Frequently Asked Questions about EBT
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.
- Maintaining vigilance on security measures and privacy protections.
- Working with States to make their cards usable in other systems, but without risking duplicate participation by recipients and without exceeding cost neutrality.
