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BENEFICIAL CHANGES

Electronic benefits transfer, the paperless distribution of such government benefits as food stamps, is poised for sweeping changes.Among the new initiatives on the horizon is a pilot program that seeks to develop national standards for EBT. Set for a March 1996 launch, the program will involve seven states processing EBT in a uniform manner, representing the first coordinated effort straddling state

Electronic benefits transfer, the paperless distribution of such government benefits as food stamps, is poised for sweeping changes.

Among the new initiatives on the horizon is a pilot program that seeks to develop national standards for EBT. Set for a March 1996 launch, the program will involve seven states processing EBT in a uniform manner, representing the first coordinated effort straddling state lines.

But questions remain about the fate of existing state- and county-based programs that were developed independently with their own systems, rules and procedures. Retailers and government officials alike contend that most EBT systems in place today will prove incompatible with a national EBT program now being developed.

"No two state projects that I know about are the same. Each has its own equipment deployment rules, its own operating rules and compensation agreements," said David Bragin, corporate treasurer at Winn-Dixie Stores, Jacksonville, Fla.

Bragin, who serves on the Electronic Payment Systems Committee of the Food Marketing Institute, Washington, addressed some of the key differences between early concepts of electronic benefits transfer, called EBT I and limited to selected counties, and the latest effort to develop national standards and protocols, called EBT II.

"EBT I is a simple, closed system. For most independent, single-unit retailers or chains who only operate in one state, it may appear to fit the bill," Bragin said.

Such first-generation EBT systems have been implemented in Maryland, which has the only statewide program, and in nine other states whose programs vary widely and are limited to clusters of counties.

Retailers whose stores do business in several states would face significant challenges if diverse EBT programs were to continue to proliferate.

"Multistate [retail] operators would have to negotiate with every state, perhaps have different equipment in each state and certainly have to comply with multiple sets of operating rules," Bragin said.

A national EBT pilot program, to be launched next year in seven states that comprise the Southern Alliance of States, seeks to result in a standardized model for a card-based government benefits distribution system.

A consistent set of EBT operating rules from state to state would represent a vast improvement in the paperless distribution of food stamps, said George Hood, director of electronic banking services at Wegmans Food Markets, Rochester, N.Y.

Most state EBT programs were designed without an eye to a future national program, said Hood, who also serves on the FMI Electronic Payments Systems Committee and the New York State EBT Task Force. "There's going to be a lot of opportunity for conflict from states that don't really meet EBT II specifications.

"Historically, a lot of the state programs have been driven by solutions more appropriate to the service providers of the states rather than to the [benefits] recipients," Hood said. "The federal approach will help rectify that."

Peter Larkin, vice president of state government relations and environmental affairs at FMI, said, "If nothing were done to correct this situation, we most likely would end up with a patchwork quilt of EBT programs instead of a fully, integrated nationwide system.

"A few states are on the verge of starting EBT projects that, in my opinion, do not meet the needs of the retail community and have little chance of being integrated into a national EBT system," he added.

The national electronic benefits transfer model being developed seeks not only to standardize systems and procedures across state boundaries, but also to expand on the scope of benefits that today's programs cover.

While existing state- and county-based EBT programs involve the $25 billion food stamp program, the national system is designed for distribution of benefits that could exceed $140 billion annually, encompassing programs like Social Security and veterans benefits.

Ultimately, Winn-Dixie's Bragin said, a national EBT program will deliver retailer benefits, including "greater operating efficiencies, a safer and more secure payment delivery system and, hopefully, a state-of-the-art electronic payment system."

But such rewards will come only after EBT graduates from isolated county-based pilots involving food stamps to a national system capable of distributing an array of government benefits.

"Now we are at the EBT crossroads," said FMI's Larkin. "Even though pilot EBT projects have been in operation for over a decade, very few [retailers] have been in a position to implement EBT in their stores. That is about to change."

Such changes are likely give rise to compatibility issues -- technical and procedural -- at states with pilot programs, and may require new investments from retailers involved in such programs, several EBT officials told SN.

For example, while some state governments currently provide retailers with hardware and software to process EBT, the national program intends to shift much of the financial burden to retailers.

"For EBT II to work, the task force envisions retailers investing in their own terminals. The government would become the provider of last resort in hardship cases only," said Winn-Dixie's Bragin.

But limits have been developed to ensure retailers are not unduly burdened to invest in new technology that may be required by a national EBT program.

Preliminary operating rules for the Southern Alliance of States pilot, for example, stipulate "EBT design, development, implementation and operations should not cost [retailers] more than the paper-based systems would have cost."

States whose EBT programs have been in place for several years may face the most significant challenges when it comes to technology investments and compatibility issues with a national program.

Bragin said Texas, for example, which began rolling out EBT statewide earlier this year, will surely face challenges in integrating with a national system.

"The Texas program is only including grocery retailers as the outlet for the benefits. The clients cannot get their cash benefits through automated teller machines or banks, only through checkout lanes in grocery stores," he said.

"That is a very narrow approach to take, imposing it all on grocery retailers," Bragin added.

He pointed out that the national program will significantly expand on the volume of benefits distributed electronically. "The national program is calling for adding $122 billion [nationally] in benefits, and [Texas] will need outlets like ATMs and other merchants to dispense those benefits."

Some retailers say they hope their state government will hold off on launching pilots until the national operating rules are finalized.

Twin County Grocers, Edison, N.J., which rolled out a state-based pilot in stores across three counties, said it is prepared to backtrack and retrofit those stores' systems to conform to national standards.

"We're now asking the state that if they go out to rebid the EBT contract for the remaining 18 counties that they do so in compliance with EBT II's operating standards," said Thom Shortt, director of retail systems and chairman of the New Jersey EBT committee.

"In the worst case, we would go back and retrofit our three counties," he added.

Shortt said some states have postponed launching an EBT pilot in anticipation of the new national standards.

"States that were close to [starting pilot programs] have pulled them back and said, 'Now that there is a national EBT effort, I'm going to wait until the final version of the operating rules,' " he said.

Wegmans' Hood added, "We try to encourage [states] to wait until the federal guidelines come out and make sure we're heading in the right direction. Technically and operationally, those standards are a step in the right direction."