MasterCard International is out to conquer government.

By the end of the year, the New York-based association expects to be armed with convincing evidence from two pilot programs that will show skeptical government officials how their agencies can benefit by accepting credit cards.

In the meantime, to prepare for the marketing onslaught, MasterCard has taken internal steps that include the appointment in May of David M. Lewis as vice president of government acceptance.

Emphasizing MasterCard's commitment to the cause, Mr. Lewis said, "We have had dedicated staff working on these issues for the past 18 months."

Governments have come around slowly to acceptance of credit cards for anything from postage stamps to traffic fines, partly because agencies are reluctant to pay the processing fees that conventional merchants are accustomed to bearing.

Legislative Proposal

To cover costs, some agencies want to pass along the merchant fees to the cardholders, but association rules make that difficult.

Rep. James P. Moran, D-Va., introduced a bill in May that would prohibit credit card issuers from limiting the ability of federal, local, and state government agencies to charge fees. The bill has been referred to the House Banking Committee's subcommittee on consumer credit and insurance, but no hearing has been scheduled.

In June, 555 post offices in Dallas, Orlando, and Washington began accepting Visa, MasterCard, and Discover cards in preparation for a national roll-out. There are 33,000 post offices in all, with $25 billion in annual sales.

Moreover, consumer make more than $300 billion a year in payments to governments, and credit cards are used in only 1% of those sales.

New Frontier

Mr. Lewis said the climate is ripe for credit card acceptance to spread to governments, which like supermarkets are viewed as a new frontier by both MasterCard and Visa U.S.A.

"Government agencies are in tough financial shape," Mr. Lewis said. "They are very anxious for any kind of revenue, and they need to cut costs."

Another plus for credit card acceptance in the public sector is the fact that government agencies want to be more like their private-sector counterparts by providing better service.

Several agencies on the state, local, and federal levels have developed initiatives without prodding by the associations.

For example, the motor vehicle departments of seven states (California, Michigan, Indiana, New Jersey, Illinois, Wisconsin, and Oklahoma) are accepting card payments. Some have installed self-service kiosks, and others allow payment by phone.

Toll Collection Systems

Several cities are collecting tolls using technology that allows vehicles to pass through tollgates without having to stop. A computer-encoded tag in the vehicle's front window provides the information to draw funds from a designated account. Mr. Lewis said research shows that credit cards would be the preferred form of account.

New Jersey and New York toll highway authorities are currently involved in rolling out the system, marketed in some places as "E-Z Pass." Other states are adapting the basic concept of automatic vehicle identification to their own uses.

More than 300 agencies affiliated with the U.S. Treasury Department, including the U.S. Mint, are accepting bank cards.

The tougher part will be conveying the merits of plastic to other agencies nationwide.

Last fall and winter, MasterCard started pilots with the New Jersey Division of Law and Public Safety and the California Department of Motor Vehicles.

The New Jersey pilot involves payments for traffic violations. The results are expected to illustrate how credit cards can save governments money, provide more efficient service, and in some instances boost revenues.

The most receptive areas of state governments so far have been the drivers' license and registration bureaus, the agencies responsible for collecting tolls and fines, and the public transit systems.

IRS Legislation

On the federal level there has been some discussion about the Internal Revenue Service's accepting credit card tax payments. Enabling legislation is currently before Congress.

Some of the benefits to agencies, as outlined by Mr. Lewis, are decreased labor expenses, quicker reimbursements, increased collections, the elimination of bounced checks, and a reduction in cash handling and transportation costs.

For example, many parking and traffic-violation tickets are never paid. MasterCard maintains that more offenders would pay if offered the convenience of using credit cards.

Although Mr. Lewis is not ready to reveal the results of MasterCard's tests, he promises that a financial model for government agencies is forthcoming and other pilots may be launched. In the meantime, his responsibility, plain and simple, is "to implement a strategic plan which encourages government agencies to use credit cards."

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