Office of the State ControllerOffice of the State ControllerNovember 2008November 2008

Statewide E-Commerce Statewide E-Commerce ProgramProgram

State of North CarolinaState of North Carolina

101101

Three ComponentsThree ComponentsStatewide

E-CommerceProgram

Electronic Funds Transfer

Merchant Cards

Inter/Intra

Governmental

Transfers

•Inbound (Collections)•Inbound (Collections)

•Outbound (Payments)

•Transfers between accounts at State Treasurer

Origination of ConceptOrigination of Concept

Statewide Enterprise Approach

E-CommerceWork Group

(1999)

StatewideE-Government

Steering Committee(2000)

IRMC(1999)

Senate Bill 222(1999)

State Cash Management PlanGS 147-86.10 & 11

OSCE-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”Definition “Electronic Payments”Electronic Payments

Electronic Funds Transfer (EFT) Merchant Cards

Wire Transfers ACH Transactions Credit Cards Debit Cards

Direct Deposit(Outbound)

Bank Draft(Inbound)

Debit Card(Outbound)

• Wire Transfers primarily handled through State Treasurer’s OfficeWire Transfers primarily handled through State Treasurer’s Office

• ACH and Merchant Cards primarily handled through OSC arrangementsACH and Merchant Cards primarily handled through OSC arrangements

• Debit card is a form of ACH remitted to cardholder’s account where Debit card is a form of ACH remitted to cardholder’s account where cardholder withdraws funds via cardcardholder withdraws funds via card

• Corporate P-Cards administered by Purchase & Contract DivisionCorporate P-Cards administered by Purchase & Contract Division

CorporateCorporate Purchasing Cards

(Disbursements)

Electronic Payments

Wire

TransfersACH

Debit

Cards

Credit

Cards

Regulatory ApplicabilityRegulatory 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

Primary Cost DifferencesPrimary Cost Differences

Wire TransfersWire Transfers Item Cost - $6.75+Item Cost - $6.75+ Same day fundsSame day funds Transfer almost Transfer almost

instantaneousinstantaneous Used for critical Used for critical

payments (e.g. debt payments (e.g. debt service)service)

ACHACH Item Cost < 1 pennyItem Cost < 1 penny Next day fundsNext day funds One day delay in One day delay in

settlementsettlement Used for large batch Used for large batch

files (e.g., payroll, files (e.g., payroll, vendor payments) vendor payments)

State ChecksState ChecksAverage Cost – $.74Average Cost – $.74

(According to 2008 EC Task Force Survey)(According to 2008 EC Task Force Survey)

Merchant CardsMerchant Cards

Item Cost - $.04Item Cost - $.04 Next day fundsNext day funds One day delay in One day delay in

settlementsettlement Primarily for smaller Primarily for smaller

paymentspayments Additional costs of Additional costs of

interchange (pass interchange (pass through costs)through costs)• Credit Cards - Paid to Credit Cards - Paid to

Visa, MC, Amex Range Visa, MC, Amex Range 1.5% - 3%1.5% - 3%

• Debit Cards – Paid to Debit Cards – Paid to switch networks switch networks Approx. .53% Approx. .53%

EFT UtilizationEFT Utilization Biggest Biggest InboundInbound User – (June 30, 2008) User – (June 30, 2008)

• Dept of RevenueDept of Revenue – Started 1994 – Started 1994• 130,000 taxpayers remitting electronically130,000 taxpayers remitting electronically• 1.6 million transactions annually1.6 million transactions annually• $18.2 billion of $26.7 billion collected = $18.2 billion of $26.7 billion collected = 68%68%• Increased investment earnings of $6.3 million per yearIncreased investment earnings of $6.3 million per year

Biggest Biggest OutboundOutbound Users - (June 30, 2008) Users - (June 30, 2008)• Retirement SystemRetirement System – Started 1977 – Started 1977

203,000 out of 211,000 = 203,000 out of 211,000 = 96%96%• Central PayrollCentral Payroll – Started 1979 – Started 1979

96,000 out of 100,000 = 96,000 out of 100,000 = 96% 96% • NCAS VendorsNCAS Vendors – Started 2000 – Started 2000

ACH: 254,000 out of 949,000 = ACH: 254,000 out of 949,000 = 27%27% Big Opportunity

Paper Warrant TrendPaper Warrant Trend

0

2

4

6

8

10

12

14

16

18

20

FY02 FY03 FY04 FY05 FY06 FY07 FY08

TANF

DOR

ChildSup

ESC

Total

Decrease of: 3% 6% 11% 3% 7% 30%

Million

FY 2001-02 was peak in paper warrants = 18.2 millionFY 2007-08 had biggest % decrease = 30% (Child Support & ESC)Decrease in paper checks reflective of increase of EFT

