Four US card giants – Citi, GE Consumer
Finance, JPMorgan Chase and US Bancorp – have been named as the
winners of the world’s largest charge card service contract, which
has been awarded by the US General Services Administration (GSA), a
federal agency. The contract begins in 2008 and will continue for
ten years.

The contracts are valued at an estimated $26 billion each year
for ten years, and continue the government-wide purchase, travel,
fleet and integrated charge card services currently provided by
GSA’s SmartPay programme, the largest of its kind in the world. The
charge cards are used by more than 350 federal agencies and
organisations for travel expenses as well as for purchasing
supplies and services.

Founded in 1949, GSA serves as a centralised procurement and
property management agency for the US federal government. GSA
manages more than one-quarter of the government’s total procurement
dollars and influences the management of $500 billion in federal
assets, including 8,600 government-owned or leased buildings and
205,000 vehicles.

Federal agencies and organisations spent more than $26 billion
in 2006 using GSA’s SmartPay charge card programme. Federal
employees spend an estimated $10 billion on charge card purchases
annually.

Provider of choice

The four winning issuers can now approach individual federal
agencies and compete against each other to become the charge card
provider of choice for each agency in the purchasing, travel and
fleet programme sectors.

According to GSA statistics, the number of SmartPay purchase
card transactions decreased slightly in 2006, but total dollars
spent using the purchase card increased to $17.8 billion.

The number of transactions processed using the travel card
decreased from just over 42 million in 2005 to slightly over 40
million in 2006. The number of fleet charge card transactions rose
from 23 million in 2005 to over 32 million in 2006.

According to the GSA, government agencies that process card
transactions will be subject to an interchange fee, but at a lower
rate than the commercial charge card rate. Under the deal, federal
agencies will receive a rebate from banks based on how quickly they
pay their bills. In fiscal year 2006, rebates to agencies amounted
to $156 million.

Around 3 million of the GSA’s Smart Pay charge cards are already
in circulation. Currently, five banks provide charge cards to the
federal government – Citi, US Bancorp, Bank One, Mellon Bank and
Bank of America. However, Bank of America, which in 2006 had a
25.92 percent share of the programme, and Mellon decided not to
rebid for the contracts due to concerns over economic
feasibility.

GSA SmartPay 2 builds on SmartPay by expanding product and
service lines, including prepaid and contactless cards, as well as
cards in foreign currencies and other separately priced,
value-added items. SmartPay 2 is also aimed at helping federal
agencies by providing enhanced agency spend analyses, programme
control and oversight, and improving payment services through new
technologies. For example, an agency supervisor can automatically
receive an e-mail detailing a transaction every time a card is
used. In agencies with large numbers of cardholders, a summary
report is e-mailed.

A bonus for JPMorgan Chase

For JPMorgan Chase, the deal boosts its intention to become the
largest provider of government and public sector card programmes
both in the US and abroad. In addition to its government charge
card services, JPMorgan Chase provides treasury solutions to over
3,000 federal and state governments and municipalities, with card
programmes in sectors such as food stamps, social benefits,
disaster assistance and unemployment insurance.

Earlier in June, the Texas Workforce Commission (TWC) selected
JPMorgan Chase to provide debit cards for unemployment insurance
benefits, replacing traditional paper cheques. JPMorgan Chase will
supply TWC with up to 290,000 debit cards a year. The debit cards
will be funded electronically through accounts created to hold the
unemployment insurance benefits, and can be used at any merchant or
ATM that accepts Visa and at all Visa member banks and credit
unions across the US.

Overall, JPMorgan Chase provides debit card services to more
than 13 million households or individuals participating in publicly
funded programmes domestically and internationally.