Blazing trails

'We're a good example of how it works; nobody in the state wants to go back to paper," says Denis Zegar, president of the Mid-Atlantic Food Dealers Association, Hanover, Md. Zegar is talking about Maryland, which was the site of the first statewide test of EBT about five years ago. Because it was a test, the government is paying for everything—all lanes in all stores, says Zegar.

"Basically, we are negotiating different issues in Maryland than elsewhere in the country, because we have the system," he says. For instance, while many retailers in states that got into EBT more recently already had debit/credit cards, Maryland supermarket operators were using the system initially only for benefits.

But this also has a downside, Zegar says. Although retailers didn't have to pay for equipment because the program was a test, that equipment is proprietary. "You can't run anything else through it. So when retailers went into debit/credit cards, they either had to use an identical footprint or pay the vendor huge fees. Then the vendor decided it didn't want to do debit/credit and gave the retailers 30 days to get new equipment, or to buy theirs."

Meanwhile, the association is working with Delaware on an off-line system that would be good for all benefits, including the special supplemental food program for women, infants and children (WIC), and would permit the use of both smart cards and magnetic stripe. (WIC benefits can be paid electronically only through smart cards; this is being tested in Wyoming.)

Delaware needs a hybrid system because there is a lot of cross-border shopping, Zegar says. The Maryland system permits retailers up to about 20 miles across the border in Virginia, Delaware and Pennsylvania to use the system. When Washington, D.C., awards a contract, the system used will be compatible with Maryland's, he says. "The problem is that the Feds are at least two decades behind in technology. They like magnetic stripes when everyone else is going to go into smart cards."

Another pioneering state is Ohio, which is rolling out an EBT smart card. It is in 35% to 40% of the state and is expected to be in all counties by 2000, says Tom Jackson, president of the Ohio Grocers Association, Columbus. At the same time, WIC is looking at a pilot plan that it hopes to launch within the next year and take statewide in 30 months.

"Initially, retailers were not pleased about going off-line with a smart card," Jackson says. "There is no interoperability, and it would be one more piece of equipment taking up space in the front of the store. It would be an off-line program in an on-line world."

But as the program was being tested it became obvious that there were real benefits to this approach, and that the smart card will be the eminent technology, says Jackson. "There is no downtime and the throughput is faster. It has been working well. Unless the retailer wants more lanes than the state will grant, Ohio is paying the whole bill."

As more states go into smart cards to dispense benefits, retailers and others are moving to circumvent possible problems. A national organization is being formed to deal with them and attempt to get a uniform standard. "The last thing we want is different state standards. That was the problem with EBT programs in the first place—each state or group of states operating differently," says Jerry Schwartz, vice president of operations and technology, A&P, Montvale, N.J.

There was a meeting early in March in Austin, Texas, to try to define messaging standards for WIC, and there will be a follow-up meeting. "One problem is that you can't make a case for smart cards at this time," Schwartz says. "They are expensive when you consider the relatively small number of WIC transactions."

A study by FMI, "Electronic Benefits Transfer: The Real Experience," estimates that the cost of a smart card is up to $10 vs. $1 for a magnetic stripe card. For a single-lane installation, a smart card terminal, reader and printer costs about $600, or $500 per lane for multiple lanes. A proposed upgrade from a magnetic stripe reader to a smart card reader capable of handling WIC transactions could cost about $250 a lane for reader and software.