Citicorp made such a success out of one of its newer card-related ventures that it has the Department of Justice breathing down its neck.

Citicorp Global Debit Card Services, a Chicago-based unit responsible for the nation's biggest electronic benefits transfer operation, won most state contracts in 1996 and 1997 to automate the delivery of welfare money, food stamps, and other entitlements.

The company has worked on 17 state rollouts in the last 12 months and is the primary contractor in 29 states.

In February, Citicorp agreed to acquire the EBT contracts of Transactive Corp., a subsidiary of the lottery and gaming processor Gtech Corp. that was considered Citi's closest rival in the field. The elimination of competition prompted the Justice Department's antitrust division to sue in July to prevent the $11.5 million transaction.

Citicorp Debit - known until recently as Citibank EBT Services - must now try to avoid being penalized for doing what it seems to do better than anybody else.

EBT has been anything but a simple business proposition. Some contractors had growing pains and others near-death experiences as they dealt with the costs and logistics of automating bureaucratic procedures and educating "unbanked" people in the ways of automated teller machines and point-of-sale terminals.

"It takes a lot of coordination to make sure that all of the training and pilot rollouts" are in order, said Mark MacKenzie, president of the Citicorp division. "We are delivering on the promise."

As of June, Citicorp had 2.9 million beneficiaries on its system, with another million due to be on-line by yearend.

Citi has "done a good job of providing a service that's needed and has been able to ramp up to handle the volume," said Gary Glickman, president of Phoenix Planning and Evaluation Ltd., a Rockville, Md., consulting firm close to many government payment projects. "Clearly there are issues that have arisen - and some have been more difficult than others - but they seem to have met the challenge."

The antitrust suit, filed in federal court in Wilmington, Del., looms as one of the larger hazards to fall in Citicorp's path. The dispute is over Transactive's contracts in only four states, but one is Texas, the biggest EBT prize to date, with 635,000 food-stamp households.

Though Transactive was losing money in Texas, Citibank would be in a position to improve the terms when the contract comes up for renewal in 2001.

Citicorp and its competitors are also wrestling with the quagmire of last year's ruling by the Federal Communication Commission that allowed providers of toll-free telephone service to charge 34 cents for each call made by benefit recipients.

The bank has had to work with each state to determine who foots that bill, which runs several hundred thousand dollars in some states. In Massachusetts, for example, Citicorp is appealing the state's win in a nonbinding arbitration hearing in May. Other states have reached a compromise with Citicorp, while others have dropped toll-free service altogether.

Citicorp also must weather the trend of declining case loads, a result of both welfare reform and the strong economy, which hit Transactive particularly hard.

"That is a tremendous negative effect," said Mr. MacKenzie, who joined Citicorp 11 years ago and has managed various products in the cash management area.

"We provided bids and did pricing based on information that was provided to us. Shortly thereafter, all of a sudden, significant numbers aren't there. So that's a real challenge."

Citicorp and other contractors must meet quality dictates, and none is perfect, said Melba Price, associate director for policy coordination in Missouri's Department of Social Services. But she said Citicorp has been willing to bend the rules "on some things that were not necessarily part of the contract."

"You can't over-communicate in this environment," said Mr. MacKenzie, 47, who worked earlier in his career at Automatic Data Processing Inc. and Continental Bank in Chicago. "It's really ensuring that the stakeholders not only hear but truly understand what's required of them in order to be able to support a program."

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