Slide 1

Report
Statewide E-Commerce
Program
101
Office of the State Controller
November 2008
State of North Carolina
Three Components
Statewide
E-Commerce
Program
Electronic
Funds Transfer
•Inbound
(Collections)
•Outbound
(Payments)
Merchant
Cards
•Inbound (Collections)
Inter/Intra
Governmental
Transfers
•Transfers between
accounts at State
Treasurer
Origination of Concept
Senate Bill 222
(1999)
E-Commerce
Work Group
(1999)
Statewide
Enterprise Approach
IRMC
(1999)
State Cash
Management Plan
GS 147-86.10 & 11
Statewide
E-Government
Steering Committee
(2000)
OSC
E-Commerce
Task Force
(2007)
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"
Definition “Electronic Payments”
Electronic
Payments
Electronic Funds
Transfer (EFT)
Wire Transfers
Merchant Cards
ACH Transactions
Direct Deposit
(Outbound)
Debit Card
(Outbound)
Credit Cards
Debit Cards
Bank Draft
(Inbound)
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
Regulatory Applicability
Electronic
Payments
Wire
Transfers
•EFTA –
Electronic Funds
Transfer Act
•Reg E
ACH
Debit
Cards
Credit
Cards
•NACHA
Operating Rules
•EFTA –
Electronic Funds
Transfer Act
• TILA - Truth In
•Reg E
•PCI Data
Security Council
Lending Act
•Reg Z
• Card
Association
Rules
•PCI Data
Security Council
Reg E and Z issued by Federal Reserve Bank
Primary Cost Differences
Wire Transfers




Item Cost - $6.75+
Same day funds
Transfer almost
instantaneous
Used for critical
payments (e.g. debt
service)
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)
•
State Checks
Average Cost – $.74
(According to 2008 EC Task Force Survey)
•
Credit Cards - Paid to
Visa, MC, Amex Range
1.5% - 3%
Debit Cards – Paid to
switch networks
Approx. .53%
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
Million
20
18
Paper Warrant Trend
18.2
17.6
16.5
14.7
16
14.3
14
Largest
13.3
12
Accounts
9.3
10
8
6
TANF
DOR
ChildSup
ESC
Total
4
2
0
FY02
Decrease of:
FY03
FY04
3%
6%
FY05
11%
FY06
FY07
3%
7%
FY08
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
Cost of Paper State Check
Agency Cost
Gen. Govt. Agency
University
Community College
Weighted Average







$.11
$.11
$.11
$.11
Total Cost
$ .54
$1.41
$2.22
$ .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

$ .43
$1.30
$2.11
$ .63
DST Cost
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
Merchant Card Utilization
$ Million
7,000,000
$650
$600
$550
$500
$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0
FY- FY- FY- FY- FY- FY- FY- FY01 02 03 04 05 06 07 08
#Transactions
FY-01
FY-02
FY-03
FY-04
FY-05
FY-06
FY-07
FY-08
285,000
868,000
1,573,000
2,078,000
2,842,000
3,673,000
4,509,000
6,018,000
FY- FY- FY- FY- FY- FY- FY- FY01 02 03 04 05 06 07 08
Dollar Amount
FY-01
FY-02
FY-03
FY-04
FY-05
FY-06
FY-07
FY-08
$
$
$
$
$
$
$
$
22.8
76.7
182.6
233.7
311.4
435.7
534.8
646.3
•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
Card Activity FY 2006-07
Trans. Vol.
Pass-Thru
Fees
Sales Vol.
Vendor
Fees
Total Fees
General Govt
1.967 M
$ 107.541 M
$ 1.895 M
$ .140 M
$ 2.036 M
Universities
1.797 M
$ 349.237 M
$ 5.634 M
$ .168 M
$ 5.802 M
Com. Colleges
.161 M
$ 19.910 M
$ .283 M
$ .019 M
$ .302 M
Local Units
.583 M
$ 58.006 M
$ .986 M
$ .047 M
$ 1.033 M
LEAs
.001 M
$
$
$
$
Total
4.509 M
.113 M
$ 534.807 M
DMV Vehicle Registration largest volume
•1.25 million transaction
•$ 39 million
.002 M
$ 8.801 M
0M
$ .374 M
.002 M
$ 9.175 M
Two Types of Fees
•Pass-thru fees are paid to Visa/MC
•Vendor Fees are paid to STMS
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 improvement is 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
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 standalone 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 nonrecurring.”
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.”
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
Master Contracts
Statewide
E-Commerce
Program
Electronic
Funds Transfer
October 1, 2005
Merchant
Cards
American
Express
August 1, 2006
Discover
Related Merchant Card Contract
• With Trustwave
• For PCI Validation Services
Master Contracts

Two master contracts to support the SECP
• EFT – Wachovia Bank
• Merchant Cards – SunTrust Merchant Services

Benefits of master contracts
• Support the Statewide 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
EFT Master Contract

RFP issued in June 2005

Resulting Benefits of New Contract
• Five bidders responding
• Wachovia Bank re-selected October 1, 2005
• 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
Merchant Card Contract

RFP issued in December 2005

Resulting Benefits of New Contract
• Four bidders responding
• SunTrust Merchant Services re-selected August 1, 2006
• 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
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

Hacker
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
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
Virtual Credit
Card Terminal
Agency
EFT (ACH)
API
Cards
Acct/Pay System
Agency
Acct/Rec System
API = Application Program Interface
STMS
Outbound Payments
State’s E-Commerce Structure
Outbound Payments
Agency / Univ A/P System
Wachovia Web
ACHieve (Credits)
Gateway
( CPS or
Other )
NCAS E-Payments
Payee
(Citizen /
Vendor/
Employee)
Central Payroll
DOT Payroll
University Payrolls
Community College Payrolls
$
State’s
EFT Bank
(ODFI)
Local Schools Payrolls
Child Support Payments
ACH Transactions
Fed Reserve Bank
Payee’s Bank
Inbound Payments
State’s E-Commerce Structure
Inbound Payments
Agency POS Terminals
[email protected]
Yahoo! Store
Agency Windows Client
Agency Web Store Front
Gateway
( CPS or
Other )
Acquiring
Processor
Agency A/R System
Citizen
(Taxpayer)
Wachovia Web
ACHieve (Debits)
Agency’s 3rd Party Data
Collection Center
Payor’s Bank
ACH Credit
$
State’s
EFT Bank
(ODFI)
$
Card Transactions
ACH Transactions
$
State’s
Depository Bank
Cooperative Effort
Participants
Statewide
E-Commerce
Program
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)
David C. Reavis
E-Commerce Manager
(919) 871-6483
November 2008
Amber Young
Central Compliance Manager
(919) 981-5481
David McCoy
State Controller

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