With the impirimatur of Vice President Gore, the Clinton administration has officially launched its program to automate the welfare system and other aid programs.
The planned nationwide system for electronic benefits transfer is supposed to be up and running, at least in a demonstration mode, within two years.
Government officials want to have a full-fledged program, using an existing infrastructure that includes bank-owned automated teller machines and point of sale terminals, in operation by 1999.
Mr. Gore's presence on Tuesday at a media event calling attention to the work of the Federal Electronic Benefits Transfer Task Force was symbolically important. The interagency task force was formed in November, largely to bring to fruition recommendations in the "reinventing government" study spear-headed by Mr. Gore.
The vice president stressed this week that the national network for welfare, food stamps, and potentially other aid and income programs "will use commercial financial networks, and [we will] make sure that [the EBT efforts] fit in with commercial standards, rules, and practices."
The national system would supersede the patchwork of state-based programs that has marked EBT's development to this point. Seven states are currently providing electronic benefits, primarily food stamps and mostly in test modes.
Because the national system will be built on the regional electronic banking networks, Mr. Gore indicated that it will not take an enormous amount of time or money to establish a national system.
"Every recipient of benefits will have access to those benefits within five years," Mr. Gore said.
Isabel Sawhill, associate director of human resources in the Executive Office of the President and chairwoman of the EBT task force, said a prototype for the national system should be working within two years.
As had been previously reported, the national EBT program will be a "single-card system," which means that those who receive benefits from more than one government agency will not need to carry a separate card for deck set of benefits.
The "benefit security card" - which could look like the one on page 1 with Mr. Gore's name inscribed - will resemble an ATM or credit card and will be usable at ATMs and point of sale terminals around the country. Recipients could have electronic access to their funds when they are away from home.
From the government's perspective there are clear advantages to card-based benefits. Mr. Gore cited a "conservative" estimate that the government will cut its costs by $195 million a year by eliminating paper.
Financial institutions and networks that operate the ATMs and communications will benefit from a card-based system as well, the vice president said.
The banks' business case "is based on reducing the labor cost associated with processing checks, plus the chance to add new customers that don't use banks and ATM card services today," Mr. Gore said.
According to government figures, about 31 million people in 12 major state- and federally administered benefit programs do not maintain bank accounts.
Transaction Processing Fees
While only a small percentage of these people might end up opening bank accounts, the fact that the electronic banking infrastructure could be the conduit for more than $112 billion per for more than $112 billion per year in government funding bodes well for the banks - at least those that stand to profit from transaction processing fees.
"There are some areas and opportunities for participating in programs that will bring fee income," said David O'Connor, president of Internet Inc., the Reston, Va.-based company that operates the Most ATM network.
Internet is closely involved in a food stamp program in Maryland, the only one implemented statewide.
"The benefit that I think is broader and deeper is that EBT will advance the cause of electronic payment systems," Mr. O'Connor said. "It will bring more awareness, and awareness brings participation."
Mr. O'Connor and others noted that banks will have some ability to charge benefits recipients for ATM usage.
The EBT task force recommended "that free ATM transactions be limited, as they are for customers of commercial financial institutions, and that recipients pay nominal fees for the service and convenience of unlimited access."
As more states join those that are already involved in EBT, issues such as pricing will be refined further.