By Jason Felts
Advanced Merchant Services Inc.
In the spirit of providing quality information that will educate, inspire and motivate you, as ISOs and merchant level salespeople (MLSs), this article is dedicated to an often overlooked value-added service: electronic benefits transfer (EBT).
EBT is growing at a tremendous rate throughout the country:
In addition to food stamp programs, other government benefits programs employing EBT include the U.S. Department of Agriculture's Special Supplemental Nutrition Program for Women, Infants and Children, and the Temporary Assistance to Needy Families program, among others.
Many experts predict that Social Security benefits will also be issued via EBT. Thus, there is increasing need for more merchants to accept EBT cards and great opportunity for you to capitalize on this underserved market.
According to the USDA, EBT is an electronic system that allows recipients to authorize transfer of their government benefits from federal accounts to retailer accounts to pay for products received.
In the payments space, EBT cards are similar to debit cards. Cardholders have personal identification numbers (PINs) that must be used when accessing funds.
In processing, cards are run through electronic payment systems that authorize the transfer of cardholders' benefit funds to the retailer for payment of products.
Given the USDA's expertise in the EBT arena, it is an excellent resource for those who are interested in pursuing this market.
Following are some insights from the agency's many years of administering food stamp programs throughout the country. For further details, visit the USDA's Web site at www.fns.usda.gov/fns:
Prospective recipients fill out a form at the nearest food stamp office. After determination of eligibility and benefits level, an account is set up in the participant's name. Each month thereafter, food stamp benefits are deposited electronically in the account.
The recipient is issued a plastic card, much like a credit or debit card. At that time, a PIN is either assigned to or selected by the recipient. PINs can subsequently be changed at recipients' discretion. Ongoing training is available to all program participants.
August 1996 legislative changes to the federal Food Stamp Act of 1964 allowed states to choose any technology for their EBT systems, as long as the systems remain cost-neutral and meet other standards.
EBT systems using magnetic stripe technology for online authorizations use the same electronic funds transfer (EFT) technology that many grocery stores use for debit card payment systems.
EBT is a special application of EFT technology, which takes money directly from one account and transfers it to another. (Credit cards record a sale for payment later.) EFT became familiar to most people in the early 1980s when banks began using ATMs.
Most EBT cards in use today are of the magnetic stripe variety and work just like bankcards. At the grocery store checkout, an EBT card is run through an electronic reader or POS terminal, and the recipient enters the PIN.
The processor electronically verifies the PIN, checks the account balance, and sends an authorization or denial back to the retailer. Then the recipient's account is debited for the purchase amount, and the retailer's account is credited.
Retailers are paid through a settlement process at the close of each business day. No money changes hands at the POS.
Smart cards are also an option for EBT use. These cards use microprocessor chips and offline systems. Each transaction is authorized through communication between the POS device and the chip in the card. The chip verifies the PIN and is then debited for the purchase amount.
Smart cards require no online communication with a host computer when transactions occur. At the end of the business day, the POS contacts the host to update database information and perform settlement so the merchant can get paid.
Smart card technology is used for many applications in Europe. It is also taking hold in Canada, but its use is rare in the United States.
EBT eliminates some of the burden of paper food stamps. For example, paper coupons can be easily lost, sold or stolen. EBT is more secure and may help cut back on food stamp fraud.
EBT maintains an electronic record of each food stamp transaction. This makes it easier to identify and document instances in which food stamps are sold or traded for illegal goods or drugs.
Recipients have said they enjoy EBT's convenience and security. They draw benefits as needed instead of receiving once-a-month allotments. They are also no longer required to pick up food stamps in person.
If a card is stolen or lost, it is useless to anyone who doesn't know the PIN. And, unlike paper food stamps, it can be easily canceled and replaced.
According to the USDA, most participants prefer EBT cards to paper coupons. EBT significantly reduces the stigma associated with food stamp coupon use.
Bankers and retailers also appreciate EBT. It simplifies accounting because the process is automated. And EBT reduces labor costs because there are no coupons to count, sort and bundle.
EBT also saves the federal government time and money. It eliminates the printing, transporting, safeguarding, distributing, accounting and destroying of food stamp coupons.
EBT cards cannot be accepted by online shopping services due to technical considerations. Only credit cards are currently accepted as payment for Internet purchases.
Some sites also accept debit cards, but only if they are branded with a MasterCard or Visa logo. Such branded debit cards can be treated like credit cards at the POS; customers are not required to enter PINs.
In-store EBT transactions utilize POS terminals with very strict PIN entry encryption requirements. Thus, customer PINs are kept secret.
With an EBT card, the PIN guarantees that the person using the card is authorized to do so. There is, as yet, no similar level of security for entering PINs over the Internet.
This is even true with browsers that have 128-bit encryption.
Browsers have to convert PINs from Internet-style encryption to the encryption format used by POS devices. There are currently no controlled standards for this process.
Because the PIN is readable for a brief time during this process, it is possible for hackers or employees to steal PINs and use them fraudulently. Online shopping services are not willing to accept the potential liability for this.
MLSs can be instrumental in helping merchants get set up to accept EBT cards. However, for food stamp programs, only the U.S. Food and Nutrition Service and the USDA can approve retailers.
Merchants who would like to accept food stamp benefits must be licensed to participate.
To obtain food stamp permits, merchants need to apply. The application package consists of an application, Form FNS-252; FNS field office cover letter; and combined store eligibility criteria fact sheet and checklist.
To request an application package, call the USDA at 877-823-4369 (within the continental United States) and have one mailed to you, or visit your local FNS field office.
At Advanced Merchant Services, it's as easy as sending in the merchant application along with the merchant's state-issued EBT store number. Please note that each location will be assigned a unique identification number (very similar to the merchant services world).
Check with your processor to see what its requirements are for this type of reprogramming.
EBT systems were initially more expensive to operate than paper-based food stamp issuance systems.
However, EBT turned a corner in June 1993, when EBT projects in New Mexico and Minnesota became less expensive than the estimated cost of paper coupons for the same period. Retailers, recipients and financial institutions also reported reduced expenses.
EBT costs are expected to continue to diminish as the technology becomes more widely used. States implementing new systems are required to operate on a cost-neutral basis: EBT systems are required to cost no more to operate than paper coupon systems.
The federal government splits operating costs of the food stamp program with the states. This includes EBT expenses, up to the cost of conventional coupon issuance systems. AMS processes EBT transactions with a minimal per-item fee (no monthly fees). Consult your processor to see what its EBT fees are.
If you have questions or need further assistance, please contact me anytime. Until next month, let's hope this helps you build your million-dollar portfolio.
Jason A. Felts is the founder, President and Chief Executive Officer of Florida-based Advanced Merchant Services Inc., a registered ISO/MSP with HSBC Bank. From its onset, AMS has placed top priority on supporting and servicing its sales partners. The company launched ISOPro Motion, its private-label training program, to provide state-of-the-art sales tools and actively promote the success and long-term development of its partners. For more information, visit www.amspartner.com, call 888-355-VISA (8472), ext. 211, or e-mail Felts at email@example.com.
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