Signals: Why don't more retailers accept SNAP EBT?

SNAP is the largest federally-funded food assistance program in the US, with an annual budget of over $200 billion (SNAP + EBT Cash). In an average month in 2023, it was used by 41.5 million Americans– over 12% of the population– to buy groceries. Despite studies showing the program’s strong positive impact on recipients’ health and financial outcomes, only about 350 online retailers accept SNAP vs ~250,000 brick-and-mortar stores. 

While some big merchants (e.g. Walmart, Costco, Target) accept SNAP online, what's stopping smaller retailers from bursting through the floodgates?

The Supplemental Nutrition Assistance Program (SNAP), originally known as the Food Stamp Program, was introduced in 1939 in response to the Great Depression. While the pilot concluded in 1943, the idea was revived under President Kennedy’s administration in 1961 on a trial basis. Over the years, the program was shaped by various pieces of legislation, notably the Food Stamp Act of 1964, which established food assistance as a tool to strengthen the agricultural economy and improve levels of nutrition among low-income households.

The introduction of electronic benefit transfer (EBT) cards in the 1990s modernized the program by allowing participants to access funds on a debit card (versus physical vouchers). Renaming the program to SNAP in 2008 emphasized the government’s focus on nutrition and set the stage for further expansion. A pivotal moment occurred with the passing of 2014’s Farm Bill that mandated a pilot to explore and survey the feasibility of SNAP acceptance online. 

In 2016, the FDA launched its online EBT pilot with a Request for Volunteers document outlining the conditions for how retailers could be accepted to the pilot and the expectations for processing these transactions. The first online SNAP transaction happened a few years later in 2019.

For retailers, this pilot opens the opportunity to access the nationwide pool of SNAP benefit holders who purchase groceries online. The average SNAP benefit holder in 2023 received $211 per month, with a household of four receiving an average of $713 in 2024. This vast pool of grocery spending, along with the 100x increase in the purchase of groceries online by benefit holders since 2020, highlights a significant avenue for market expansion. Furthermore, nearly 1 in every 5 SNAP benefit-holders are on disability, underscoring a grave need for home delivery of groceries for these participants. This need is amplified by the lack of access to high-quality grocery stores in low-income areas, making online delivery an efficient solution for the retailer and consumer.

The average SNAP user is also a higher-value customer.  According to Numerator’s SNAP analysis, the average SNAP user spends $8,751 on groceries (+42% compared to non-SNAP) and makes 383 grocery trips (+68% compared to non-SNAP) annually. It’s no surprise that tech platforms have jumped on the opportunity, with Uber, Doordash, Instacart, and others announcing the addition of SNAP benefits to accepted payment methods. 

But what is preventing all other major retailers from accepting SNAP online?

To start accepting SNAP EBT online, merchants have to undergo a rigorous approval process with the USDA. The 9-step process requires merchants to be already approved to process SNAP EBT offline. A key requirement: Stores must stock 36 staple items and have more than 50% gross sales coming from these items (which would explain why a chain coffee store is ineligible despite having EBT-eligible items).

After a retailer gets approved for processing SNAP offline, they need to submit a Letter of Intent indicating their desire to accept SNAP online. After the FNS reviews your documents (there are no assured turnaround times for this step), they may ask you to provide a Business Requirements Document which is an extended document outlining supported flows, mock-ups, and other details. Crucially, the FNS does end-to-end testing for your integration before allowing you to process any traffic and requires certain technical standards to be met. For instance, 

The prescribed checklist makes it harder to launch an MVP and build incrementally on top. Once implemented, USDA conducts sandbox testing to ensure correctness and then imposes a stabilization period - where you launch in only a couple of states before allowing a nationwide rollout.

All these steps have no guaranteed turnaround times and the entire process can take from a few weeks to a few months. Adding more friction in the process, these are specific to retailers and not platforms - for a third-party marketplace like Instacart, this means each retailer has to undergo the process separately. 

Even though a SNAP EBT card operates similarly to a debit card, a few key differences make it a more challenging technical integration. To begin with, you can’t use an off-the-shelf payment processor integration. The user must enter a four-digit PIN for each transaction before a payment is confirmed. At the time of writing this, USDA has only authorized three TPPs to display the PIN screen - Forage (my employer), Fiserv, and WorldPay. Additionally, an EBT transaction is a single message, i.e. there’s no authorization hold on a card. The money moves instantly upon authorization. This marks a meaningful departure from a typical card flow.

There is an additional requirement of supporting a split-tender with non-SNAP payment methods as well. For instance, regulations don’t allow for delivery fee payment via food benefits. This leads to interesting technical edge cases that merchants have to design around (e.g. What happens when one transaction fails and the other succeeds?).

An added constraint is the limitations placed on food items that can be sold if SNAP EBT is used as the payment method. While some rules are straightforward (alcohol and prepared hot foods are not permitted), the lines become harder to distinguish for some products. For instance, energy drinks are SNAP-eligible if they have a “Nutrition Facts” label while drinks with “Supplement Facts” are considered supplements and consequently ineligible. 

This list needs to be maintained and updated constantly as new products join a merchant’s catalog. Unlike certain programs that maintain a list of eligible items, there are no resources where you can reconcile your product UPCs. Instead, merchants have to rely on the general guidelines provided by the USDA and tag items accordingly. In the online buying experience, the eligible items must be clearly labeled and the payment processor should only allow SNAP to be used for eligible items. Failing to do either risks violating USDA rules on SNAP acceptance.

Despite these challenges, the growing demand for  SNAP EBT as a share of online grocery sales cannot be overlooked. With $120B+ in annual government funding and the stark contrast in EBT acceptance at brick-and-mortar locations versus online, grocery retailers have a tremendous opportunity to accelerate sales growth. Luckily, a number of fintech solutions are helping merchants rise to the challenge. Forage, for instance, is a payment processor accelerating the process of getting USDA approvals by helping merchants through the entire documentation process, along with item eligibility assistance. On the participant side,  startups like Propel are focusing on making benefits easier to understand and manage. 

Recently, Thrive Market was announced to be the first online-only merchant to begin accepting SNAP benefits. By doing so, companies not only expand their customer pool to include a plethora of digitally-savvy SNAP participants– they’re taking a socially responsible step to make their products accessible to those in need. This move may also drive brand loyalty among non-users who value community support and corporate ethics. Restricted cards hold more than $200B in spending power across SNAP, HSA/FSA, Health Benefit Cards, TANF, WIC etc. and have the potential to drive massive growth for online platforms and retailers. Moving towards accepting these payment types not only allows them to access a higher share of wallet but also helps serve the needs of the community at large.