Chip cards are becoming a part of the plan for electronic benefits transfer systems.
Advocates of the advanced payment cards believe their computer chips can add a level of security to EBT systems, which supplant paper food stamps, welfare checks, and other paper government payments with electronic funds transfer methods.
In a sign of the surge of interest in chip cards, EBT was one of the key topics at a recent conference in Washington on smart card technology.
T. Jerry Williams, EBT project manager for Wyoming, told the Cardtech/Securtech conference that his state began converting food stamps to the WYO smart card program which was initiated in 1992, originally offering WIC (women, infants, and children nutritional benefits).
The program, renamed PayWest, will issue 12,000 chip-embedded smart cards for use over the next 25 months. PayWest, which began in March, uses the automated clearing house network, via Norwest Corp., to deliver funds from state and federal fund accounts.
Point of sale terminals have been provided to participating merchants for the test. Data files are transferred between the retailers and the state's computers, allowing the system to update benefit authorizations, replenish benefits, manage card issuance, and transfer payments, said Mr. Williams.
In Ohio, the state government is in the process of implementing smart card technology to link many benefit programs, including Social Security, veterans benefits, unemployment, disability, in addition to welfare, on a single card.
Joseph "Jody" Zimmerman, assistant deputy director of the Ohio Department of Administrative Services, said the Ohio Data Linkage Project should be running sometime in the summer of 1996.
He said benefits would be available to recipients through kiosks in post offices throughout the state.
Mr. Zimmerman said the plan would comply with commercial standards, and the state is working closely with the National EBT Task Force, the U.S. Treasury, and the Federal Smart Card Users Group to ensure interoperability with the national interchange system that is expected to evolve.
The Ohio official said he viewed the banking community, including the Smart Card Forum, which represents banks and many others interested in the technology, as an integral part of the process. "We have to form partnerships with the private sector," he said.
Governments modernizing their paper-intensive, fraud-prone payment systems want to use existing private-sector networks as the foundation for regional and eventually nationwide electronic benefits transfer.
The current automated teller machine and point of sale networks provide an infrastructure on which the government can implement its programs cost effectively. As set forth in the Clinton administration's "reinventing government" initiative, a national system could take shape within five years.
Iana L. Schmitzer, senior project manager at Phoenix Planning and Evaluation, said EBT would follow a growth pattern similar to that of electronic funds transfer - from several closed systems to one open system under federal supervision. But she added that the government "hopes to skip some steps EFT took over 20 years."
She said standard operating rules would keep costs down. If EBT and debit transactions functioned alike, she said, market acceptance would come easier.
She said EBT could be a subset of EFT, making government a partner with the private sector. "The more government fits into the infrastructure (already in place), the cheaper it will be to implement the system."
Ms. Schmitzer agreed with other speakers that chip cards will be too expensive until the private sector adopts them. "If chip cards become widespread, EBT is sure to follow."
David Bragin, treasurer for Winn-Dixie Stores Inc., said, "In concept, grocers, merchants, and financial institutions support EBT," but it will result in the "cost shifting from the public to the private sector."
He said many retailers that don't now take electronic payments will be forced to invest in systems that let them accept card-based food stamps and other EBT payments.
He said a national program will be a "vast improvement" over the piecemeal state efforts already under way. EBT2, as insiders call the national system that would supersede the EBT1 state programs, will give recipients access to their benefits wherever they travel, along with a single set of operating rules.
"EBT should not be a springboard for chip technology," he said, instead smart cards must be widespread first, and EBT should "piggyback" onto it.
A majority of states are implementing EBT programs designed to streamline welfare's monetary distribution system.
Richard Mellinger, EBT project director of the Department of Health and Rehabilitative Services in Florida, representing the Southern Alliance of States, said eight states are banding together to form a regional EBT network: Alabama, Arkansas, Florida, Georgia, Kentucky, Missouri, North Carolina, and Tennessee.
The program will include food stamps, Aid to Families with Dependent Children, Social Security, and Supplemental Security Income.
Mr. Mellinger said the alliance brings economies of scale to the network, which will serve over three million recipients. The program could expand since other states have expressed interest, he added.
The alliance is working closely with the Federal EBT Task Force.
Pilots are scheduled to begin by March 1996 in each of the eight states, but a temporary injunction against the Treasury Department's invitation for expressions of interest to acquire banking services has delayed progress. (See accompanying article on page 17.)
While the alliance will forge ahead with magnetic stripe technology, Mr. Mellinger called the program "a very strong candidate for smart card applications," adding, "we intend to ride the techno-freeway."
EBT payments will be accessible to recipients through the ATM networks. Mr. Mellinger said government would pay fees to the banking networks, with recipients picking up the tab after the first few transactions per month.
Mr. Mellinger noted other regional alliances: a group of states in the Northeast led by Massachusetts and New York have banded together; South Dakota, North Dakota, and Utah are close to entering a contract with a service provider; and another consortium, led by Oklahoma, Louisiana, New Mexico, and Kansas, started hearings last month to chose a contractor.