Citibank, NationsBank Winning Federal Card Bids

<B> Citibank, NationsBank Winning Federal Card Bids</B>

By Lynn Woods

Citibank and NationsBank are emerging as the winners of the ferociously competitive contest to provide the next generation of T&E, purchasing and fleet cards to federal government agencies.

From a field of six vendors approved by the U.S. General Services Administration to bid for individual government agency accounts, the two are pulling ahead of a pack that shrank to five when American Express withdrew from the race (<I>BTN</I>, May 4).

The government accounts are obviously significant for their mammoth size--almost $8 billion in potential charges--and the revenue they will bring to vendors. But they may well be equally important for the impact their requirements will have on electronic commerce, including such areas as electronic processing and reporting, integrated card platforms, electronic commerce and smart card development.

The new contracts, which range in duration from two to five years, with additional renewal options stretching up to 10 years, go into effect Nov. 30.

"Government implementation of charge-card programs is ahead of the corporate marketplace," said Myra Woods, senior vice president of NationBank's commercial card services, not only because of the sheer mass and geographical diversity of users, but also because of their focus on comprehensive cost-effective technological solutions.

In one of the more cutting-edge contracts, the Department of Veterans Administration has selected Citibank as the vendor for its integrated travel and entertainment, purchasing and fleet card program. Citibank is offering a variety of integrated solutions, including a single card combining all three functions, depending on the needs and requirements of the particular bureaus within the agency.

The contract is also high volume, with the VA currently spending $1 billion in purchasing transactions and $20 million for travel. The agency also anticipates charging $2 million to the fleet card, which will be its first.

For the VA account, Citibank is developing an Internet-based electronic reporting system that it will tailor to each bureau. Even before it is built and implemented, at least four corporate accounts have expresssed interest in it, said Cathy Raffaeli, executive director of the commercial card division at Citibank. "One of the hallmarks of the government contracts is that they are pushing the edge of the technological envelope," Raffaeli said.

The new system will use the Internet for accessing reports, setting up new accounts and maintenance, said Martha Orr, the VA's chief of financial program services. While the VA currently receives its purchasing card reports electronically, it then must redistribute them through its internal system, rather than simply having each program coordinator pull them off a Website. Furthermore, program coordinators aren't able to produce ad hoc reports, since the reports are character-based and "most program coordinators don't want to learn the program" to perform this function.

In contrast, the new Citibank program will allow staffers to easily produce reports on any single data field--account number, cardholder name, merchant name or dollar amount--or any cardholder, Orr said.

The VA's 55,000 cardholders--35,000 on purchasing cards and 20,000 on T&E cards--do not all have access to the Internet. However, the agency's 300 program coordinators do, which will help simplify the implementation of the new Web-based system.

Besides the fact that the Internet simplifies card maintenance, Orr said the VA also was interested in incorporating electronic shopping in its card program. Within two years, she said, the VA expects to have credit-card links to electronic malls.

Raffaeli put an even tighter timeframe on electronic commerce links. She said Citibank's Veterans Administration program probably will be integrated with electronic catalog and electronic mall purchasing by the first quarter of next year.

A prime contributor to the fast deployment of electronic commerce, said Raffaeli, is the fact that "encryption has finally reached an acceptable level of security. And as the secure environment increases, we expect demand to increase." She estimated that Citibank corporate-card links to electronic commerce will be available in the commercial market in early 1999.

Widespread use of smart cards will develop more slowly, though, in part because they require deployment of readers. Government use of chip-embedded cards would probably start with cards designed to provide access to a network or building, Raffaeli said. Stored value cards, onto which customers "load" money in advance for purchasing small items, are another application. The VA is conducting pilots at hospitals in Tampa and New York in which smart cards are being used to buy meals.

Citibank also won a two-year contract to provide a totally integrated T&E and purchasing card for the General Services Administration. From the beginning, "it will be a fully integrated card, at both the front and back ends," said GSA spokesman Vince Spagnola. GSA now uses 7,200 T&E cards and 4,000 purchasing cards for more than $100 million in transactions per year.

Asked whether GSA was concerned about liability--an issue cited by other agencies as preventing them from integrating purchasing and T&E--a spokesperson replied that "GSA is currently working with Citibank to make sure the appropriate controls are in place. With controls and training, we're confident the government's interests will be protected."

The integrated card program also will use Citibank's new Internet-based electronic reporting system--a big step for GSA, which currently uses only paper. The contract gives GSA the option of ordering smart-card pilots and other test programs from Citibank. One test in the planning stages is the use of 300 smart cards to provide access to a new GSA building.

