EBT INTEGRATION KEY TO NATIONAL PROGRAM

DENISE ZIMMERMAN

CHICAGO -- Integration of systems for electronic distribution of government benefits across state lines is key to unlocking the potential of a paperless system.

Advocates of a national system for electronic benefits transfer say the $25 billion in food stamps distributed nationally each year can represent a new revenue stream for retailers if those benefits are accessed through stores' front ends.

Should the EBT program expand to include all state and federal government programs, the volume of benefits moving through a card-based EBT system jumps to $140 billion annually.

Unfortunately, individual states continue to pursue their own EBT programs that may not necessarily marry up with a national program, said a panel of speakers during a seminar at the Food Marketing Institute show here this month.

"If we've learned anything, there's a right way and a wrong way to go about EBT system design," said Peter Larkin, vice president, state government relations and environmental affairs, FMI.

"Under current federal regulations, or lack thereof, each state is given a great deal of flexibility in design and operation of their own systems that may -- but more than likely, will not -- be compatible with neighboring state EBT systems," he said.

"If nothing is done to correct this situation, we could end up with a patchwork quilt instead of a fully integrated system," Larkin added.

One of those patches may be taking shape today in Ohio, which is considering a smart card-based

EBT program, Larkin said. Smart cards, unlike cards equipped with magnetic stripes or bar codes, contain a computer chip and require different point-of-sale capabilities.

Larkin said retailers in Ohio object to the plan. "It's not that they oppose EBT. It's not that they don't believe in the value of smart cards, because most of them do. But [retailers in Ohio] are unanimous in their opinion that the EBT world is not ready for smart cards."

Retailers are concerned such a program would not be compatible with EBT systems in neighboring states and that investing in smart card POS terminals would be costly, he said.

George Dieterich, director customer service & operations support, Fleming Co., Oklahoma City, underscored the importance of EBT systems compatibility across state lines, which the proposed national system, known as EBT II, promises to deliver.

"Imagine the state of Illinois and its five neighbors running electronic benefits transfer under six different programs," he said. "No one can take advantage of technology unless there is a strategy to implement it. If we can't move forward with the EBT II world, the patchwork quilt becomes insurmountable."

In the state of Illinois, he noted, $1.069 billion in food stamps were distributed in 1994, with an average monthly issuance of $89 million to 499,000 households.

"Those numbers are large," Dieterich said. "Multiple them by 50 and you have a concept of what a new way to handle electronics benefits transfer can bring to us as the community that supports the issuance of food stamps."

The first multiple state partnership project, which will use operating rules set up by the National EBT Task Force, Washington, will be launched next year in the seven states comprising the Southern Alliance of States: Alabama, Arkansas, Florida, Georgia, Missouri, North Carolina and Tennessee.

Kathy Kuzava, executive director, Georgia Food Industry Association, Smyrna, Ga., and a representative of the Southern Alliance of States, discussed progress of the program as well as some retailer concerns.

"This is a very complicated issue and we have had our share of challenges," she said. "It's exciting to be involved in a program that will eventually become a national prototype for the whole country. It's also very confusing."

Among the unresolved issues is whether the burden of EBT systems investment should fall to the retailer or the government. Also unclear at this point, she said, is whether EBT should be treated as a debit transaction and therefore subject to interchange processing fees.

Kuzava said at first there was some resistance to retailers purchasing equipment to accommodate EBT transactions. However, after considering the ramifications of accepting government-supplied systems, retailers within the SAS project had a change of heart. "After much discussion, we decided we did not want the government to have a big stake in running the front end of our stores. So many of us now are involved in the debit-credit environment anyway that it's a natural to piggy back on the system that you've got."

The recommendations were contained in a paper issued by the SAS Retail Advisory Group in March. The paper also touched on the unresolved issue of transaction fees.

Kusava said retailers' stance is that they should not be assessed any fee for food stamp-only purchases; however, the group's recommendations call for the retailer to pay fees for certain transactions such as a cash disbursement from an EBT account.