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Office of the State Controller

Statewide E-Commerce Program. Office of the State Controller. SECP. 101. November 2008. State of North Carolina. EFT. Three Components. EFT. Inbound (Collections) Outbound (Payments ) . Inbound (Collections). Transfers between accounts at State Treasurer. Origination of Concept.

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Office of the State Controller

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  1. Statewide E-Commerce Program Office of the State Controller SECP 101 November 2008 State of North Carolina EFT

  2. Three Components EFT • Inbound (Collections) • Outbound (Payments) • Inbound (Collections) • Transfers between accounts at State Treasurer

  3. Origination of Concept • Reports • 1999 - “A New Way of Doing Business” (ECWG) • 1999 – “ITS Framework for Developing an Ecommerce – Enabled Technical Environment” • 2001 – “E-Government – Using Technology to Transform North Carolina’s Governmental Service Operations in the Digital Age” • March 2007 – “Statewide Electronic Commerce Program Status Report” • April 2008 – “Electronic Commerce Task Force Report"

  4. Definition “Electronic Payments” Corporate Purchasing Cards (Disbursements) • Wire Transfers primarily handled through State Treasurer’s Office • ACH and Merchant Cards primarily handled through OSC arrangements • Debit card is a form of ACH remitted to cardholder’s account where cardholder withdraws funds via card • Corporate P-Cards administered by Purchase & Contract Division

  5. Regulatory Applicability • EFTA – Electronic Funds Transfer Act • Reg E • NACHA Operating Rules • EFTA – Electronic Funds Transfer Act • Reg E • PCI Data Security Council • TILA - Truth In Lending Act • Reg Z • Card Association Rules • PCI Data Security Council Reg E and Z issued by Federal Reserve Bank

  6. Primary Cost Differences ACH • Item Cost < 1 penny • Next day funds • One day delay in settlement • Used for large batch files (e.g., payroll, vendor payments) Merchant Cards • Item Cost - $.04 • Next day funds • One day delay in settlement • Primarily for smaller payments • Additional costs of interchange (pass through costs) • Credit Cards - Paid to Visa, MC, Amex Range 1.5% - 3% • Debit Cards – Paid to switch networks Approx. .53% Wire Transfers • Item Cost - $6.75+ • Same day funds • Transfer almost instantaneous • Used for critical payments (e.g. debt service) State ChecksAverage Cost – $.74(According to 2008 EC Task Force Survey)

  7. EFT Utilization • Biggest Inbound User – (June 30, 2008) • Dept of Revenue – Started 1994 • 130,000 taxpayers remitting electronically • 1.6 million transactions annually • $18.2 billion of $26.7 billion collected = 68% • Increased investment earnings of $6.3 million per year • Biggest Outbound Users - (June 30, 2008) • Retirement System – Started 1977 • 203,000 out of 211,000 = 96% • Central Payroll – Started 1979 • 96,000 out of 100,000 = 96% • NCAS Vendors – Started 2000 • ACH: 254,000 out of 949,000 = 27% Big Opportunity

  8. Paper Warrant Trend Million 18.2 17.6 16.5 14.7 14.3 Largest Accounts 13.3 9.3 Decrease of: 3% 6% 11% 3% 7% 30% FY 2001-02 was peak in paper warrants = 18.2 million FY 2007-08 had biggest % decrease = 30% (Child Support & ESC) Decrease in paper checks reflective of increase of EFT

  9. Cost of Paper State Check Agency CostDST CostTotal Cost Gen. Govt. Agency $ .43 $.11 $ .54 University $1.30 $.11 $1.41 Community College $2.11$.11$2.22 Weighted Average $ .63 $.11 $ .74 • Two components of cost = Agency cost & DST cost • Cost does not include cost to “produce” the check (A/P costs) • DST functions as “bank” for agencies • Internal costs = $.09 • FRB fees = $.02 • Cost of the issuance of a paper state check varies from agency to agency • General Government agencies experiences lower per item cost due to several large volume accounts • Average overall cost for a State warrant is $.74 • Smaller check volumes = higher per item costs • Some agencies’ cost as high as $35

  10. $ Million Merchant Card Utilization Dollar Amount FY-01 285,000 FY-02 868,000 FY-03 1,573,000 FY-04 2,078,000 FY-05 2,842,000 FY-06 3,673,000 FY-07 4,509,000 FY-08 6,018,000 FY-01 $ 22.8 FY-02 $ 76.7 FY-03 $ 182.6 FY-04 $ 233.7 FY-05 $ 311.4 FY-06 $ 435.7 FY-07 $ 534.8 FY-08 $ 646.3 #Transactions • Cards represent 11% of total collection transactions (But less than 1% of $) • Growth rate of card transactions has been 30% annually • Currently 95 participants (900+ merchant numbers): • 21 Agencies 28 Community Colleges • 15 Universities 31 Local Governments

  11. Card Activity FY 2006-07 • DMV Vehicle Registration largest volume • 1.25 million transaction • $ 39 million • Two Types of Fees • Pass-thru fees are paid to Visa/MC • Vendor Fees are paid to STMS