<B>Integration At Interior</B>

Another government bureau seeking an integrated card solution, the Department of the Interior, has selected NationsBank as the new vendor for its travel, purchase and fleet cards. "We'll probably go out the starting gate with a combined purchase and fleet card and a separate travel card," said DOI chief officer of acquisitions and federal assistance John Peterson.

DOI expects to spend $300 million in fiscal 1998 on purchasing card transactions, $110 million on travel and $20 million on fleet. DOI issues 20,000 purchasing cards--a number expected to increase to 22,000 by the end of the year--plus 40,000 T&E cards and 17,000 fleet cards.

A one-card solution isn't yet feasible due to "personal liability associated with per diem lodging and miscellanous expenses," Peterson said. Yet, the agency's ultimate goal was greater integration, at both the front and back ends. Currently DOI's centrally billed travel expenses are integrated at the back end with purchasing-card transactions, and fleet is separate.

DOI will be able to consolidate the management functions of setting up the travel, purchasing and fleet card programs. "There may be one person doing this instead of several," said Peterson.

A key factor in DOI's selection of NationsBank was its Electronic Account Government Ledger System, a new Windows-based software product that uses the Internet for account maintenance, setup, billing and other functions. It allows managers to transfer data into general ledgers, create ad-hoc reports and resolve billing disputes online. Compared with other vendors, "Nations seemed to be furthest along with having the capability to be alive and operating in November," said Peterson.

The EAGLS system will enable DOI to eliminate paper transactions--and thereby comply with a government-wide mandate for all federal fund transfers to be electronic by the end of 1999--and also provide more data. For example, where today transactions that are centrally billed to its T&E card are not identified by individual cardholder, EAGLS will enable each transaction to be coded with a name or number. While EAGLS has not yet been deployed, NationsBank built an earlier version of the software for the Government Services Administration master contract, awarded to the six competing vendors.

Scott Collary, NationsBank's senior vice president of commercial, government and business products, said EAGLS will be rolled out to the commercial market in the second half of 1999. EAGLS is written in Java script and requires a standard Microsoft or Netscape browser. The system "ties together the best of card maintenance and accounting functions," Collary said. "We maintain the database, not you."

EAGLS was also a major selling point with decision makers at the two other government agencies that chose NationsBank. The Department of Defense selected the bank as issuer of its 900,000 individually issued and 2,000 centrally billed T&E cards, representing an estimated spend of $2.2 billion a year. EAGLS will interface with DOD's new automated travel system.

DOD currently uses American Express, but made the decision to switch to a bank-issued Visa card because of greater merchant acceptance, said Cathy Ferguson, a spokesperson with DOD's defense finance and accounting services. DOD also chose NationsBank because of the extensive training program it offered, she said.

NationsBank also won the Department of Transportation's purchasing card contract. While DOT has 19,500 cards--and an annual spend of approximately $250 million--the implementation of EAGLS will enable it to reduce that number by a third, said Keven Mooney, DOT's agency program coordinator.

The way in which EAGLS will be implemented and accessed will vary by agency, Woods said. At DOD, cardholders and 10,000 card administrators will access the product through NationsBank's Website. Interior will use an intranet link, and DOT has not yet decided its mode of access.

NationsBank is designing the software so that accounting codes can be appended to all government transactions, directing payment to the appropriate department. Transactions also will be accompanied by a line indicating the type of asset purchased, a useful auditing tool. Other types of data will be customized by agency. DOD will have the ability to capture cardholders' military grades and other job information, while DOT will capture payee information for convenience checks.

A sixth contract was announced by the National Gallery of Art, which selected American Express to provide its 150 T&E cards. But with Amex's decision to withdraw from the bidding process (<I>BTN</I>, May 4)--based on what a spokesperson called the "irrational pricing" of its competitors--that contract is in question.

While officials at all of the agencies said that favorable rebates and better rates were a factor in their choice of vendor, most refused to discuss terms or amounts. The exception was Peterson at DOI, who said rapid turnaround of bills and risk mitigation efforts might enable the agency to get "as much as 107 to 109 basis points." With each basis point worth one-one hundredth of a percent, that amount equals more than one percent of the total spend--a relatively generous incentive.

Orr at the VA said its current purchasing-card program with US Bank, which entails same-day payments, yielded $8 million in rebates between February 1996 and January 1998.

Orr said that the rebates the agency secured from Citibank were better, but declined to elaborate.