Electronic Benefits Transfer (EBT) Migration to Chip Cards - The First of Many Hills to Climb

Electronic Benefits Transfer (EBT) Migration to Chip Cards - The First of Many Hills to Climb
Kelly Andrus Director, Collaboration Merchant Advisory Group
Jan 2, 2024

In late Spring 2023, industry partners began collaborating on an updated ISO spec used for EBT cards to accommodate a migration to chip technology. Sounds easy, right? Most merchants have upgraded to chip card terminals by now, so what's one more card with a chip on it? Many of us active in payments during the initial EMV migration still bear the scars.

EBT cards were introduced in the 1980s when food stamps migrated from paper vouchers (or coupons) to payment cards. Initially, EBT cards were issued solely for Supplemental Nutrition Assistance Program (SNAP) benefits. Unlike a credit or debit card, SNAP benefits are not processed through a card brand or debit network, making them a closed-loop card product. Each state contracts directly with an EBT processor. Conduent and FIS contract with most states and act as the network between the merchant's gateway/acquirer and the individual states. In some cases, the EBT processor also administers other aspects of the program such as card issuance and fraud monitoring.

The merchant must apply to become a SNAP-accepting retailer with the Food and Nutrition Service (FNS), which is a department within the USDA. Merchants maintain price book indicators to ensure the products purchased are substantiated against an approved list. Consumers often purchase mixed baskets of eligible and non-eligible items, so this results in a higher-than-average number of split payment transactions.

In addition to SNAP benefits, states began utilizing the cards for other cash benefit programs in the 1990s. Today, 40 states use their EBT card products for a combination of SNAP and various cash benefit programs. This means a good portion of EBT cards have a multi-funding component whereby they can use the card for SNAP or cash benefits. Cardholders can access their cash benefits through an ATM or most merchants who accept PIN debit, not just SNAP participating merchants. This means a migration to chip cards may impact any merchant who accepts these cards today, even if unknowingly.

The transaction messaging specification is maintained by the Accredited Standards Committee (ASC) X9, Inc., of which MAG is a member. ASC X9 is accredited by the American National Standards Institute (ANSI) to develop and maintain voluntary consensus standards for the U.S. financial services industry. They do this through an open and transparent development process.

To date, X9 has formed a USDA EBT Chip Card Industry Forum where stakeholders across the value chain have met bi-weekly to discuss all aspects of a chip migration. During the early meetings, the group agreed on some basic tenets for moving forward:

  • Migration to chip technology must not disrupt access to benefits, in-store or online.
  • Benefits must remain transportable to all U.S. states, allowing beneficiaries to make purchases in any state.
  • SNAP redemption should remain closed loop.
  • Identify AID options that can be used by all states to ensure interoperability across states, merchants, and processors.
  • Future-proofing the spec to account for enhancements such as mobile payments and new benefit programs.

The Industry Forum has reviewed the current EBT spec and identified many of the changes that will be needed. The group then petitioned X9 for a Work Item which is required to formally update the spec. The Working Group will take over in updating the final spec, although the USDA EBT Chip Card Industry Forum will remain active. The work now being done in the Industry Forum includes documenting migration topics such as transaction processing, card personalization, POS upgrades and requirements, testing and certification, and roll-out strategies. FNS will use this documentation to further educate stakeholders on their migration to chip cards.

Merchants interested in participating in the X9 EBT Industry Forum can request to be added to the roster. MAG will continue our involvement with all industry groups working to modernize EBT acceptance. If you would like to get involved in our efforts, please email Bryan Penny or Beth Provenzano.

The Merchant Advisory Group

Driving positive change and innovation in the payments industry that serves the merchants interest through collaboration, education, and advocacy.