<B> GSA Splits Card Contract Among 6 Vendors</B>
By Lynn Woods
The U.S. General Services Administration has awarded contracts for the next generation of federal government charge cards to six vendors, bringing competition to a formerly rigid process. The agreement also sets parameters in the contract that will propel the credit card industry into the electronic era.
The vendors are American Express, Citibank, First National Bank of Chicago, Mellon Bank, NationsBank and US Bank, all of which will compete for the agency's business, estimated at $8.5 billion in charge card purchases last year. The multicard options represent a change from the past, when the government was served by just three vendors--American Express for the travel card, US Bank for purchasing and Wright Express for fleet. With the exception of Mellon Bank, which will be offering only a purchasing card, all the vendors will provide integrated solutions for travel, fleet and purchasing, as well as single-card products for each. The new 10-year contract, estimated to be worth more than $100 billion, goes into effect Nov. 30.
The new contract is spurring a number of initiatives, including electronic processing and reporting for speedier and more cost-efficient service; integration of the travel, purchasing and fleet functions; availability of stored-value and smart cards; enhanced capability for data capture; and the development of electronic malls as a purchasing tool.
"This bid represents a catalyst for change in the commercial marketplace," said Kathy Raffaeli, executive director of the commercial cards division at Citibank. "By applying new technologies within government, we can reinvent the way people do business."
The new contract has resulted in an unprecedented investment on the part of the vendors, said Steve Putney, president of US Bank. "Because this contract has such an extensive set of requirements, some of them very bleeding edge, the government contractors awarded the bid are having to invest more in a year than has been spent in the last 10 years by the credit card industry," an amount Putney estimates to be from $50 to $75 million.
The sheer scale of the contract will have an impact on technology development, creating momentum that will make the use of smart cards and the Internet commonplace in the near future.
"Many corporate clients are reluctant to pull data off the Web," said Anthony Brady, project manager for the purchasing card solution for the federal government at Mellon Bank. "The government contract will prove that it's a viable operation." Added Dan Goren, senior vice president of American Express Government Services, "If hundreds of thousands of government employees are carrying smart cards, the merchants will shift" to installing readers for acceptance.
Other benefits are a greater acceptance of cards in the purchasing arena and more robust reporting. The government is stipulating that all federal payments be made electronically by Jan. 1, 1999--a requirement that "will result in more volume to purchasing card vehicles and a proliferation of plastic where it's currently not accepted," noted Goren.
And GSA's demand for data capture will result in more detailed reporting. For example, the contract stipulates that credit card companies break out airline flights by up to 16 segments, as compared with the former standard of four flight segments. In response to the government RFP, MasterCard redesigned its reporting function 10 months ago. By October, it will be able to break out flights by a minimum of 16 segments and a maximum of 32. MasterCard also has engaged a third party to obtain more detailed hotel information, such as zip codes, which are required in the government contract. Car rental reporting will include such details as length of rental.
Goren said the contract also will encourage new uses for credit cards. For example, agencies will be able to issue temporary cards to trainees. Such flexibility is made possible by new technology that enables cards to be issued with flexible spending limits, he said.
The biggest area for savings is in new developments in purchasing cards, Goren said. "We see the introduction of purchasing on the Internet with electronic shopping malls designed for customers. They'll be able to select vendors on the Web."
Highlights of the new vendor offerings include:
<ul><li>Among the new features Amex will be offering to GSA are a fleet card that includes aviation fueling, enhanced operation controls, vehicle maintenance and roadside services; a travel card with new control features and automated reconciliation; and a purchase card offering electronic purchasing. In November, Amex also will offer stored-value cards, or E-purse, a type of card in which a block of currency can be stored and used in lieu of cash.
<li>NationsBank unveiled the Electronic Account Government Ledger System, a Windows-based software product that uses the Internet for account maintenance, setup, billing, and other functions of purchasing, travel and fleet. It allows managers to transfer data into general ledgers, make instant changes to accounts, check billing records online, resolve billing disputes electronically and create ad-hoc reports. EAGLS is written in Java script and HTML, and it requires a Web browser. NationsBank has demonstrated it to a corporate client and plans to roll it out to one or two corporate customers in the near future.
<li>US Bank, which is offering GSA a one-card solution for purchasing and travel as well as a multicard option, has addressed one key obstacle to such integration--liability for purchasing transactions. Its solution? "Strip billing," in which purchasing transactions are separated from the cardholder's account and billed directly to the agency, while travel transactions are billed directly to the cardholder and reported to the agency. This method makes the agency liable for purchasing, while the cardholder is liable for all travel transactions. </ul>
Many of the innovations that will become available in November already are being tested in pilots. American Express, for example, has been running a smart card program with the Marine Corps at two bases in North Carolina (<I>BTN</I>, Oct. 13, 1997). Marines can withdraw funds from their credit union account onto a smart card, and then use it to make purchases at retail centers on the bases.
As a value-added feature to the government contract, First Chicago will introduce a card with a Mondex chip later in the year that Judy Feldman, First Chicago's head of global treasury and trade services, describes as "a microprocessor sitting on a piece of plastic." Unlike other chips, the 64k chip allows the application to be removed and replaced with a new one, meaning that the card can be reused, said Feldman.
Vendors also are wooing GSA with lucrative rebates. Last year, the government received more than $20 million in rebates for use of the travel card. Special discounts can be negotiated by each agency on top of the base rebate, which varies by vendor.