Citibank cemented its No. 1 position in the electronic benefits transfer business this week with a lucrative deal to develop and operate a program in seven northeastern states.

The deal vaults Citibank into an almost insurmountable lead in the emerging field of electronic benefits transfer, in which automated teller machines and point of sale terminals are used to deliver welfare payments and other public benefits.

"Citicorp has positioned itself to be the premier EBT processor," said Michael D. Megary, senior vice president of Medford Group, a Berlin, Md.- based consulting firm. "Certainly with its contracts in the Northeast and the Southeast, Citi has gained a very large segment" of the national market.

On Monday, a seven-state group known as the Northeast Coalition designated a team led by Citibank EBT Services, based in Chicago, as the winner of its seven-month-long bidding process. The Citicorp unit now has the exclusive right to negotiate individual contracts with Connecticut, Maine, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont.

Last October, Citibank won a bidding war for a separate multistate consortium in the Southeast. Missouri has signed a contract with the bank, while negotiations continue with Alabama, Arkansas, Georgia, Kentucky, North Carolina, and Tennessee. The eighth state in the consortium - Florida - has announced plans to issue a new request for proposals, although it too still has the option of signing with Citibank.

Assuming Citibank signs contracts with all of these states, it would be performing electronic benefits transfer services for 21 states. It already manages such programs in Ohio, Pennsylvania, North Dakota, South Dakota, South Carolina, and Texas.

The Citibank team's successful bid for the Northeast Coalition was selected over four other proposals - from Chemical Bank, Fleet, NationsBank, and Utah's First Security Corp.

All of these banks and others are interested in electronic benefits transfer because it gives them a chance to parlay their transaction processing expertise into new fee-generating businesses.

For example, over a seven-year period, Citibank could rake in from $800 million to $1 billion in processing fees from the northeastern states' project alone, say experts. That's in addition to the estimated $400 million Citibank expects to gain from its contracts with the states in the southeastern alliance. A Citibank spokeswoman would not confirm these figures.

The spokeswoman said the bank expects to start negotiating contracts with the northeastern states immediately, with pilots to begin early next year, and full rollout to follow in 1998 and 1999, depending on each state's contract with the bank.

Citibank is leading a team of players that includes Bank of Boston, Deluxe Data Systems, Lockheed Information Services Co., and International Business Machines Corp. to develop the EBT program.

Citibank joined forces with Charlotte, N.C.-based First Union Corp. to successfully bid for work in the Southeast. Experts said that First Union's penetration in an area where Citibank has little market presence made the difference in Citibank's bid.

Bank of Boston - with its retail banking presence throughout New England - is playing a similar role in the Northeast. The other partners are expected to support Citibank in transaction processing.

In the Northeast Coalition states, there are 1.4 million households getting food stamps and approximately 1.1 million cash assistance cases.

New York has the bulk of the caseload, with about 1 million households on food stamps and 700,000 public assistance cases. The state's department of social services estimates that by using electronic benefits transfer, the state will reduce its benefits distribution administrative costs by up to 50%.

New York, however, has been hit with a lawsuit that may keep it from signing a contract with Citibank.

A New York official said the state expects to negotiate and sign a mutually acceptable contract with the bank sometime soon, and that the suit would not cause any delay. Citibank would not comment on the suit.

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