  12. E-Commerce Policies • October 1, 2005 – Major rewrite of the State’s E-Commerce policies • Intent was to provide foundation for major emphasis on expanding E-Commerce • Major room for improvementis vendor payments • Good success in payroll – 96% • Little success in vendor payments – 27% • Maximization of Electronic Payments Policy • Specifies requirements of agencies to utilize ecommerce as part of both receipt and disbursement processes • PCI Data Security - Issued October 2008 • Specifies process for agencies to be validated as compliant with PCI Data Security Standard

  13. ACH – Standard Method of Payment • Vendor Payments – “Each NCAS agency shall develop procedures to require the standard method of payment to all vendors and other payors to be by ACH direct deposit, utilizing either the E-Payment feature of NCAS or a stand-alone system approved by the State Controller. Exemptions for individual payees may be considered if a hardship case can be provided, or if the payments are non-recurring.” • Payroll – “Each payroll center shall utilize ACH direct deposit for all payroll payments to all full-time employees. Exemptions for individual employees may be considered if a hardship case can be provided. Each payroll center is encouraged to offer ACH direct deposit to all part-time and temporary employees.”

  14. Implementation of Policy • Basis – Policy provides agencies with the basis for requiring electronic payment to be the “standard method of payment” • Two types of delivery of payments recognized by statute • G.S. 143-3.2 - “All disbursements made to non-State entities shall be delivered by the appropriate agency to the entity’s legally designated recipient by United States mail or its equivalent, including electronic funds transfer.” • Allows mailing of paper checks or EFT • Central Payroll & BEACON Payroll –July 1, 2007, OSC issued a policy requiring all employees paid under an OSC-administered payroll to be paid by direct deposit • Effective October 1, 2007 • Hardship cases (cannot obtain a bank account) exempted • If not direct deposit, pay made by “check” being mailed on payday • NCAS Vendors • OSC will be looking at ways to enroll more vendors in EFT • Agencies should take an active role in enrolling vendors in EFT

  15. Master Contracts October 1, 2005 August 1, 2006 American Express Discover • Related Merchant Card Contract • With Trustwave • For PCI Validation Services

  16. Master Contracts • Two master contracts to support the SECP • EFT – Wachovia Bank • Merchant Cards – SunTrust Merchant Services • Benefits of master contracts • Support theStatewide Enterprise Approach • Leverage volume pricing • Increase competitive bidding • OSC also has three supplemental contacts to support cards: • Trustwave - PCI Security Validation Services • American Express Card Services • Discover Network Card Services

  17. EFT Master Contract • RFP issued in June 2005 • Five bidders responding • Wachovia Bank re-selected October 1, 2005 • Resulting Benefits of New Contract • Programs previously operating separately brought under the master contract • Central Payroll, DOT Payroll, and universities payrolls • Community Colleges and LEAs using Wachovia • DST still pays costs, but now operate under Master Contract • Price decreased by over one-half of the old pricing • Annual costs will decrease from $1.5 million to $700,000 • Per item cost decreased from 2 1/2¢ to .9¢ • Tiered pricing of .75¢ once total volume > 5 million • Participation • Agencies and universities required to participate unless business case is given • Community colleges and LEAs voluntary, considering local bank arrangements

  18. Merchant Card Contract • RFP issued in December 2005 • Four bidders responding • SunTrust Merchant Services re-selected August 1, 2006 • Resulting Benefits of New Contract • Vendor-levied fees decreased by 63% from the old pricing • Per item cost decreased from 10.8¢ to 4¢ • Annual vendor-levied fees will decrease from $670,000 to $280,000 (average over 5 years of contract) • Interchange fees will remain at actual “pass-through” • Other enhancements • Extended negotiations to obtain more favorable terms than the previous contract • Different environment today than in 2000, primarily due to PCI Security Compliance Rules and associated fines

  19. PCI Data Security Payment Card Industry Data Security Standard • Standard applies to any agency’s card capture system that: • Stores cardholder data • Transmits cardholder data • Processes cardholder data • Non-Compliance can result in possible: • Substantial fines by Visa and/or MasterCard • Termination of services by STMS • Trustwave Validation Services: • Online Portal provided to agencies • Annual Self-Assessment Questionnaire • Quarterly Vulnerability Scans of Networks • Monitoring and Management Reports • OSC and STMS has access to Non-compliance reports • Central Oversight agencies provided Confidential Reports Hacker

  20. Common Payment Service • Gateway Service available to participants of the MSA • Provided by Office of Information Technology Services (ITS) • Gateway for both EFT and Merchant Card transactions • For participants: • Having an internet application requiring a gateway to the processor (EFT and Merchant Cards) • Desiring a virtual terminal for capturing card not-present transactions (MOTO) • Not having ability to transmit ACH files directly to bank Wachovia Agency Internet Application API EFT (ACH) Virtual Credit Card Terminal Cards Agency Acct/Pay System Agency Acct/Rec System API = Application Program Interface STMS

  21. Outbound Payments

  22. Inbound Payments

  23. Cooperative Effort Participants Statewide E-Commerce Program EFT

  24. More Information Office of the State Controller Web Site www.osc.nc.gov Three power point presentations are suggested viewing: EFT-101 and Merchant Card Services -101 and CPS-101 Support Services Center (919) 875-HELP (4357) Amber Young Central Compliance Manager (919) 981-5481 David C. Reavis E-Commerce Manager (919) 871-6483 SECP David McCoy State Controller November 2008

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