Transactive Corp. is Citicorp's nemesis in the world of electronic benefits transfer.
The two are front runners in a fast-growing business racked with controversy and litigation.
With almost every state in the union rolling out a system for delivering welfare benefits electronically, the fight for the right to distribute those government dollars has grown intense. As the U.S. Treasury Department formulates its plan for federal electronic benefits transfer-which could total $5 billion in benefits distributed monthly-the stakes have gotten even higher.
Transactive, a subsidiary of the state lottery systems company Gtech Corp., gained notoriety by challenging the Treasury's rule that only banks could be prime contractors in the electronic delivery of federal government benefits.
Transactive took its case all the way to the Supreme Court and won. Congress reversed the victory with language that it added to the 1996 budget bill.
The test case involved a lucrative contract awarded to Citicorp for eight Southern states. But even as pilots roll out in those states, Transactive is not conceding defeat. The company has pressed legislators to inquire about the matter.
Transactive won the Texas benefits transfer contract, the largest in the country, serving more than one million recipients with $3 billion of benefits distributed annually.
Formed by Gtech in 1994, Transactive focuses on electronic benefits transfer. Its smaller business lines include fish and game licensing systems and a finger-imaging identification system.
Transactive's parent has been under investigation for possible unethical practices in its competition for state lottery contracts, casting a shadow on the subsidiary.
Transactive lost $20 million in its first year of operation, due to start-up costs and systems development. But Gregory L. Coler, president of the Austin, Tex., company, said things are turning around. "We have reduced our operating losses significantly and are moving toward profitability."
The company was cited for service glitches in Texas, which "have been resolved," said Mr. Coler, who answered questions in writing after declining to be interviewed by telephone.
Despite Citicorp's winning contracts in 27 states, Transactive remains focused on winning benefits transfer business and doesn't mind duking it out in court if it has to.
The company has challenged awards - by the Southern Alliance of States, the Northeastern Coalition of States, and the Western States EBT Alliance- which went to Citicorp as prime contractor.
In the Northeast, a New York state court sided with Transactive, halting Citicorp's work on a New York City pilot. Katrina Quinn of the federal Department of Agriculture said the other states in the coalition are moving ahead with Citibank. Contracts are close to being signed with Maine, New Hampshire, Vermont, and Rhode Island.
A Transactive protest in San Bernardino County, disputing an award to Deluxe Data Corp. and BankAmerica Corp., has been rejected. A successful protest in Louisiana reopened the procurement, which was ultimately won by Deluxe Data. The original winner, First Security Corp., left the business.
"We've been forced to file these actions to protest unfair and anticompetitive practices," Mr. Coler said. He said the company seeks "justice and a level playing field."
Though many industry insiders consider Transactive a sore loser, Mr. Coler noted that courts have sided with it more than once.
"We don't subscribe to the go-along-to-get-along mentality that allows injustice to prevail because someone was too polite, timid, or fearful to fight for what's lawful," said Mr. Coler.
Marc MacKenzie, executive director of global cash management services at Citicorp, called the lawsuits "annoying" and "a drag in terms of time, effort, and expense."
"Transactive has been painted as the bad guy," said Harry Mass, a Bethesda, Md., consultant and former Transactive executive. "The atmosphere is so poisoned, they seem obstructionist."
By litigating, Mr. Mass said, Transactive's leaders "are put into a position of offending the very people who have to pick them. But when you are fighting on a matter of principle, you have to offend customers to do it."
Mr. Mass dismissed the criticisms that Transactive bullies its way into business through lobbying: "So what-Citibank doesn't lobby?" He called legislative action in 1996 that handed Citicorp the Southern Alliance "politics of the nasty sort."
Banks have made electronic benefits transfer a political issue, Mr. Mass said. "Banks want control; it's part of their environment."
Point of sale terminals, automated teller machines, and electronic switches - infrastructure developed by the banking industry - make up the backbone of electronic benefits transfer systems. The Treasury Department, as the highest bank in the land, trusts the regulated banking industry-its fiscal agents-to distribute payments.
Industry grumbling notwithstanding, Transactive's fortunes have changed recently with victories in Indiana, Illinois, and Mississippi. With four states under its belt, the company will soon be processing 20% of all electronic benefits transfer volume, said Mr. Mass.
Lockheed Martin IMS, a competing processor, protested Transactive's win in Mississippi. Citibank was a subcontractor on the bid. Last week, Lockheed's protest was rejected by the state's executive director of information technology systems. Lockheed plans to take its protest to the next level and may even go to court, the company said.