14.7

16.517.618.2

Largest

Accounts14.3

13.3

9.3

Cost of Paper State CheckCost of Paper State Check

Agency Cost DST Cost Total 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 costTwo components of cost = Agency cost & DST cost Cost does not include cost to “produce” the check (A/P costs)Cost does not include cost to “produce” the check (A/P costs) DST functions as “bank” for agenciesDST functions as “bank” for agencies

• Internal costs = $.09Internal costs = $.09• FRB fees = $.02FRB fees = $.02

Cost of the issuance of a paper state check varies from agency Cost of the issuance of a paper state check varies from agency to agencyto agency

General Government agencies experiences lower per item cost General Government agencies experiences lower per item cost due to several large volume accountsdue to several large volume accounts

Average overall cost for a State warrant is $.74Average overall cost for a State warrant is $.74 Smaller check volumes = higher per item costsSmaller check volumes = higher per item costs Some agencies’ cost as high as $35Some agencies’ cost as high as $35

#Transactions#Transactions

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

FY-01

FY-02

FY-03

FY-04

FY-05

FY-06

FY-07

FY-08

$0$50

$100$150$200$250$300$350$400$450$500$550$600$650

FY-01

FY-02

FY-03

FY-04

FY-05

FY-06

FY-07

FY-08

$ Million$ Million

FY-01 285,000FY-02 868,000FY-03 1,573,000FY-04 2,078,000FY-05 2,842,000FY-06 3,673,000FY-07 4,509,000FY-08 6,018,000

FY-01 $ 22.8FY-02 $ 76.7FY-03 $ 182.6 FY-04 $ 233.7FY-05 $ 311.4FY-06 $ 435.7FY-07 $ 534.8FY-08 $ 646.3

Merchant Card UtilizationMerchant Card Utilization

Dollar AmountDollar Amount

•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 2006-07Card Activity FY 2006-07

Trans. Trans. Vol.Vol. Sales Vol.Sales Vol.

Pass-Thru Pass-Thru FeesFees

Vendor Vendor FeesFees Total FeesTotal Fees

General GovtGeneral Govt 1.967 M1.967 M $ 107.541 M$ 107.541 M $ 1.895 M$ 1.895 M $ .140 M$ .140 M $ 2.036 M$ 2.036 M

UniversitiesUniversities 1.797 M1.797 M $ 349.237 M$ 349.237 M $ 5.634 M$ 5.634 M $ .168 M$ .168 M $ 5.802 M$ 5.802 M

Com. CollegesCom. Colleges .161 M.161 M $ 19.910 M$ 19.910 M $ .283 M$ .283 M $ .019 M$ .019 M $ .302 M$ .302 M

Local UnitsLocal Units .583 M.583 M $ 58.006 M$ 58.006 M $ .986 M$ .986 M $ .047 M$ .047 M $ 1.033 M$ 1.033 M

LEAsLEAs .001 M.001 M $ .113 M$ .113 M $ .002 M$ .002 M $ 0 M$ 0 M $ .002 M$ .002 M

TotalTotal 4.509 M4.509 M $ 534.807 M$ 534.807 M $ 8.801 M$ 8.801 M $ .374 M$ .374 M $ 9.175 M$ 9.175 M

Two Types of Fees•Pass-thru fees are paid to Visa/MC•Vendor Fees are paid to STMS

DMV Vehicle Registration largest volume•1.25 million transaction•$ 39 million

E-Commerce PoliciesE-Commerce Policies October 1, 2005October 1, 2005 – Major rewrite of the State’s E- – Major rewrite of the State’s E-

Commerce policiesCommerce policies IntentIntent was to provide foundation for major emphasis was to provide foundation for major emphasis

on expanding E-Commerceon expanding E-Commerce Major room for improvementMajor room for improvement is vendor paymentsis vendor payments

• Good success in payroll – 96%Good success in payroll – 96%• Little success in vendor payments – 27%Little success in vendor payments – 27%

Maximization of Electronic Payments PolicyMaximization of Electronic Payments Policy• Specifies requirements of agencies to utilize ecommerce as Specifies requirements of agencies to utilize ecommerce as

part of both part of both receiptreceipt and and disbursementdisbursement processes processes PCI Data Security PCI Data Security - Issued October 2008- Issued October 2008

• Specifies process for agencies to be validated as compliant Specifies process for agencies to be validated as compliant with PCI Data Security Standardwith PCI Data Security Standard

ACH – Standard Method of PaymentACH – Standard Method of Payment

Vendor Payments –Vendor Payments – “Each NCAS agency shall develop “Each NCAS agency shall develop procedures to procedures to requirerequire the standard method of payment to the standard method of payment to all vendors and other payors to be by ACH direct deposit, all vendors and other payors to be by ACH direct deposit, utilizing either the E-Payment feature of NCAS or a stand-utilizing either the E-Payment feature of NCAS or a stand-alone system approved by the State Controller. alone system approved by the State Controller. Exemptions for individual payees may be considered if a Exemptions for individual payees may be considered if a hardship case can be provided, or if the payments are non-hardship case can be provided, or if the payments are non-recurring.”recurring.”

