The U.S. Postal Service is set to honor credit and debit cards at all of its service counters, becoming one of the largest card-accepting merchants in the country.
Preliminary plans call for the national rollout to begin in Seattle, Denver, and San Diego next April, and expand to all 33,000 post offices by the end of 1996.
Once the rollout is complete, the Postal Service will be the No. 1 card-accepting merchant in terms of locations, and one of the top five in sales, at $25 billion, said David W. Lewis, a vice president of MasterCard International.
It will also be the largest debitaccepting merchant, and stands to be a huge client for merchant processors.
The launch follows a 15-month market test in three major cities.
National Data Corp. of Atlanta held the transaction-processing contract during that test period. A request for bids on the full rollout will be sent out later this month.
Frederick A. Bite, a principal for First Annapolis Consulting in Maryland, said obvious bidders include the big three merchant processors Card Establishment Services, National City Processing Co., and Nabanco.
Large banks such as Mellon, Wachovia. NationsBank, Bank of America and First Bank System could be among the bidders, Mr. White added.
"Government agencies are a different kind of animal," Mr. White said. "Nevertheless, [the postal contract] is going to be lucrative."
"It's definitely a new market, with new volume in the system that's substantial," pointed out Steve Demaree, a senior vice president with First Tennessee Bank, which plans to get involved in the bidding process.
The board of governors decided to accept credit and debit at service windows only, even though it has been testing card acceptance in vending machines in seven cities.
"We are moving into the electronic payment age in response to today's consumer payment habits," the agency's chief financial officer, Michael Riley, told the Postal Service's Board of Governors Tuesday.
Stephen Kearney, the service's treasurer, cited a Gallup survey indicating 71% of consumers favor using credit and debit cards, and a General Accounting Office study that said the idea "makes business sense."
In the pilot, which involved 550 offices m Dallas-Fort Worth, Orlando, and Washington, D.C., consumers charged nearly $29 million on Visa, MasterCard, and Discover cards.
From a cash management standpoint, the government expects to cut down on fraud, save time, and control cost by accepting credit and debit cards at post offices, where each day more than $300 million is processed.
The postal service expects that customers paying by credit card will buy more and thus visit the offices less frequently, which could cut down on crowds.
Visa estimates that consumers spend $10 billion at the post office each year, predominantly with cash and checks. These transactions represent a small portion of the overall government market, which Visa estimates to be $266 billion.
The biggest chunk of consumer payments goes to property and income taxes, which Visa says is $171 billion annually.
Armen Khachadourian, vice president of merchant relations for Visa, describes the government as a "big growth sector in its infancy," and says Visa is "only scratching the surface" in caping 1% of the total consumer receipts.
The Postal Service is "viewed as a cutting-edge agency," added Mr. Lewis of MasterCard, "What they do will reflect on what other agencies do."
Visa and MasterCard have identified the government as one of the last and largest sectors that accepts only cash and checks. Legislation to allow the Internal Revenue Service to accept credit cards died in the Senate, but the associations expect the bill to be taken up by Congress again next year, representing a more than $60 billion opportunity for bank cards.
Elsewhere in govemments, eight states are accepting credit card payments for motor vehicle fees, representing about $15 billion. and a number of major cities are honoring plastic for parking violations.
"There are opportunities across the board," Mr. Lewis said. Government is "one of the last merchant frontiers that bank cards have yet to penetrate."