The credit card industry hoped for a bonanza in federal and state governments' increasing acceptance of plastic in recent years, but it hasn't happened overnight.

There has been some progress, though. For example, the U.S. Defense Commissaries, a $5.8 billion enterprise serving the military, recently agreed to expand acceptance from just seven to all of its 353 locations worldwide within two years.

And several months ago, the U.S. Postal Service, which generates $25 billion in retail sales annually, said it would accept bank credit cards in all of its 33,000 branches by the end of 1996.

"The government sector moves rather slowly, but we have been able to cross the Rubicon, and we're moving in the right direction," said Armen Khachadourian, vice president of merchant relations for Visa U.S.A.

On the state level, Visa's and MasterCard's most recent targets have been departments of motor vehicles. Yet after two years of promotions, only seven states have come aboard, accepting cards for limited services.

Mr. Khachadourian said states now are drafting legislation to enable their agencies to accept payment cards. "That's starting to snowball right now," he said.

Funding is another holdup. Most state agencies do not have the budgets to implement credit card acceptance. And they may not understand all the benefits.

"Visa and MasterCard fund pilots with the states to try to prove that card acceptance improves efficiency and reduces fraud," said David M. Lewis, MasterCard's vice president of government acceptance. The pilot results are then printed and distributed to lure other states.

"The desire to accept cards is driven by the desire to provide better customer service, but (the agencies) have to see a strong business case - a payback," Mr. Lewis said.

In Wisconsin and Illinois, cards are accepted to register vehicles over the telephone, with 24-hour automated service, but not at the office payment windows.

Georgia K. Marsh, director of the department of accounting for the Illinois Secretary of State, explained that Visa and MasterCard rules prohibiting surcharges discourage acceptance at Illinois points of sale.

But a convenience fee of $2.50 can be levied on telephone transactions, which covers the merchant discount fee and the cost of developing the touch-tone system with Chicago-based Harris Bankcorp and Ameritech Corp.

Ms. Marsh said the automated service offers flexibility for consumers: They can renew vehicle registrations without having to visit an office during business hours. For the agency, it increases efficiency, reduces lines, improves cash flow, and expands the hours of service.

"It brings us into (the) 20th century; I'm very enthusiastic," said Ms. Marsh. Visa is encouraging other states to adopt automated phone response services.

California and Massachusetts accept cards for auto registration payments via telephone, with live-operator assistance.

The New York State Department of Motor Vehicles has a location in Manhattan that accepts credit card payments, and Indiana accepts registration payments by card at its windows.

New Jersey's Division of Motor Vehicle Services has completed a successful pilot with MasterCard, evaluating the viability of telephone card acceptance for insurance surcharges on moving-violation tickets.

MasterCard is issuing a sales kit for government agencies, which includes the New Jersey case study, a Government Financial Model brochure with a spreadsheet program on computer diskette, and the MasterCard Guide to Credit Card Acceptance for Government Agencies, outlining card payment methods and procedures.

Visa released a similar kit in mid-1994 and is now preparing an updated version.

Ms. Marsh of the Illinois Secretary of State's office stressed the importance of informing state legislators about the costs and benefits of card acceptance.

Although front-end merchant fees may be viewed as a deterrent, back-end costs for processing cash and checks, including armored car rentals and check handling, can equal or exceed the cost of credit cards in the long run.

From a cash management standpoint, advocates point out that card acceptance reduces bad-check fees and pilferage and encourages timely payments, which are electronically processed and deposited quickly.

Although she said many government functions, such as tax collection, are too complicated at this time for credit card payments, Ms. Marsh foresaw the potential for 50% to 60% of Illinois state agencies to accept credit and debit cards.

Amid budget pressures, some state governments are experimenting with self-service, automated-teller-style kiosks that would save on labor costs.

While Visa and MasterCard both claim to be leading the charge toward government credit card acceptance, each says the other association is "playing catch-up."

The bank card industry as a whole is garnering more than $4 billion in government sales volume.

Other federal entities accepting cards include the Air Force, Army, and Navy Exchange - on-base department stores - and the U.S. Mint. Consumers can pay customs fees with credit cards, as well. There is some discussion of using cards to pay income taxes due.

Various state governments are accepting card payments for items such as parking and moving violations, court costs, political contributions, and hunting permits and licenses.

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