For Government, The E-Commerce Race is On

COLUMBUS, Ohio -- Electronic commerce mega-success stories like's are upping the ante for governments struggling to develop their own online business strategies -- some of which are stymied by problems as simple as determining payment methods e-customers can use, said P.K. Agarwal, the chairman of the National Electronic Commerce Coordinating Council.

Competitive pressures from the private sector eventually will force state agencies to deliver more services over the Internet, according to state and high-tech industry executives speaking at the Intergovernmental Technology Conference here. The pressure stems from the success of such Internet ventures as, an online bookstore, and Auto-By-Tel, an automobile buying service, which have conditioned people to the simplicity and rapid turnaround of Web-based applications.

People have become used to using and are looking for states to provide similar services, said George Boersma, chief information officer for Michigan. And as some pioneering states enter the field, issuing licenses and permits online, the pressure intensifies. "[People] are going to put pressure on their states, saying, Why don't I have that?" Boersma said.

Many states are faced with a constituency that increasingly is Internet-literate. Connecticut, for example, estimates that 60 percent of its 3.3 million residents have Internet access at either home or work. The state sees "high potential and high expectations for providing services online," said Linda D. DeConti, planning specialist in the division of administration at Connecticut's Office of Policy and Management.

Connecticut issues more than 1,000 different permits and licenses, and officials there would like to begin processing many of those online. The state hopes to take a big step in that direction this legislative session by passing a bill to support the use of electronic signatures and online credit card payments.

At a basic level, people simply have come to expect the near-instantaneous service they see business providing over the Internet. "People are not going to wait days and months to get permits -- they are going to wait hours," said Richard Webb, CIO for North Carolina.

But before any of that can happen, governments will have to get beyond a fundamental problem: coming up with an acceptable way the public can pay for services they want to offer.

Government agencies generally cannot model their services on commercial-based Web programs because such programs almost wholly rely on credit card payments, which are feasible on large-scale programs, said Agarwal, who is also chief information officer of the California Franchise Tax Board.

Until recently, credit cards have been not been an option because two of the major credit card issuers, Visa and Mastercard, required a 1 percent to 3 percent "merchant fee" on each payment. Those fees would be too expensive for governments because of the high volume of transactions they conduct, Agarwal said.

For example, 2 percent of California's $4 billion worth of purchases each year would amount to $800 million a year in fees. Some credit cards, such as Discover, do not charge a fee, but they have not penetrated the market nearly as much as Visa and Mastercard, he said. A possible solution has arisen this year, as Visa and Mastercard have offered to drop the merchant fee in favor of a "convenience fee" that would be added to the charge itself and shouldered by the consumer -- not the government.

However, the hitch in that idea as well, because convenience fees "don't fly with citizen advocacy groups, because you have made it more expensive to do business with government," Agarwal said.

And yet states see few widely available alternatives to credit cards. A number of organizations are testing the concept of electronic checks, which would involve an electronic transfer of funds directly from a bank account and absent any fees. But such a concept remains in pilot mode, he said.

Choosing a payment method is "the single largest obstacle to electronic commerce," Agarwal said.

-- John Stein Monroe ([email protected])


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