American government is on a trailblazing journey towards a paperless society. As of 1996, U.S. welfare reform legislation mandates that every state replace its paper food stamp system with an Electronic Benefit Transfer (EBT) scheme by the year 2002.

Already, many states use magnetic-stripe cards, an online technology that's compatible with every ATM up and down Main Street, USA. "Most states are looking for the lowest-cost solution," said Tim O'Conner, director of the USDA Food Stamp Program. "At some point, we will see a migration from online to offline [smart card] technology, but right now we're still looking to get out of paper and into electronics. And since ATMs are everywhere, most states just say, 'Let's ride the commercial infrastructure.' Thus, magnetic-stripe cards represent EBT's first step."

Ohio and Wyoming, however, decided to leap ahead with offline EBT technology in the form of smart cards. Ohio just paid Citibank $7 million to install smart cards and run the state's EBT program through June 1, 2003. Wyoming is currently reviewing similar contract proposals before the state expands its EBT smart card program statewide. "As far as the states go, it's being looked at as a pioneering effort," said Terry Williams, Wyoming EBT smart card project manager.

Why Smart Cards?

Smart card technology has really advanced in the last several years, and its pace has increased exponentially. Today, these little plastic cards can receive, process, store and transmit thousands of bytes of data. It all happens in a dime-sized metallic plate that houses a central processing unit, random access memory and data storage.

"The main advantage of smart cards is that they offer a secure, portable data file," said Dan Cunningham, president of the Smart Card Industry Association. "They can carry their attributes with them instead of having them stored elsewhere. It allows an individual to keep their information private in their own cards."

With smart card technology, there's no need to dial up to a mainframe. All the interaction takes place between the card and the point-of-sale device. So, if every phone line went down, people could still conduct business as usual.

"Also, recipients prefer electronic issuance to paper coupons because they remove the stigma of using food stamps. And, smart cards offer a lot more security. It's just one of those win, win, win situations," added O'Connor.


Ohio got a head start with smart card technology. The state has hosted pilot programs in Dayton since 1992 and has been planning to roll out a statewide smart card scheme since 1994.

"Right now, smart cards are working nicely for the state," said David Schwartz, Ohio EBT project director. At the beginning of each month, welfare recipients take their smart card in to a clinic to get it loaded up with personal information, including a PIN [personal identification number] and their benefits. They can use it at most retail stores until the benefits run out.

"It really surprised us when the population accepted it so readily," added Schwartz. "There were no concerns or hesitations at all. Now, even the retailers like it because the transaction speed is a lot faster than online [magnetic-stripe cards], and they don't have to worry about a large influx at the end of the month."

Ohio awarded Citibank a seven-year contract to run the system -- an investment the state thinks will pay off in the long run. Officials expect the state's monthly cost of distribution -- per household -- to drop from $3.84 with the old paper system to $2.89 using smart cards. Right now, however, Ohio spends more than states using the existing online technology.

Smart card opponents argue that magnetic-stripe cards provide a much cheaper option than smart cards (by about $7 million in Ohio's case) and that taxpayers would save money if government would simply wait