Payroll –Payroll – “Each payroll center “Each payroll center shall utilizeshall utilize ACH direct ACH direct deposit for all payroll payments to all full-time employees. deposit for all payroll payments to all full-time employees. Exemptions for individual employees may be considered if Exemptions for individual employees may be considered if a hardship case can be provided. Each payroll center is a hardship case can be provided. Each payroll center is encouraged to offer ACH direct deposit to all part-time and encouraged to offer ACH direct deposit to all part-time and temporary employees.”temporary employees.”

Implementation of PolicyImplementation of Policy Basis Basis – Policy provides agencies with the basis for requiring – Policy provides agencies with the basis for requiring

electronic payment to be the “standard method of payment”electronic payment to be the “standard method of payment”

Two types of delivery of payments recognized by statuteTwo types of delivery of payments recognized by statute• G.S. 143-3.2 - “All disbursements made to non-State entities G.S. 143-3.2 - “All disbursements made to non-State entities

shall be delivered by the appropriate agency to the entity’s shall be delivered by the appropriate agency to the entity’s legally designated recipient by United States mail or its legally designated recipient by United States mail or its equivalent, including electronic funds transfer.”equivalent, including electronic funds transfer.”

• Allows mailing of paper checks or EFTAllows mailing of paper checks or EFT

Central Payroll & BEACON Payroll –Central Payroll & BEACON Payroll – July 1, 2007, OSC issued a policy July 1, 2007, OSC issued a policy requiringrequiring all employees paid under an OSC-administered payroll to all employees paid under an OSC-administered payroll to be paid by direct depositbe paid by direct deposit• Effective October 1, 2007Effective October 1, 2007• Hardship cases (cannot obtain a bank account) exemptedHardship cases (cannot obtain a bank account) exempted• If not direct deposit, pay made by “check” being mailed If not direct deposit, pay made by “check” being mailed onon payday payday

NCAS VendorsNCAS Vendors• OSC will be looking at ways to enroll more vendors in EFTOSC will be looking at ways to enroll more vendors in EFT• Agencies should take an active role in enrolling vendors in EFTAgencies should take an active role in enrolling vendors in EFT

Master ContractsMaster ContractsStatewide

E-CommerceProgram

Electronic Funds Transfer

Merchant Cards

October 1, 2005 August 1, 2006American Express

Related Merchant Card Contract• With Trustwave• For PCI Validation Services

Discover

Master ContractsMaster Contracts Two master contracts to support the SECPTwo master contracts to support the SECP

• EFT – Wachovia BankEFT – Wachovia Bank• Merchant Cards – SunTrust Merchant ServicesMerchant Cards – SunTrust Merchant Services

Benefits of master contractsBenefits of master contracts• Support theSupport the Statewide Enterprise ApproachStatewide Enterprise Approach• Leverage volume pricingLeverage volume pricing• Increase competitive biddingIncrease 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 ContractEFT Master Contract RFP issued in June 2005RFP issued in June 2005

• Five bidders respondingFive bidders responding• Wachovia Bank re-selected October 1, 2005Wachovia Bank re-selected October 1, 2005

Resulting Benefits of New ContractResulting Benefits of New Contract• Programs previously operating separately brought under the Programs previously operating separately brought under the

master contractmaster contract Central Payroll, DOT Payroll, and universities payrollsCentral Payroll, DOT Payroll, and universities payrolls Community Colleges and LEAs using WachoviaCommunity Colleges and LEAs using Wachovia DST still pays costs, but now operate under Master ContractDST still pays costs, but now operate under Master Contract

• Price decreased by over one-half of the old pricingPrice decreased by over one-half of the old pricing Annual costs will decrease from $1.5 million to $700,000Annual costs will decrease from $1.5 million to $700,000 Per item cost decreased from 2 1/2¢ to .9¢Per item cost decreased from 2 1/2¢ to .9¢ Tiered pricing of .75¢ once total volume > 5 millionTiered pricing of .75¢ once total volume > 5 million

ParticipationParticipation• Agencies and universities required to participate unless Agencies and universities required to participate unless

business case is givenbusiness case is given• Community colleges and LEAs voluntary, considering local bank Community colleges and LEAs voluntary, considering local bank

arrangementsarrangements

Merchant Card ContractMerchant Card Contract RFP issued in December 2005RFP issued in December 2005

• Four bidders respondingFour bidders responding• SunTrust Merchant Services re-selected August 1, 2006SunTrust Merchant Services re-selected August 1, 2006

Resulting Benefits of New ContractResulting Benefits of New Contract• Vendor-levied fees decreased by 63% from the old pricingVendor-levied fees decreased by 63% from the old pricing

