Six vendors compete for charge card business
- By Margret Johnston
- Mar 01, 1998
Six companies that won the right to issue charge cards to federal employees say the contracts provide an opportunity to test innovative services in the government sector that are likely to cross into the commercial charge card market, including smart cards and electronic commerce applications.
The General Services Administration awarded the contracts to Citibank, First National Bank of Chicago, Mellon Bank, NationsBank and two companies that supply charge cards under the current contract, American Express and US Bank. Representatives from all six companies attended a kickoff last week designed to spread the word about the award and about new services that are expected to be offered with the cards.
All six companies said they look forward to competition in the government charge card market, which last year grew to represent $8.5 billion worth of government spending.
Steven M. Putney, president of US Bank's International Merchant Purchase Authorization Card Government Services unit, said tremendous growth potential exists, and terms offered to government customers will only improve with more banks issuing cards. "Even though there's competition...as the government reinvents itself and finds new ways to use these cards, there's going to be more gain for everyone," Putney said.
"It's a new world," said Dan Goren, senior vice president for American Express' Government Services Division. "We think it's a great opportunity because the government is so big that it's difficult to have one program that fits all agencies." The new contract, which will take effect Nov. 30, calls for the six financial institutions to compete for opportunities to issue purchase cards— considered the most lucrative of the three card types (purchase, travel and fleet)— which can be used to buy everything from PCs to paper.
American Express, Citibank, NationsBank and US Bank will offer travel cards, which are used to pay travel expenses. American Express, Citibank and US Bank will offer fleet cards for gasoline and other car expenses. Wright Express, an incumbent on the current contract, will continue issuing fleet cards in a marketing alliance with American Express.
The contracts will run for five years with five one-year renewal options.
Services expected to be added range from data packages that can help users complete their expense accounts and issue automated spending reports to electronic commerce applications, and inventory and identification functions.
Cards currently in use already are taking on new functions. For example, Marines at the Marine Corps Air Station New River, Jacksonville, N.C., are participating in a pilot project to test the use of a chip-equipped smart charge card that can be used not only to buy things but also to track equipment and other supplies issued to a soldier.
"Government in many respects is ahead of the commercial industry," said Sue McIver, director of the GSA Service Acquisition Center. "They have unique needs and are pushing the envelope of how these cards can be used."
Cathleen Raffaeli, executive director of commercial cards for Citibank, described the government charge card market as a "hotbed of innovation" and said Citibank believes the bid represents a "catalyst for change in the commercial sector." Government employees used purchase cards to buy $5.5 billion worth of goods in 1997— up from $3.4 billion in 1996, said Christopher Pieroth, senior vice president of government products for US Bank. Pieroth said the number of purchase cards issued has increased from 226,000 in 1996 to 308,000 last year.
The other two types of charge cards issued to federal employees— travel charge cards and fleet charge cards for car expenses— comprise the remaining 2 million charge cards issued to federal employees.
Government employees have used charge cards for more than 10 years in a program that has cut paperwork and that, in fiscal 1997, let the government take advantage of $27 million in refunds and a savings of $616 million in administrative costs, according to GSA.
GSA estimates that the total amount purchased with all government charge cards could reach $100 billion over the next 10 years. Pieroth called that conservative, saying US Bank projects that the amount bought with purchase charge cards alone will reach $200 billion over that period.
Companies that issue the charge cards make money from them the same way they make money from an ordinary charge card: by keeping a small percentage of the amount billed by merchants.