Card fees a tough sell

The amount of goods bought by federal employees wielding government purchase

cards is soaring: $10.2 billion worth in fiscal 1999, with an expected increase

of 20 percent in fiscal 2000.

That's good news because the cards make buying products, including information

technology equipment, easier and cheaper. Quick purchasing means quicker

access to the latest and greatest technology.

At face value, the program looks like one of those rare win-win situations.

Unfortunately, that's not the case. The losers here are IT vendors. They

are saddled with paying up to 5 percent of the total price on each transaction

to the banks that won the right to issue credit cards to the federal government

in February 1998. The fees, coupled with discounts negotiated with agencies

and the General Services Administration before the credit cards became widely

used, eat away the already slim profit margins.

GSA, which runs the credit card program, points out that vendors and

credit card companies negotiated the fees. And GSA had meant the cards to

be used for small purchases, not for buys that amount to tens of thousands

of dollars.

The banks — U.S. Bank, Citibank, Bank of America, Mellon Bank and BankOne — argue that the fees are a private-sector norm and are needed to cover

the costs of possible nonpayment and fraud from electronic purchases. The

problem here is that the government doesn't bear private-sector risks. In

fact, the U.S. government is the best customer the world has ever known.

Just ask any bond rating company. The risk of nonpayment and fraud is virtually


Government procurement experts say pressure from agencies and companies

is the only way to bring the rates down. That's the same argument put forth

regarding the high rates banks charge individual credit card holders, but

the rates have remained high. Just as individual card holders have been

doing, IT vendors probably will have to wait a long time before they see

any relief.


Should government purchases be exempt from credit card fees? Send your thoughts to [email protected]

Mar. 27, 2000

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