WIC Option to Choose: Mag-Stripe or Chip Cards?

  Electronic benefits transfer cards have replaced food stamps across the country, but most state manifestations of the federal Women, Infants and Children nutrition program have remained stubbornly dependent upon paper vouchers. A handful of states are testing electronic WIC card programs, some with offline smart cards and others with online magnetic stripe cards.
  WIC transactions are more complex than are those associated with food-stamp benefits. So designing reasonably affordable and simple-to-use cards and point-of-sale systems to read and route WIC benefits has been a challenge for both proponents of smart cards and of mag-stripes. But most experts agree that eliminating paper vouchers will be worth the trouble and expense.
  Under the U.S. Department of Agriculture's WIC program, run by the Federal Food and Nutrition Service, nurses or nutritionists at WIC clinics or public outreach sites write individualized shopping lists, often called prescriptions, for mothers and their qualifying children. Some 8 million individuals participate in WIC programs nationally, the USDA says.
  The prescriptions specify the foods and food amounts that recipients can buy based on several factors, including whether mothers are pregnant or are breast feeding and how many of their children qualify.
  For consumers, using paper WIC vouchers can be tedious. States elect to divide benefits into two to four vouchers per month. Recipients must spend the entire voucher amount during a shopping trip, or the remainder is lost.
  Transporting groceries for a week or longer can be a hardship for mothers with young children in tow, many of whom must do so on public transportation.
  Grocers dislike handling WIC vouchers because of the training and paperwork involved. Shoppers are supposed to separate WIC-eligible items from other goods and pay for them separately. But if a clerk mistakenly accepts as a prescribed WIC purchase the wrong item or wrong size of an item, or if the store's price is higher than the state's mandated WIC price in that region, the state can refuse to reimburse the grocer for the item. Even when transactions are correct, state reimbursement can take up to two months.
  "It's probably the hardest transaction that we do in the store," Joe Williams, vice president of regulatory and member services for the Texas Retailers Association, says of paper WIC vouchers. "It's confusing to the clerk because it's unlike any other transaction they take. It's very time-consuming, so it casts a spotlight on that customer trying to do a WIC transaction."
  But which card escape to take from paper is a matter of debate. Since 1997, the USDA has awarded nearly $30 million in grants to state EBT pilot projects, including WIC, allowing states to decide whether to pursue mag-stripe or smart card programs.
  The main benefits of mag-stripe WIC cards are their cost and universality. The cards themselves are cheap, and they fit into most existing POS card readers. However, the amount of WIC data that must be exchanged with processors can tax even robust communication systems. And rural users with inadequate telephone service may not be able to connect to confirm authorization and updated benefits.
  Smart WIC cards can cost 10 times more than mag-stripe cards and require card readers that most retailers do not deploy. But because smart cards store the necessary accountholder and account information in chips housed within the cards, the information can be accessed offline by readers not connected by telephone or cable lines to a network processor.
  Texas' WIC administrators are staking their claim on smart cards. The state began a pilot in 2004 in the El Paso area and is planning to roll the program out statewide to more than 900,000 cardholders by 2007. "Every study that was conducted told us that we needed to go with the smart card," says Hank Lundberg, EBT development manager with the Texas Department of State Health Services. He notes that Texas has remote areas where telecommunications systems would not support an online process. "We had to look at what would serve the entire state and not just one area or another," he says.
  Eventually, all Texas WIC clinic workers will have the equipment to instantly activate and issue smart cards to recipients. (Federal rules require instant issuance of benefits, whether by paper or card.)
  When WIC smart card users in Texas are at checkout, they insert the plastic into card terminals that have separate slots to read WIC smart cards and mag-stripe cards. The readers are connected either into stores' existing electronic payment systems or into freestanding ones provided by such major vendors as Fujitsu, NCR and IBM.
  Recipients' benefit information is updated on their smart cards' chips every time they use them. Stores hold the information collected from WIC transactions on a computer or central server, then send it as a batch transaction to the state every evening for processing.
  Texas will foot most of the bill, regardless of whether retailers choose to integrate WIC payment systems into their existing payment terminals or keep them freestanding. It will subsidize retailers $200 per lane to purchase card readers from such vendors as VeriFone and Hypercom. Neither firm would disclose the cost of their readers.
  Lundberg says the $200 may not cover the entire cost of new card readers, but it covers the smart card portion of terminals that read both mag-stripes and chips.
