The race is on for potentially lucrative government charge card contracts, and the number of entries indicates it's going to be a tight one.
The General Services Administration shot the starting gun Thursday, issuing a long-anticipated request for bids to provide card services for more than $12 billion of annual federal spending.
Major commercial card issuers are salivating at the prospect. The government business is growing and opening up to more providers.
The federal administrative agency previously had contracted with one vendor in each of the card categories: travel and entertainment, purchasing, and fleet. Awards can now go to multiple vendors in each area.
A bidder conference is scheduled for Sept. 23, bids are due Oct. 28, and decisions are to be made next January for contracts that take effect the following November.
"We want a lot of new technology to be available to federal agencies," said Sue McIver, deputy director of the GSA's services acquisition center. "We've got a core group of services and we're looking for value-added services on top of that, from people who offer it at a reasonable price."
U.S. Bancorp, which today holds the federal purchasing card contract, is investing tens of millions to tailor its systems to revised specifications.
American Express Co., which now provides the T&E accounts, is hoping to get a piece of the fleet business as well. The current contractor for government vehicle fuel purchases is Multi Service Corp. of Overland Park, Kan.
BankAmerica Corp., Citicorp, NationsBank Corp., and First Chicago NBD Corp. are among the others hankering to play a role and marshaling the necessary, higher levels of technology.
"Everyone in the card industry is examining that work plan right now," said Cathy Raffaeli, Citicorp's executive director of commercial cards. "Clearly, the government is looking for a smart card solution."
Steve L. Abrams, senior vice president of corporate products for MasterCard, called the GSA auction " a tremendous opportunity to grow our business, and it's business that we don't have today."
Partnerships are also taking shape. American Express has announced an agreement with Wright Express, a major fleet card issuer, to make a collaborative bid. Amex does not now offer a fleet card on its own.
The current GSA contractors are not the only card issuers with experience handling government business. Banks with significant corporate card programs-and there are fewer than a dozen that hold sizable market share-already contract with states and municipalities for various business- type cards.
For instance, in late August, NationsBank and Visa announced a purchasing card contract with Florida. The state anticipates saving $300 million a year by converting all purchases under $1,000 from paper to electronics. Of 4.4 million Florida transactions a year, four million are for less than $1,000.
Those numbers would likely be dwarfed by any contract NationsBank won from the GSA.
"We're taking a very serious look at the (federal) government contract," said Jeffrey Rankin, senior vice president of NationsBank's card services division. "We have a team of individuals evaluating that whole opportunity, and I think you'll see NationsBank right in the middle of that."
NationsBank is the eighth-biggest issuer of commercial bank cards, according to The Nilson Report. First Chicago, which also counts states and municipalities as corporate card clients, is third.
The GSA business "is a significant opportunity for the corporate card providers, and we are looking to participate in that program," said David W. Houser, first vice president at First Chicago.
The three current contractors say the business has been a windfall for them, both in dollars and prestige.
"Taking on purchasing for the U.S. government absolutely cemented us in (the commercial card) business," said Philip G. Heasley, U.S. Bancorp vice chairman and president of its retail product group.
Through a subsidiary, Rocky Mountain BankCard System, Minneapolis-based U.S. Bancorp (formerly First Bank System Inc.) manages more than 239,000 purchasing cards issued to federal offices and agencies. The GSA estimates the purchasing card program has saved $700 million over seven years.
For travel needs, American Express provides 1.4 million charge cards for individuals and 8,000 cardless accounts for agencies, according to the GSA. (The latter are centrally billed accounts held by an agency, as opposed to an account assigned to a particular employee). The five-year estimated sales volume through the contract is $15 billion.
The fleet card from Multi Service Corp. serves 58 federal agencies, with transaction volume of $150 million to $200 million a year.
In the new contract cycle, the GSA plans to seek out "a wide range of vendors" with high-technology capabilities, said Ms. McIver of the GSA.
"We see these not just as procurement tools, but as feeding into agencies' backroom processing," she said. "We felt that some agencies might want to integrate all three of the cards into one program."
She said it is still uncertain how smart cards will fit in. "We just want certain functionality, and we think a smart card may be the best way to provide that. But we don't just want to say, 'Hey, put a chip on that card.' "
David Robertson, president of the Oxnard, Calif.-based Nilson Report, said the winning bids are likely to involve smart cards.
"The government will be interested in pushing the envelope as far as it can, which it typically does on contracts whether or not they're in the card industry," Mr. Robertson said. "That goes beyond simply low price. There certainly are a number of federal-level bureaucrats interested in finding out what chip can do for them."
With more banks claiming expertise in commercial cards than ever before, the competition for the government contracts is likely to be fierce.
Not resting on its laurels and seeking to further impress its government client, U.S. Bancorp has three smart card pilots under way. Though executives are deliberately vague about details, Steve Putney, president of corporate payment systems, offered a rough outline.
They are "very different than most other smart card pilots," he said. "They don't have a stored value function. They're more along the lines of putting multiple applications on the chip that are corporate-oriented."
The government is not its only target. U.S. Bancorp hopes the technology will attract large corporate customers.
"One of the reasons people utilize corporate payment systems is for the data," Mr. Putney said. "We have built in very sophisticated relational data bases, desktop management systems, and benchmarking so that clients can measure their performance versus peers."
Years of corporate card experience and service to the government have U.S. Bancorp sounding slightly cocky.
"Most of our competitors," Mr. Putney said, "are still trying to figure out how to provide a card."