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Q & A

Tuesday, October 1, 1996
Why is the government beginning to use electronic payments?

Electronic benefits transfer (EBT) is the electronic payment of federal or state government cash assistance benefits to eligible recipients who don't have bank accounts. The cost of delivering a benefit via paper check is $.43, but less than $.02 through the Automated Clearing House (ACH). If all federal government payments (including benefits) were sent electronically, the Treasury estimates an annual savings of approximately $141 million in administrative costs.

Are people forced to receive federal benefits electronically?

Recent legislation requires new recipients to receive benefits electronically and by Jan. 1, 1999, all recipients will receive federal benefits electronically.

Why would individuals want to receive payments electronically?

In addition to reducing administrative costs, electronic delivery offers advantages to benefits recipients as well as merchants. For recipients, electronic delivery is a safer and more reliable method of receipt, especially for recipients without bank accounts. Paper checks can be lost or delayed in the mail and must be converted to cash as a lump sum in a single transaction, leaving recipients vulnerable to larger losses when carrying cash. With electronic delivery, recipients can choose when and where to withdraw or spend the benefits. For merchants, electronic benefits are more convenient and less costly than cash or food stamps to process and deposit.

How can individuals receive electronic payments if they do not have bank accounts?

Although 85 percent of the federal cash benefit recipients have bank accounts and could receive ACH credits electronically, EBT accommodates the remaining 15 percent who are "unbanked." Under EBT, the government chooses the financial institution. Cash assistance funds owed to all recipients are deposited into one large pooled account containing an individual sub account for each recipient. The financial institution issues EBT cards, and trains the recipients how to use the card at ATMs and merchant locations.