  Cost Reimbursement
  The state also reimbursed pilot retailers for the costs of upgrading NCR, Fujitsu and IBM payment-equipment software to handle WIC transactions. Any new payment products the major vendors sell in Texas will be ready to handle the state's WIC smart cards, and future WIC-card accepting retailers can install the updated software into existing equipment for free, with some adjustments.
  "Most grocers will have to do additional modifications on their own because each grocer's (electronic system) is going to be different," Lundberg says.
  But you cannot integrate new functions where electronic payment systems do not exist. So the state will reimburse retailers who do not already have electronic payment systems anywhere from $11,000 to $30,000, based on their average monthly number of WIC transactions, for the purchase of new equipment for one to four lanes to accept WIC and perhaps other payment cards.
  Retailers can opt to stay under the reimbursable budget by purchasing certified basic systems that consist of the mag-stripe/smart card readers connected to computers-kept under checkout counters or in back rooms-that can store and send WIC and, in some models, other payment transactions like credit and debit cards. Or they can pay extra for higher-end equipment.
  Interstate Use
  New Mexico has partnered with neighboring Texas on many aspects of the smart card program. Administrators want WIC recipients from both states to be able to use their cards in either state.
  Williams says retailers who have participated in the pilot are pleased overall with the card program, which delivers WIC reimbursements faster, typically within a few days. "It's working excellently," he says. "We will never go back to paper."
  But Williams says problems emerged when thousands of Louisiana, Mississippi and Alabama WIC recipients began showing up after Hurricane Katrina. Though food-stamp EBT programs are interoperable between states, most WIC programs are not.
  States also authorize different food brands. Texas' WIC-authorized baby formula is Infamil, for example, and Louisiana's is Similac.
  "It took several days to get it resolved," Williams says, adding that refugees eventually were given Texas WIC cards linked to the benefits of their home states. Hurricane refugees who remain in Texas gradually are being moved onto Texas' benefit systems.
  Other states are testing mag-stripe WIC card systems that connect online for benefit processing. In some pilots, the mag-stripe systems have been slowed or overwhelmed by the amount of WIC data that passes between states, retailers and processors.
  Michigan is attempting to prevent data-transfer problems by adding a pre-shopping activation step to its mag-stripe pilot at some of the 29 participating stores in Jackson County. Any of the 3,000 WIC cardholders in the county must stop by a "WIC start terminal" inside the store before they start to shop.
  Shoppers insert their cards into a reader and enter their PINs. The terminal reads the WIC account prescriptions, determines what food items remain on the three-month prescriptions and prints the information as shopping lists. The accounts are then active on the store's server and will remain active for up to three hours.
  System upgrades
  If recipients do not find all the items they want at the store, they can return to the start terminal, deactivate their cards from the store's system and shop elsewhere. If they do not plan to shop elsewhere immediately, they also have the option to wait until the store's system times out after three hours and resets.
  At checkout, the clerk does not have to scan WIC items separately from other purchases if the store has its WIC card system integrated into its general POS systems. But clerks in a few smaller stores that use freestanding WIC card systems must scan WIC items twice: once for the store prices of items and then for the WIC data.
  "Given the number of families we have with the cards, the number of problems has been minimal," says Denise Fedewa, EBT specialist with the Michigan Department of Community Health.
  Michigan retailers began lobbying lawmakers for a WIC-card test years ago, and they are glad to see pilots begin, says Linda Gobler, president and CEO of the Michigan Grocers Association.
  "When you look at the technology that's available and how it's used by the retailer, it makes so much more sense to have these programs on a magnetic stripe," she says.
  One challenge Michigan faces is a change in processing contractors for all state EBT programs, including the WIC pilot, at the end of May. Dallas-based Affiliated Computer Services Inc., which prevailed in the state's bidding process for the contract, is replacing Schaumburg, Ill.-based J.P. Morgan Chase Treasury Services.
  Michigan's goal is to eventually move all food, medical and general-assistance benefits, including WIC, to one card, whatever form that may take. That is the goal of other states, too. Texas is shooting for a hybrid card that includes a smart card chip and mag-stripe.
  Whether mag-stripe cards, smart cards or some other technology ultimately becomes the predominant WIC payment method remains to be seen. What appears more certain is that the days of paper vouchers are numbered.
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