept, count and deposit food stamp coupons. It's easy to see why EBT has
been received so well.
Until recently, EBT has been implemented in State-by-State projects that did not communicate with one another. With these closed systems, recipients could not access their benefits outside their home States. The prime contractor typically deployed terminals needed for the project, and efficient use was not made of commercial terminals that were already in place. Increasingly, these early systems are being replaced by open systems that allow recipients to access their benefits across State lines. Benefits are portable, and the systems will be interoperable. This interoperability between EBT systems helps preserve an important feature of the paper coupon system, which allows food stamp recipients to purchase food anywhere in the country,
regardless of where their benefits were issued.
The foundation for interoperability is a set of nationwide operating rules, known as the Quest7 Operating Rules (Rules), which were developed by the EBT Council. The EBT Council is a public/private partnership that was established specifically to promote nationwide EBT by developing uniform operating rules. This uniformity is important because it means that merchants, networks, and financial institutions that participate in multiple States' EBT projects will not have to develop unique procedures and software to accommodate each State's system. Use of the Rules ensures uniformity in the responsibilities and liabilities of the various parties. Requirements are also established for factors such as transaction sets, receipts, and signage. The Rules are incorporated into an EBT system when a State requires its EBT contractor to comply with the Rules.
The EBT Council comprises payments networks, issuing financial institutions, acquiring financial institutions, merchants, governments, and other EBT service providers. Over 40 States are represented on the Council either directly or through coalitions that have been formed to implement EBT. Major coalitions, for instance, have been established in the Southeast, the Northeast, and the West.
All of the coalitions belong to the Council and have decided to use the Rules. Colorado was the first State to use the Rules when it initiated its EBT project in February 1997. Six other States have since begun using the Rules (Alabama, Connecticut, Georgia, Massachusetts, Minnesota, and Missouri). The EBT Council estimates that over 20 additional states will be using the Rules by the end of 1998.
The EBT Council, which was created in 1995, operates under the auspices of the National Automated Clearing House Association (NACHA). NACHA writes the operating Rules for the Automated Clearing House (ACH) system. The Council was developed under the NACHA umbrella because NACHA has experience in writing rules for electronic funds transfer, has experience in working with the Federal Government and the States, and was viewed as an honest broker in assuring that the
interests of all the stakeholders are fairly represented. The Council meets several times a year and, in addition to maintaining the Rules, provides a forum for the exchange of information on EBT. The Council has created a number of committees and workgroups. The Committees include those dealing with the Rules, education and marketing, and fraud. Workgroups have also been established to deal with adjustments and store and forward procedures.
The Rules adopted by the Council are modeled after commercial networks' operating rules. They are tailored, where necessary, to EBT. For instance, the Rules contain provisions governing food stamp transactions, which are not addressed by commercial rules. Like commercial operating rules, the Rules are modified to reflect industry changes or other developments. Since the Rules were first adopted in April 1996, they have been amended several times.
In opting to use the commercial infrastructure to implement EBT, States have demonstrated a commitment to using the systems and terminals that are already in place. In opting to use the Rules, States have embarked on a public/private partnership that will open up new opportunities to both the States and the private sector. The States will benefit from using rules that are already drafted and tested and that give them access to terminals throughout the country. Financial institutions and networks will benefit from increased transaction volume and, like merchants, will benefit from the uniformity between States.
For more information contact Jonsi Stone at 703-834-2358 or via e-mail at jstone@nacha.org
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