The General Services Administration's master contract is the largest commercial card contract in the world. The program also has many precedent- setting features that will become the standard for the global commercial card marketplace.

Our firm has published the first comprehensive review of the GSA master contract, finding that government card spending is far higher than earlier numbers indicated.

In 1998, cardholders from federal agencies made more than 54 million transactions, representing $12.6 billion in sales.

The program has been growing at double-digit rates: Transaction volume in 1998 was 36.27% higher than in 1997, and growth in the purchasing card sector was particularly high-57.78%-compared with fleet cards (25.46%) and travel cards (6.27%).

The new contract, made effective Nov. 30, covers two million cardholders at 150 agencies, with five bank card issuers. In addition to fleet, travel, and purchasing cards, this contract provides for a fourth product, which integrates two or more of these functions-setting the stage for pilots using hybrid, smart, and stored value cards.

As with the proverbial pebble in the pond, the ripples go on and on.

Among the program's performance standards and accountability factors is the essential requirement for electronic access at multiple levels within each agency. The bank issuers and their processor, Total System Services Inc., must fully support this capability, because public and private users have high expectations.

The GSA program also sets precedents in card design, printing, and embossing. The agency established its own card design and program name- SmartPay-and forced the card associations to approve it. The design includes unique graphics, detailed printing, a hologram, and specific embossed detail.

These requirements have an impact on the processor, Total System, along with the issuers, which must maintain and control their card stocks. GSA covered new ground in card design.

Another precedent was the license for each issuer to decide which products they would bid to provide. This let each agency select the bank that best met its task order requirement (the contractual specifications detailed for each agency). The issuers must consistently meet an agency's expectation for the life of the contract, which run from two to five years.

The concept of a master contract with multiple programs and issuers-and the option to change issuers-may be duplicated by state and local governments and large corporations.

GSA emphasized the electronic capture and movement of data. All invoicing and payments are fully electronic; each issuer must support daily electronic reporting and inquiry at multiple levels within each agency. For example, the Department of Agriculture and its largest bureau, the Forest Service, and its regional offices all have electronic access to cardholder and account data. The link can be used to distribute paperless reports and develop internal analysis.

Large private and public-sector users probably will follow suit to improve the timely receipt of information and support their need for access and program accountability.

Notable is SmartPay's allowance for purchases within and among agencies. The GSA will work with the Treasury Department, whose USA Card will not be subject to interchange fees. The agencies will pay only a per-transaction fee, and the Treasury Department will credit and debit the respective agencies' accounts. Large corporations or state governments could emulate this approach.

Another precedent concerns prime contractors who "ride" an agency's task force order to accommodate both their purchasing activity and their selling to the agency. One immediate benefit is that the agency can elect not to pay the normal merchant discount rate when buying from its prime contractors and can pay a per-transaction fee instead.

Other governments can follow this example to lower purchasing costs and divert transactions from the credit card chain-including the associations' fee structure.

GSA data show that program transaction volume for the fiscal year that ended Sept. 30 was $12.6 billion. (See chart.) This is nearly $1.5 billion more than previously reported.

The purchasing card program showed the strongest results: Average transaction size, $484, was more than double the private sector average.

In 1996, government purchasing cards generated less total dollar volume than government travel cards; during fiscal year 1999, purchasing cards are expected to generate more than twice the dollar volume of travel cards. This program is projected to grow 35% a year for the next few years.

According to the government's data, $53 was saved with each purchasing card transaction made in 1998. Multiplying that by the more than 16.4 million transactions gives realized savings of $871.7 million. These savings are passed on to the American taxpayer through reduced government spending.

If the program grows as expected during 1999, the federal government could realize nearly $1.2 billion in administrative savings over its prior paper-based procurement methods. This creates a winning situation for the issuers, agencies, government, and taxpayers.

The average ticket on travel card transactions came in lower than the industry average, in part because of the negotiated rates that the government gets from hotels, airlines, and car rental agencies.

However, many agencies are cutting back staff and substituting conference calls for meetings that require travel. Because this program encourages ATM access, over time it will displace travelers checks, though they remain an essential part of the GSA travel card program. The growth rate is likely to remain relatively flat for several years.

The average transaction price for the fleet program could grow if the issuers provide support for vehicle maintenance and repair transactions. The annualized growth rate is somewhat misleading, because until recently each agency maintained its own records of fleet activity and simply reported annual totals to GSA. Not all agencies reported fully.

In 1998, Wright Express finally had all the GSA-managed vehicles under its program but did not manage those fleets maintained by the agencies themselves. Because of such inconsistencies, exact numbers are simply not available. Though government data indicate a 25.46% growth from 1997 to 1998, the actual number is probably closer to 12%.

For the next few years, the fleet program will decline in its growth activity, travel card volume will remain flat, and purchasing will grow at double-digit rates. This means issuers with a strong percentage of purchasing card volume will see their programs and profitability grow; they are the clear winners under the GSA master contract.

By contrast, those with high exposure to the travel card may experience much of the frustration of the prior contractor, American Express Co. A high percentage of the travel card program may not be viewed as profitable over the life of the master contract.

The low average transaction of the fleet card program leaves little room for profitability. Those issuers with a high percentage of fleet and travel are the losers under the GSA master contract, unless they have a strong and growing presence with the purchasing card.

Among the five issuers-BankAmerica Corp., Bank One Corp., Citigroup, Mellon Bank Corp., and U.S. Bancorp-there are wide variations in GSA card contract market share (see chart).

The Citibank subsidiary of Citigroup appears to be a big winner, with contracts representing 36.91% of the program's overall transaction volume and 43.13% of the purchasing card volume.

Citibank also garnered most of the fleet card volume-53.99%-whereas Bank of America captured 66.63% of the travel card business and 13% of the purchasing card volume, which should balance its portfolio and profitability.

Some issuers aim to leverage the exposure and experience gained with the GSA card program to draw business from other government entities and the private sector. This could work as long as their performance and service delivery remain at a high level. Otherwise they risk suffering an "unsuccessful" image a long time.

GSA has achieved some victories at the expense of the card issuers. Its goals included maintaining overall management of federal card programs, retaining the flexibility to change issuers (thereby satisfying frustrations for the agencies under prior contracts), and participating in leading-edge technology by offering the government as a testing ground for new card concepts and products.

In the last case, the issuers struggled with the GSA-mandated time line that required all programs to be in place-and all accounts reissued-on the same day. This brought about the largest single commercial card conversion ever, and it caused long nights, great frustration, and perhaps some promises not delivered on time or in the manner expected.

The master contract concept was under development for over two years and took another 18 months to get from the draft solicitation stage to implementation. It contains valuable lessons for issuers, processors, card associations, as well as the public and private sectors. No other contract has been so closely scrutinized and evaluated.

Now that the issuers have left the starting gate, it may be too early to predict which ones will be standing at the finish line after the contract's 10-year run.

But it is safe to say that the GSA card program probably will be an even greater and more formidable force in 2008, when the next contract is implemented. Mr. Anderson is president of Anderson & Associates, a card and electronic fund transfer research and consulting firm in Arvada, Colo. The company is a division of Rawlins-Bell Enterprises Inc.

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