A long-simmering debate is heating up over the role of banks in electronic payments of welfare, food stamps, and other government benefits.

Complaining about costs, many bankers have resisted participating in the so-called electronic benefits transfer systems, which allow recipients to collect their funds through automated teller machines or point-of-sale terminals.

Seen as an End Run

Because only a few banks are testing the systems, the federal government is enlisting the support of regional ATM networks.

The government's tactic is seen by some as an end run around the banks. And that is causing additional friction among bankers who have complained that the Treasury Department's benefits-transfer proposals have consistently required the industry to bear too much of the cost burden.

"As the government takes advantage of some of the network rules that are in place, [banks'] roles will be - I don't want to say mandatory, but certainly automatic - as a result of their membership in the network," said David A. O'Connor, chief executive of Internet Inc., a Reston, Va.-based network.

Internet, which operates the ATM and point-of-sale system known to consumers as Most, is preparing to launch the first statewide benefits-transfer system for food stampls. It will connect 9,000 terminals in 3,600 locations in Maryland.

A Debut in Pennsylvania

The Maryland rollout comes more than seven years after the U.S. Department of Agriculture enlisted banks and merchants in the Reading, Pa., area for the first test of electronic food-stamp distribution. Still running under state supervision, it was to have led to similar trials in other states and perhaps, eventually, a national program.

Goverment spending cutbacks, uncertainties about technical standards, and pricing spats between bankers and retailers led to curtailment or discontinuation of several pilots.

Treasury, which has taken on the coordinating role for federal benefits transfers, has said that there is unlikely to be a legal requirement for bankers to participate in the programs.

But bank-owned transaction networks are the only viable delivery points for electronic benefit payments on a large scale.

Bankers Getting Hard Sell

Government officials project vast potential benefits through efficiencies and fraud reduction by converting from a check-based system. They have tried to sell bankers on the traditional transactions - hence fees - that benefits transfer would generate for ATM and POS networks.

Bankers see limited profit opportunities in electronic benefits transfer, and only a few have pursued the business.

By initiating contracts with regional automated teller machine networks such as Internet and NYCE in the New York area, the government hopes to convert large numbers of bank ATMS into distribution points for electronic benefits.

In April, the Treasury plans to have a blueprint for large-scale implementation of benefits transfer; and by October, Treasury officials expect to be rolling out the first program under those specifications.

Less than Lucractive

"The main problem is a basic one: We're afraid the fees won't offset the cost," said George King, a senior vice president at South Carolina National Bank, Columbia, which has been acquired by Wachovia Corp.

"The government wants to leverage the ATMs we've installed, but they've got to understand that some bought them, and someone has to keep them running."

Financial institutions would not be paid directly for use of the ATMs. More likely, their fees would come from ATM networks with which the government signs contracts.

Because the agreements tend to be less than lucrative - Mr. O'Connor said he calculated one pilot to be worth less than $1 million in profit for a $32 million investment - bankers are concerned that there will be little trickling down to them.

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