The world's largest charge card program already handles more than $26 billion in annual volume, including $7 billion from 157,000 daily travel transactions. But the impressive part still is to come should 350 U.S. federal government agencies successfully transition to the General Services Administration's second-generation SmartPay program covering Visa and/or MasterCard travel, fleet and purchasing cards.
GSA has made a good start on a tremendous task. Following a "rigorous" request for proposals process, in June it awarded master contracts to four banks--three months ahead of schedule.
Set to run for 10 years from November 2008, "SmartPay 2" is tailored to meet the unique needs of the U.S. government while relying on familiar procurement processes, principles and payment card program components. SmartPay 2 will encompass a bevy of new products and services, enhanced security and data reporting, strategic sourcing support and an attractive rebate for its customers: the individual federal agencies, organizations and Native American tribal governments. It will replace the initial GSA SmartPay program in what would be the biggest charge card transition ever.
"Use of charge cards in government was nothing more than a curiosity a decade ago," according to GSA's September 2006 letter to SmartPay 2 bidders. The scope of the current program, GSA said, is "indicative of how these cards have become essential support tools for government agencies/organizations in supporting mission delivery ... Card-based procurement has played a key role in transforming government procurement."
[PROFILE_1]SmartPay first launched in 1998 through contracts with Bank of America, Citibank, JPMorgan Chase, Mellon Bank and U.S. Bank. GSA reported the strongest growth in the early years "as convenience and savings from program use over traditional procurement methods drove increased acceptance throughout the federal government." The number of cardholders, however, has trended downward as agencies deactivated unused cards and sought to minimize risk exposure. Over time, GSA also has reported a declining delinquency rate (the percentage of total purchases that are greater than 61 days past the billing cycle date). It cited individual agency efforts to emphasize training, implement "strong program controls" and coordinate with bank card providers to specifically reduce the travel card's delinquency rate to be "comparable to the corporate delinquency rates of 2 percent to 3 percent." GSA previously described the delinquency rate as "the most serious problem with the travel card program."
SmartPay 2 will be the product of extensive analysis of the original contracts, intense market research and a thorough review of the needs of government agency users. It will leverage "the best commercial practices to the maximum extent practicable," GSA said.
"We in the federal government have largely co-opted a commercial process," said David Shea, director of the Office of Charge Card Management for GSA's Federal Acquisition Service, speaking in September during a Society of Government Travel Professionals conference.
In more fully describing the program to Procurement.travel, Shea said SmartPay 2 would overcome card issuance problems, bank electronic access system deficiencies, financial interface challenges and other hurdles.
Program Requirements
As with any government program, security and fraud prevention are key to SmartPay 2. Vendors are required to meet the Federal Information Security Management Act and Payment Card Industry Data Security Standard, offer around-the-clock transaction authorization support, mask personally identifiable data and house all data at U.S. facilities. This is particularly important for the travel card component.
"We know where everyone is going, but what if that information gets out? What if purchasing information got out?" Shea asked. "We are a nation at war. We want better oversight and want to maintain taxpayer faith." The security specifications for the program, Shea said, total 11 pages.
Vendors also were required to provide options for centrally billed accounts (generally used for such specific purposes as group travel), prepaid cards, stored-value cards (perhaps suitable for temporary workers, for example), "contactless cards," foreign-currency cards and an integrated card option combining travel, fleet and/or purchasing.[PULL_1]Currently, only the Department of the Interior runs an integrated card program. Shea cited transaction identification challenges and fleet managers' preference to subcontract their programs to specialist data handlers. "It remains to be seen," he said, whether such issues would be resolved in SmartPay 2, leading more agencies to select an integrated card strategy.
Bidder banks were asked to make provisions for collecting level 1, 2 and 3 transaction data "to support the government's strategic sourcing initiatives, risk mitigation measures, management reports and other program reporting objectives."
Through SmartPay 2, merchants can earn incentives for supplying level 3 data. Those incentives would come in the form of improved interchange rates set by the card associations.[PULL_2]Given these complexities, GSA required bidders to help conduct training "in the areas of finance, including but not limited to billing and payment, administration and management of card program requirements." Shea explained that GSA also developed a transition monitoring tool that can be used to chart progress and report to the Office of Management and Budget.
After implementing the new program by Nov. 30, 2008, agencies will explore future functions of SmartPay 2, as well as such newer components as contactless cards and stored-value cards.
"Agencies will work to get the new plastic out there and then come back and look at some of these new card technologies," Shea said. "The technology associated with cards and transaction processing is improving all the time. I am sure there are some uses for these cards that we haven't even thought of yet that we'll see over the next 10 years."