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Electronic Benefits Transfer (EBT) Continues To Grow

Government Programs such as state issued food stamps, Women/ Infants/ Children (WIC) and Temporary Assistance to Needy Families (TANF), issue benefits on an electronic card known as an EBT card.

The card issued is similar to a debit card, as the cardholder has a specific personal identification number (PIN) that must be used when accessing their funds.

To process an EBT card, the card is run through an electronic payment system that authorizes the transfer of the card holder's government benefits to the retailer for payment of products received.


What is Electronic Benefit Transfer?

Electronic Benefit Transfer (EBT) is an electronic system that allows a recipient to authorize transfer of their government benefits from a Federal account to a retailer account to pay for products received. EBT is currently being used in many States to issue food stamp and other benefits. Over 99.8 percent of food stamp benefits are currently being issued by EBT. State food stamp agencies work with contractors to procure their own EBT systems for delivery of Food Stamp and other state-administered benefit Programs.

How does EBT work?

In EBT systems, food stamp recipients apply for their benefits in the usual way, by filling out a form at their local food stamp office. Once eligibility and level of benefits have been determined, an account is established in the participant's name, and food stamp benefits are deposited electronically in the account each month. A plastic card, similar to a bank card, is issued and a personal identification number (PIN) is assigned or chosen by the recipient to give access to the account. Recipients are offered the opportunity to change the PIN number at any time, and are offered ongoing training if they have any problems accessing the system.

All but two States have systems that use magnetic stripe cards and "on-line" authorization of transactions. When paying for groceries, the food stamp customer's card is run through an electronic reader or a point of sale terminal (POS), and the recipient enters the secret PIN number to access the food stamp account. Then, electronically, the processor verifies the PIN and the account balance, and sends an authorization or denial back to the retailer. The recipient's account is then debited for the amount of the purchase, and the retailer's account is credited. No money and no food stamps change hands. Payment is made to the retailer through a settlement process at the end of the business day.

States may also use "smart card" microprocessor chip cards in systems that are "off-line." In these systems, the transaction is authorized between the chip in the card and the POS device. The PIN is verified by the chip and the chip is debited for the purchase amount. There is no on-line communication with a host computer during the transaction. At the end of the business day, the POS electronically contacts the host to perform settlement and update the database information.

Is this new technology?

EBT systems using magnetic stripe technology for on-line authorizations use the same electronic funds transfer technology that many grocery stores use for their "debit card" payment systems. EBT is a special application of electronic funds transfer (EFT) technology, which takes money directly from one account and transfers it to another. (Credit cards, by comparison, simply record a sale for payment later.) EFT became familiar to most people in the early 1980's when banks began using automatic teller machines. Since then, EFT has found increasing use in the private sector. Smart card technology for off-line authorizations is used for many applications in Europe, but is not common in the United States. Legislative changes to the Food Stamp Act in August 1996 allowed States to choose any technology for their EBT systems as long as the system remains cost neutral and meets other standards.

What are the benefits of EBT?

EBT eliminates the cumbersome processes required by the paper food stamp system. In Fiscal Year 1997, the Food Stamp Program issued almost $20 billion worth of benefits. In a single month, retailers made 1.7 million deposits of food stamp coupons in more than 26,000 banks. Banks in turn made almost 27,000 deposits in Federal Reserve District Banks. Coupons are counted at each step, making the accounting enormously complex and labor intensive. EBT eliminates much of the paper handling involved in the food stamp system, and automates the accounting process. By eliminating paper coupons that may be lost, sold or stolen, EBT may help cut back on food stamp fraud. EBT creates an electronic record of each food stamp transaction, making it easier to identify and document instances where food stamps are "trafficked," or exchanged for cash, drugs, or other illegal goods.

Recipients have reported that they like the convenience and security of EBT. They no longer have to go to the food stamp issuance office to pick up their food stamps. They can draw their benefits as needed instead of receiving a month's allotment at one time. If the card is lost or stolen, it can't be used by anyone who doesn't know the PIN, and it can be easily canceled and replaced. Surveys have shown that most participants prefer an EBT system to the paper coupon system it replaced. Many recipients have said that EBT reduces the stigma associated with food stamp coupon use. Retailers and bankers like EBT because it offers simplicity of accounting and reduces labor costs because there are no coupons to sort, count, and bundle. All the accounting is done automatically. The Federal government saves time and money by moving to EBT. The process of printing, transporting, safeguarding, distributing, accounting, and destroying the food stamp coupons is eliminated.

What's the cost?**

Initially, EBT systems were more expensive to operate than conventional food stamp issuance systems. EBT reached a milestone in June of 1993, when evaluations of EBT projects in New Mexico and Minnesota showed that both cost less than the estimated cost of paper coupons in the same time period. Costs were also reduced for retailers, recipients and financial institutions. EBT/EFT costs are expected to continue to diminish as the technology becomes more widely used, and States implementing new systems are required to operate on a "cost neutral" basis, meaning that EBT systems should cost no more to operate than the paper coupon system.

The Federal government shares Food Stamp Program operating costs with the States, including the costs of EBT up to the cost of conventional coupon issuance systems.

** Please see you sales partner / associate for the specific transactional cost.

What has been done so far?

All States are using EBT as an alternative for food stamp issuance and, in some cases, for other Programs such as USDA's Special Supplemental Nutrition Program for Women, Infants and Children (WIC); and the Temporary Assistance to Needy Families (TANF) program, the Federal block-grant program operated by the Department of Health and Human Services. As of July 2004, all 50 States, the District of Columbia, Puerto Rico, the Virgin Islands, and Guam were operating state-wide, city-wide, and territory-wide EBT systems to issue food stamp benefits.

What is the future for EBT?

The USDA continues to work with States to improve EBT in the following ways:

  • Assuring that stores are entered into, or taken out of, EBT systems timely and correctly.
  • Using EBT data efficiently to detect and pursue abuse.

In many states, EBT cards are the primary source for government issued benefits, such as food stamps. In fact, more than 85 percent of food stamp benefits that are issued today are issued on EBT cards. Many experts predict that other benefits such as social security will also be issued on EBT cards in the future, which will require more merchants to accept the government issued card.

As EBT becomes a more frequent form of payment, your business should be prepared. Enroll in National Merchants Association, Inc. EBT program and increase your customer base by accepting government issued benefit cards, Today!