Online EBT Payments

Goals

The goal of this research is to better understand the opportunity for online EBT/SNAP payments. This should be achieved by explaining the overall structure of EBT/SNAP benefits, including how payments are administered and processed, by finding the overall size of EBT transactions and its breakdown by retailer type, and listing the goods eligible for EBT payments. Additionally, for online EBT payments specifically, a brief historical overview should be provided, along with a list of main events signaling adoption, and a synthesis of publicly available data on the adoption of online EBT payments.

Early Findings

  • The Electronic Benefit Transfer (EBT) system is an electronic system that allows for the issuance of welfare benefits via a magnetically encoded payment card, similar to a debit card. Recipients of government assistance can pay retailers directly for their purchases by using the EBT card.
  • The EBT system is most commonly used for distributing food benefits through the Supplemental Nutrition Assistance Program (SNAP), formerly known as the Food Stamp Program. SNAP is a federal aid program that provides food-purchasing assistance for low- and no-income people.
  • In addition to food benefits, provided through SNAP or the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), EBT is sometimes used to provide cash benefits. Some cash benefit programs that use EBT include state general assistance programs, Temporary Assistance for Needy Families (TANF) benefits and refugee benefits.
  • SNAP is a federal aid program, and it is administered and funded by the United States Department of Agriculture (USDA) under the Food and Nutrition Service (FNS). However, food benefits are distributed at a state level, by specific departments of U.S. states (e.g. Division of Social Services, Department of Health and Human Services, etc.). Therefore, states are closely involved in the administration of SNAP, and they work with contractors to procure their own EBT systems for delivery of SNAP and other state-administered benefit programs.

EBT Payment Administration

  • "The EBT system has been in place since 2004 for payments through the Supplemental Nutrition Assistance Program (SNAP) in all 50 states, while its use is being phased in for other government nutritional programs. "
  • When a recipient is approved for benefits, the state's EBT contractor creates an account for the recipient, which can be accessed with a plastic payment card with a magnetic strip and a PIN. The recipient receives electronic benefit deposits monthly.
  • The EBT card can be used at participating retailers to purchase food items authorized by the USDA's SNAP program. Cash benefits may be used to purchase any item at a participating retailer, as well as to obtain cash-back or make a cash withdrawal from a participating ATM.
  • "All states have systems that use magnetic stripe cards and online authorization of transactions." When paying for groceries, the SNAP customer's card is run through an electronic reader or a point of sale terminal (POS), and the recipient enters the secret PIN 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 cash changes hands.
  • Payment is made to the retailer through an ACH settlement process within two banking days.. Most states' online EBT systems are interoperable through the Quest network, which is sponsored by the Electronic Benefits and Services Council (formerly the EBT Council) of NACHA.
  • EBT cards are issued by US states, or rather, by state EBT contractors. Each state has an EBT contractor that opens accounts and issues cards, and processes payments. EBT contractors are typically financial institutions like JP Morgan EFS, or technology companies like FIS eFunds and Xerox State. A full list of each state's current EBT contractor can be accessed here.
  • Once a retailer is authorized by USDA, FNS to take SNAP benefits, he can use two different types of Point of Sale (POS) devices to accept payments. Most (newer) POS terminals allow stores to process both EBT and commercial debit/credit transactions on the same device. There are also specialized POS devices that only process EBT transactions.
  • Retailers can obtain POS devices that process EBT transactions from state EBT contractors, or from a third party. While devices from a state contractor are presumably cheaper, merchants that already have POS equipment will likely turn to their existing payment processors for programming instructions and cost information.

Summary

As explained above, EBT is an electronic payment system used to distribute government aid. It is most commonly used for distributing SNAP food benefits, but it is also sometimes used for other programs as well. EBT cards are issued, and payments processed, by state EBT contractors. While the EBT system is separate from standard commercial payment networks, retailers can sometimes use the same POS terminals to process both types of transactions.

The initial hour of research was focused on providing a broad overview of how the EBT system works with SNAP benefits, and how EBT payments are administered. Continued research will provide additional details on the administration and processing of EBT payments, determine the size of SNAP payments and EBT transactions, and provide an in-depth analysis of how EBT payments in general, and SNAP payments specifically, function online.

Research proposal:

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