SNAP Goes Online – Much Ado About… Not Much?

Payments Leader

Posted on January 24, 2017

Several recent articles hyped the U.S. Department of Agriculture’s two-year pilot program rolling out this summer in which seven online grocery providers, including online giant Amazon, will participate. The program will allow Supplemental Nutrition Assistance Program (SNAP) recipients in seven states to make online electronic benefits transactions (EBT) to purchase fresh, non-prepared food. SNAP serves 43 million low-income Americans at a cost of $74 billion annually – enough potential to interest online grocers.

Although Walmart is not one of the retailers involved in the pilot, don’t expect the company to sit on the sidelines and watch part of its customer base migrate to competitors. Walmart doesn’t divulge what part of its customer base relies on SNAP, but they have acknowledged that the 2013 reduction in SNAP hurt their business.

In general, people in low-income brackets pay more to get less – and this also applies to groceries. Food deserts spring up when grocers move out of urban areas due to crime or don’t move into economically depressed or rural areas due to a dearth of people with more disposable income. Those with cars have to spend more to travel further for groceries and those without cars must spend on mass transit or, more likely, rely on the local convenience store – typically charging higher prices for less quantity and having fewer healthy and fresh food offerings. Online access to groceries could help fix the food desert problem.

In addition to the consumer benefit of creating better access to better food, online SNAP purchases will be less prone to fraud since a record of the transaction – and who makes it – will exist.

Administrators of some state EBT programs have said that a majority of benefit recipients have access to mobile technology, thereby reducing a major barrier to online shopping, including grocery shopping. However, one barrier that has yet to be addressed is the monthly or annual delivery charge that cannot be covered with SNAP dollars. Some people will already be Amazon Prime members, but Prime has historically attracted consumers who have higher amounts of disposable income. In fact, it’s almost fully penetrated the higher income population. Amazon is looking to expand its customer base and has come up with a $10.99 alternative monthly fee to incentivize Prime trial. But are there other alternatives to make it feasible for economically-challenged consumers to participate? And will the delivery charge be offset by not paying sky-high prices for a loaf of bread at the corner store?

Assuming the pilot goes well, is there an opportunity for fintech here, or is it “much ado about… not much?” There certainly is for processors that facilitate state EBT programs. Transaction-acquiring entities come to mind. Merchant acquirers should expect additional shift of brick-and-mortar transactions to online. But these days, we should all prepare for more of the continuing march of transactions to e-commerce. Millions of transactions are moving online, and now SNAP transactions may join them.

What’s your take?  Is this recent hype more news or snooze?

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Payments Leader

Payments Leader from FIS provides insights on credit, loyalty, fraud and emerging payments strategies through blog posts from our industry experienced authors.