acquire a 24.5% interest in Transfirst Inc., a company that specializes in electronic benefits transfer. The agreement, if approved, will give U.S. Banknote entree into this growing business. EBT enables recipients of government benefits to receive their payments through automated teller machines or point of sale terminals using an ATM- like card. U.S. Banknote has long printed food stamps for the government, but as electronic delivery of benefits begins to replace paper, the New York-based company is eager to find ways to align its existing contacts and expertise with those who have the electronic know-how. "This is a venture that holds a lot of opportunity for us at this time," said Morris Weissman, chairman and chief executive officer of U.S. Banknote. "If the deal goes through as planned, we intend to become a very aggressive proponent of EBT systems and aggressively seek contracts and promote the overall use of electronic mechanisms for delivery of benefits," he added. The agreement calls for U.S. Banknote to acquire its minority interest from Affiliated Computer Services Inc., Dallas, which will also retain a 24.5% interest. Walter Patterson, founder, chairman, and chief executive of Transfirst, also based in Dallas, retains 51% equity ownership in the company. Financial terms were not disclosed. Mr. Weissman said the purchase is expected to be completed in the next several weeks, following satisfactory completion of due diligence and approval of Transfirst's lender. "The EBT business is evolving, and we are evolving with it," said Mr. Patterson. "We are seeking out strategic partnering to deliver EBT efficiently and in a more cost effective way, especially since the government - and that's who the client is for these contracts - is in a big cost-cutting mode." Mr. Patterson said he believed the equity owners each have unique capabilities that complement each other. He cited Transfirst's long history in the delivery of EBT, Affiliated's processing capabilities, and U.S. Banknote's relationship with government clients. The partners have little concern about a Treasury Department procedure that allows only banks to bid on EBT projects. The procedure, known as an invitation for expressions of interest, is the subject of a legal battle in U.S. district court in Washington. Transactive Corp., which operates the EBT system in Texas, sued the Treasury, and has thus far achieved a temporary restraining order against use of the IEI procedure. "That lawsuit addresses the point that the IEI process excludes everybody in the business today except Citibank," said Mr. Weissman. "What does that say? We are very optimistic that this will be resolved in a way that suits us." Transfirst is not named in the suit. Even if the judge upholds the validity of the IEI process, Transfirst will remain in the business, according to Mr. Patterson. "We have had discussions with a number of banks that are interested in EBT, but do not want to have to develop software or become a processor," he said. "We would be happy to set up strategic partnerships with these banks." Transfirst has exclusive rights to Affiliated's Accept software, which has been used to develop a number of EBT and state welfare programs. The Accept software is designed to include certification and cash benefits for a variety of government programs, including child support, food stamps, Medicare and Medicaid, Social Security, unemployment insurance, and welfare. Transfirst currently operates the EBT program in the Minneapolis-St. Paul area.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.