We’ve written before about how government-to-person (G2P) transfers could be a conduit for increasing access to financial services. But how do you connect the world of cash with the electronic systems that deliver benefits? The U.S. government has successfully operated its Electronic Benefit Transfer (EBT) program across all of its states and territories since 2004. Rather than receiving paper benefits, participants open an EBT account – not affiliated with a bank – and receive a debit card that can be used for in-store purchases or ATM cash withdrawals at specially branded terminals. State governments provide electronic transfer for benefits, such as Supplementary Nutrition Assistance and Temporary Assistance for Needy Families, and vendors, such as JP Morgan Chase and Affiliated Computer Services, manage account information.

One difficulty EBT faced was enabling transactions in locations where point of sale (POS) machines and ATMs were not readily available, such as farmers’ markets, which often lack telephonic and electronic infrastructure. EBT originally offered a manual voucher system that required a lengthy settlement process. However, experiences in places such as Hawaii’s Hilo Market, where food stamp redemptions declined 98% following the June 1998 rollout of the EBT program, demonstrated that a paper voucher system did not adequately compensate for the system’s shortcomings.

To address this, the U.S. Department of Agriculture (USDA) instituted a scrip program (“scrip” is any nonlegal tender that can be substituted for currency). At the Hilo Market, the market manager installed a central stand where customers could exchange their EBT benefits for scrips, which customers could then use to purchase food stamp eligible items at any individual market stand. The scrip program helped food stamp redemptions at the Hilo Market return to 50% of their pre-EBT levels, a success that catalyzed rollouts at other farmers’ markets, such as the Portland Market in Kentucky and New Bedford Market in Massachusetts.

According to a USDA study, the success of the scrip program hinges on three factors:  a responsible market manager, one telephone access point, and a moderate transaction volume. Because these characteristics similarly exist in small communities in developing countries, lessons learned from the scrip program may provide an interesting avenue to spur adoption of electronic financial services.
As argued for other electronic financial service technologies, the adoption of payment innovations may have to be a gradual process, and setting up community scrip exchanges (analogous to the village phone concept), where people could exchange electronic value for scrips, could be that crucial intermediary step for electronic payments systems.

Scrips could be used for person-to-person payments, eliminating the need to create person-to-person electronic payment devices. In contrast to an electronic-only rollout, merchants without sufficient infrastructure could continue operating. Customer displacement during the transition to electronic payments would decrease, as scrip transactions would be branded under a new electronic system (i.e., not cash) but retain the physical exchange aspect of cash transactions. Plus, scrips would not necessarily have to be nationalized, as communities could take responsibility for producing, policing, and designing their own scrips (transactions outside the community would be done with the traditional POS/ATM). This would decrease the cost of the scrip program and allow communities to take more ownership in the transition process, which might further increase uptake of the new system.

Certainly, proper steps would need to be taken to ensure proper management, monitoring, and governance of scrips to create a viable system. Nevertheless, having the ability to take smaller steps instead of a giant leap could be key to successfully adopting electronic payment programs.   –Kane A. Russell