Out with the Chip, In with Online Flexible Spending

1
Out with the Chip, In with Online Flexible
Spending

• Presented By Joel L. Weidner

April 13, 2005
2
Introduction

• Session Objectives
• Outline the reasons behind Penn States decision
  to switch from smart cards to an online flex
  account
• Present case study on the implementation of the
  new flexible spending program
• Innovation
• Leveraging of existing Blackboard Transaction
  System and departmental technical infrastructure
• Results/Outcomes
• Increased program participation, revenue, and
  customer satisfaction

3
LionCash Chip Program History

• Started using smart chips for stored value in
  1997 with residential laundry.
• Added chips to University Park IDs in 1998 (50K
  cards).
• Added vending, copiers, and off-campus points of
  sale
• Two additional campus locations added to the chip
  program in 1999.
• Approx. 400 terminals were deployed.

4
LionCash Chip Program Results

• Program peaked at 2 million in annual sales in
  2002
• 847,000 Laundry
• 318,000 Copiers
• 297,000 Vending
• 539,000 Points of Sale (on- and off-campus)

5
LionCash Program Challenges

• Card cost and reliability
• Small average point of sale transactions amounts
• Self imposed 99 purse limit excluded higher end
  merchants
• Offline program administration efforts
• Contracted provider, Diebold Inc., exited
  business in 2002.
• Schlumberger technology was aging with no
  strategic replacement plan

6
Impetus for Change

• Ended contract with service provider (Diebold
  Inc.) in 2003
• Inherited technical infrastructure that did not
  appear to have much of a future.
• University decision to replace SSN would probably
  require the re-issuance of new ID cards sometime
  in 2004
• If things were going to change, now was the time
  to do it.

7
Overview of Events

• Sept 2002 - Discussion paper floated
• July 2003 - Project Team begins regular meetings
• Dec 2003
• Proposal for program transition presented to Sr.
  VP for Finance Business (concept approved)
• Bulk equipment purchase (year-end incentives)

8
Overview of Events (cont.)

• Jan 2004 Project team roles up their sleeves
  (sub-groups gets moving on details)
• May 2004 start marketing new program at
  freshman orientation
• May-Aug 2004 installation of laundry,
  off-campus merchants, pilot vending
• Aug-Sept 2004 copier installations full-scale
  role-out of program

9
Proposal Development and Approval

• Nine page document delivered to Sr. VP on
  December 9th, 2003
• Outlined program history and justification for
  moving to online system.
• Included 5 year projections on costs, cost
  savings, and revenue streams.
• Outlined benefits and risks of new program.
• Critical for achieving high level support.

10
Risks of moving to an online flexible spending
account

• Opening Diners Club (3.5 M debit program) to
  off-campus businesses
• Bleeding of A La Board (18 M debit on-campus
  food services only) funds to off-campus
  businesses
• Although funds would be restricted to on-campus,
  students have the option to change meal plan
  levels at any time during the semester.

11
Purchase of Blackboard Equipment

• Original time-table called for reader purchases
  in April 2004
• Blackboard stepped forward with year-end proposal
  offer that we could not refuse
• Last minute hustle to determine equipment
  numbers, find funding, and cut the PO.
• Large PO issued on 12/22/2003

12
Technical Infrastructure PlanningSystem
Configuration

• Wiring
• Location/Reader configuration
• Account/Privilege setup
• FDI Interfaces
• MDT modem pool and merchant terminals
• Settlements

13
Location/Reader Infrastructure (three campus
locations)

• 140 Laundry controllers
• 55 IPCs for networking
• 100 Copier readers (IP based)
• 170 Vending readers (IP based)
• 5 VTS units

14
Account/Privilege Setup

• Rolled optional dining account, Diners Club, into
  new flexible spending account (3.5 M annual
  sales)
• Maintained 5 privs for on-campus debit meal plans
• Added 5 additional privs for new account
• Merchants, Copier, Laundry, Vending, and Deposits
• Linked on-campus meal plan to new flex account

15
Interfaces and MDTs

• Barnes Noble on-campus bookstore serial FDI in
  multiple stores
• The Student Bookstore (off-campus) Sequoia TIA
• Got Used Books (off-campus) Nebraska Books TIA
• Setup MDT modem bank with 5 rack-mounted modems,
  fronted ended with 800 number for campus
  locations.

16
Settlement System

• Setup Optim Extract
• Built web-based merchant settlement system
• Decision to offer daily, weekly, or monthly
  settlements (no commission differential)
• Automated ACH records sent to central accounting
• Emails sent to merchants with settlement
  statements

17
Sample Settlement Email
18
Administrative Planning

• Operating policies
• Merchant application and agreement
• Cardholder disclosures

19
Operating Policies

• Administrative merchant account setup procedures
• Settlements
• Balance limits
• Regulation E legal review
• Acceptable use restrictions

20
Merchant Application, Agreement, and Support

• Verifone terminal setup procedures
• Verifone terminal operating procedures
• Commissions/settlements
• Dispute procedures
• Refunds
• Accounting/technical support