Per item cost decreased from 10.8¢ to 4¢Per item cost decreased from 10.8¢ to 4¢ Annual vendor-levied fees will decrease from $670,000 to Annual vendor-levied fees will decrease from $670,000 to

$280,000 (average over 5 years of contract)$280,000 (average over 5 years of contract) Interchange fees will remain at actual “pass-through”Interchange fees will remain at actual “pass-through”

• Other enhancementsOther enhancements Extended negotiations to obtain more favorable terms than Extended negotiations to obtain more favorable terms than

the previous contractthe previous contract Different environment today than in 2000, primarily due to PCI Different environment today than in 2000, primarily due to PCI

Security Compliance Rules and associated finesSecurity Compliance Rules and associated fines

PCI Data Security PCI Data Security Payment Card Industry Data Security StandardPayment Card Industry Data Security Standard

Standard applies to any agency’s card capture sStandard applies to any agency’s card capture system that:ystem that:• StoresStores cardholder data cardholder data• TransmitsTransmits cardholder data cardholder data• ProcessesProcesses cardholder data cardholder data

Non-Compliance can result in possible:Non-Compliance can result in possible:• Substantial fines by Visa and/or MasterCardSubstantial fines by Visa and/or MasterCard• Termination of services by STMSTermination of services by STMS

Trustwave Validation Services:Trustwave Validation Services:• Online Portal provided to agenciesOnline Portal provided to agencies• Annual Self-Assessment QuestionnaireAnnual Self-Assessment Questionnaire• Quarterly Vulnerability Scans of NetworksQuarterly Vulnerability Scans of Networks

Monitoring and Management ReportsMonitoring and Management Reports• OSC and STMS has access to Non-compliance reportsOSC and STMS has access to Non-compliance reports• Central Oversight agencies provided Confidential ReportsCentral Oversight agencies provided Confidential Reports

Hacker

Common Payment ServiceCommon Payment Service

EFT (ACH)EFT (ACH)

Agency InternetAgency Internet ApplicationApplication

STMSSTMS

APIAPI

Gateway Service available to participants of the MSAGateway Service available to participants of the MSA Provided by Office of Information Technology Services (ITS)Provided by Office of Information Technology Services (ITS) Gateway for both EFT and Merchant Card transactionsGateway for both EFT and Merchant Card transactions For participants:For participants:

• Having an internet application requiring a gateway to the Having an internet application requiring a gateway to the processor (EFT and Merchant Cards)processor (EFT and Merchant Cards)

• Desiring a virtual terminal for capturing card not-present Desiring a virtual terminal for capturing card not-present transactions (MOTO)transactions (MOTO)

• Not having ability to transmit ACH files directly to bankNot having ability to transmit ACH files directly to bank

CardsCardsAgencyAgency

Acct/Pay SystemAcct/Pay System

AgencyAgency

Acct/Rec SystemAcct/Rec System

WachoviaWachovia

Virtual CreditVirtual Credit

Card TerminalCard Terminal

API = Application Program Interface

Outbound PaymentsOutbound PaymentsStateState’’s Es E--Commerce StructureCommerce Structure

Outbound PaymentsOutbound Payments

Payee (Citizen / Vendor/

Employee)

Gateway

( CPS or

Other )

Payee’s Bank

Agency / Univ A/P System

$State’sEFT Bank

(ODFI)

ACH Transactions

University Payrolls

NCAS E-Payments

Wachovia Web ACHieve (Credits)

Fed Reserve Bank

Central Payroll

DOT Payroll

Community College Payrolls

Local Schools Payrolls

Child Support Payments

Inbound PaymentsInbound PaymentsStateState’’s Es E--Commerce StructureCommerce Structure

Inbound PaymentsInbound Payments

AcquiringProcessor

Citizen

(Taxpayer)

NC@YourServiceYahoo! Store

Gateway

( CPS or

Other )

Agency Windows Client

State’s Depository Bank

Agency POS Terminals

Agency A/R System

Agency Web Store Front

$State’s

EFT Bank(ODFI)

ACH TransactionsCard Transactions

$Agency’s 3rd Party Data Collection Center

Payor’s BankACH Credit

$

Wachovia Web ACHieve (Debits)

Cooperative EffortCooperative Effort

Statewide E-Commerce

Program

Participants

More InformationMore InformationOffice of the State Controller Office of the State Controller

Web SiteWeb Sitewww.osc.nc.govwww.osc.nc.gov

David C. ReavisE-Commerce Manager

(919) 871-6483

November 2008David McCoyState Controller

Amber YoungCentral Compliance Manager

(919) 981-5481

Three power point presentations are suggested viewing:EFT-101 and Merchant Card Services -101 and CPS-101

Support Services Center

(919) 875-HELP (4357)