21
Cardholder Disclosure

• Statements/transaction history
• Spending limits
• Refunds
• Liability
• Errors/disputes
• Inactive accounts

22
Marketing Communications LionCash Brand
23
Marketing Communications

• Internal Politicking
• Customer communications
• Program promotion
• Merchant acquisition

24
Internal Politicking

• SSN Steering committee
• Some confusion about why we were implementing
  this new program before the new card was issued
• Libraries
• What else do I need to say?
• Food Services
• Director of food services was part of our
  LionCash implementation team

25
Customer Communications

• Freshmen communications only the new program
• Upper Classmen Faculty/Staff conversion from
  chip to stripe
• Program name confusion LionCash to LionCash
• More name confusion Diners Club to
  LionCash/Diners Club
• Collegian articles and newspaper ads

26
Merchant Acquisition

• Meetings with Downtown State College Improvement
  District (DID)
• DID helped us sponsor meetings for interested
  Merchants to introduce new program
• Challenges to speaking to new merchants and
  former LionCash (chip) program merchants
• Merchant Packets/Web Site tab

27
MerchantAcquisition PacketCover Letter
28
Merchant Testimonials
29
Program Statistics
30
MerchantAcquisition Packet4 easy stepsTable
of packet contents
31
MerchantAcquisition PacketFAQs
32
Merchant Packet also included

• Application form
• Merchant Agreement (contract)
• Cardholder Disclosure
• LionCash Accepted here sticker
• Business Cards for id office
• Also available online at
• www.idcard.psu.edu

33
LionCash Rewards Program

• Co-sponsored by id, Downtown State College
  Improvement District, and participating merchants
• Eight merchants per month donate prizes valued at
  approx. 50
• Eight winners are chosen at random from list of
  transactions at merchant locations during the
  month
• Collegian adds, store posters, and web site
  promote program

34
Results Off-Campus Merchants

• 47 Off-campus merchant locations, including

• McDonalds
• Pizza Hut
• Sheetz
• Subway
• UniMarts

• 2 independent bookstores
• CVS Pharmacy
• Dominos Pizza
• Jimmy Johns

35
Results Funds Pool(first 9 months of program)

• Average monthly fund balance is up over 48
• Last year chip program and optional Diners Club
  average balance - 834 K
• Current year online LionCash average balance -
  1.2 Mincludes 140K in residual chip funds

36
Fund Balance
37
Fund Balance
38
Results Sales(first 9 months of program)

• Period sales are up over 36
• Last year chip program and optional Diners Club
  program sales were 4.5 M
• Current year online LionCash sales at 6.1 M
  12 months last year compared to 9 months of new
  year.

39
Program Sales
40
Program Sales
41
Sales by Category
42
Sales On vs. Off-campus
43
Results Impact on Diners Club

• Merging Diners Club into new LionCash program
  and opening up funds to off-campus did not impact
  program negatively
• Year-to-year comparison of debit sales in same
  food service units up 7.7 (235 K) over same
  period for last year

44
LionCash vs. Diners Club
45
Results A La Board Plan

• New LionCash and related off-campus sales did
  not impact primary meal plan program negatively
• Year-to-year comparison of debit sales in same
  food service units up 6.1 (890 K) over same
  period for last year

46
A La Board 2004 vs 2003
47
What could have been done better? - Timing

• Copier implementation that should have taken
  place during the summer of 04, actually happened
  after fall arrival.
• Vending implementation was delayed as well due to
  lead time in wiring buildings
• Our goal was to have chip readers totally phased
  out before the start of fall semester, but we
  didnt quite make it.

48
What could have been done better? - Resources

• Program did not receive the administrative
  attention it deserved during the fall semester
  due to other projects
• SSN conversion project
• November re-carding project
• Marketing and merchant acquisition efforts were
  not as intensive as they should have been

49
What does the future hold?

• Program is off to a great start, but there is
  much potential to increase deposits, sales, and
  revenue
• We have the technology (transaction
  processing/settlement)now we just have to
  leverage it with increased volume

50
New Marketing Efforts

• Freshman orientation
• Last year we were not sure what we were marketing
• This year we have a great program to sell
• Faculty/Staff
• Expanded number of locations makes program more
  attractive
• Looking at payroll deduction

51
On-Campus Expansion

• Barnes Noble Bookstores will be activating
  FDI at all 23 campus bookstores for this fall
• Vending just getting cranked up
• Looking to expand at 4 other campus locations
  this summer
• Considering building Web application that will
  interface via TIA to allow any campus office to
  debit account with existing administrative PCs

52
Off-Campus Expansion

• New merchant acquisition efforts
• Recently added merchants
• Sheetz
• Subway
• Dominos Pizza (contract, but not active)
• Campus location merchants (Sheetz in Altoona was
  our first remote campus MTD)

53
Closing

• Online Resources Available
• www.idcard.psu.edu
• Follow up Contact(s)
• Joel L. Weidner, jlw2_at_psu.edu
• Cindy Kellerman, cqk2_at_psu.edu
• IF YOU ONLY REMEMBER 2 THINGS
• Learn from your mistakes
• Steal shamelessly from others who proceeded you