Enhancing Security, Efficiency, and Accessibility
Governments worldwide are at a pivotal moment in the modernization of financial transactions. Recognizing the inefficiencies and security risks associated with paper-based payments, President Donald J. Trump signed an executive order mandating the transition to digital payments for all federal disbursements and receipts by September 30, 20251. This order underscores the urgent need for government agencies at all levels to modernize their payment systems.
The continued reliance on paper-based payment methods, particularly checks, poses significant financial and security risks. To improve efficiency, reduce costs, and mitigate fraud, government entities must accelerate the adoption of digital payment methods for transactions with constituents and businesses. This shift is not merely a matter of convenience—it is essential for economic security, operational efficiency, and public trust.
A Growing Trend: Over 90% of businesses and financial institutions are adopting digital payments as a fraud prevention strategy². Countries such as Sweden and the UK have nearly eliminated paper checks, demonstrating how financial modernization can enhance security and efficiency.
The Case for Digital Payments
The transition to digital payments is an imperative policy direction for governments at all levels. Several key factors support the urgency of this transformation:
Cost Savings and Operational Efficiency
Maintaining a paper-based payment system is expensive and inefficient. The U.S. government spent over $657 million in Fiscal Year 2024 alone on the physical infrastructure required to process paper checks, including handling, digitization, and storage³. These costs extend beyond simple processing fees and include indirect costs such as staff hours dedicated to manual verification, reconciliation, and fraud investigation.
Processing Cost Comparison: The Treasury Department estimates that each paper check costs $1.05 to process, whereas electronic payments cost just $0.02 per transaction, resulting in millions in annual savings ⁴.
Private-Sector Example: JP Morgan Chase reported reducing its manual processing costs by 85% after transitioning to digital payments².
Global Shift: The UK phased out checks in many industries, cutting administrative costs and fraud losses by over 60% in the past decade².
Additionally, paper checks introduce inefficiencies that slow down transaction processing. Government agencies that rely on paper-based systems often experience payment delays, requiring extensive back-office operations to reconcile mismatches and verify payees. By implementing digital payments, governments can significantly reduce these administrative burdens while increasing accuracy, transparency, and financial oversight.
Mitigating Fraud and Financial Crime
Paper checks are highly susceptible to fraud. In just a six-month period, mail theft-related check fraud resulted in over $688 million in reported financial losses ⁵. Criminals frequently exploit check transactions through counterfeiting, check washing, and unauthorized alterations.
The Financial Crimes Enforcement Network (FinCEN) has documented a 680,000-case surge in check fraud reports in 2022, nearly doubling from the previous year ⁶. Criminals often intercept checks from postal mail, alter them, or use stolen account details to create counterfeit checks.
Key Facts:
- Check Fraud Growth: Estimated $24 billion in losses in 2023, an 84% increase from 2021⁶.
- Check Washing Scam: Fraudsters chemically erase check details and rewrite payee names⁶.
- SMB Impact: 23% of small businesses experience check fraud annually².
Digital payment systems employ robust security measures such as encryption, multi-factor authentication, and fraud analytics powered by AI. These tools allow agencies to detect anomalies in transactions instantly, reducing the risk of fraudulent activities while ensuring payments reach the intended recipients securely.
Enhancing Payment Speed and Cash Flow Management
Checks introduce significant delays in both disbursement and receipt of payments. With traditional check payments, processing times can extend several days or even weeks, leading to disruptions in financial planning for both governments and recipients.
Tax Refund Delays: Nearly 40% of tax refunds issued by check experience mailing errors or processing delays ².
Clearing Time: The average check takes 3 to 5 business days to clear, whereas digital payments can be processed in seconds ².
IRS Example: The IRS saved over $400 million annually after shifting a majority of tax refunds to electronic disbursements ⁴.
This improved efficiency helps government agencies maintain predictable cash flow, reduce outstanding liabilities, and foster better vendor relationships.
The Risks of Continuing Paper-Based Payments
Despite the clear advantages of digital payments, many government agencies still rely on checks and money orders. However, the persistence of paper-based payments comes with inherent risks:
Security Vulnerabilities
Checks are 16 times more likely to be reported lost or stolen compared to electronic funds transfers (EFTs)⁴. The increasing frequency of check fraud poses severe risks to both public funds and citizens who rely on government payments.
Fraud Occurrences: Over 70% of stolen checks are altered before being cashed ⁶.
Criminal Network Case: In New York, criminals stole $1.3 million in checks from the postal system, highlighting how widespread check fraud has become.
Delays and Inefficiencies
Government Check Processing: Some agencies report reconciliation times of up to 21 days for check payments ².
Manual Intervention: 60% of paper checks sent by businesses require manual intervention due to mismatches or errors, delaying payments ².
Digital payment solutions eliminate these inefficiencies by offering real-time verification and automated tracking, reducing administrative burdens.
Access and Inclusion Challenges
Checks are not universally accessible. Many recipients, particularly those in underserved communities, may lack immediate access to banking services, leading to further delays and fees when cashing checks.
Unbanked Population: 5.9 million U.S. households are unbanked, forcing reliance on costly check-cashing services charging up to 10% per check².
Changing Preferences: 30% of people under 30 prefer mobile payments over traditional banking, making digital payments crucial for future citizen engagement ².
The Path Forward: Expanding Digital Payment Options
To address these challenges, governments must take proactive steps in accelerating digital payment adoption.
Enhancing Payment Infrastructure
Investments in modernizing payment infrastructure will enable governments to offer a variety of digital payment methods, including real-time payments, digital wallets, and mobile banking options. To support seamless adoption, agencies should integrate centralized digital payment platforms that provide transparency, automation, and security.
Ensuring Security and Fraud Prevention Measures
Advanced security measures such as AI-driven fraud detection, multi-factor authentication, and encrypted transactions should be integrated into digital payment solutions to safeguard financial transactions from cyber threats. Blockchain technology could further enhance security by providing immutable transaction records, reducing the risks of unauthorized modifications.
Mandating Digital Payment Adoption
The federal government has already initiated steps to phase out paper checks by September 30, 2025¹. State and local governments should follow suit by mandating digital disbursements and collections for taxes, benefits, fees, and fines wherever legally permissible. Legislative support is crucial to institutionalizing digital payment policies and ensuring compliance across all government entities.
State-Led Initiatives: Arizona and California have passed legislation requiring digital payments for tax collection and benefits disbursement².
Leveraging Catalis Payment Solutions
Catalis Payment Solutions provides government entities with a seamless, secure, and efficient platform to accelerate digital payment adoption. With a robust suite of payment solutions tailored to government needs, Catalis enables agencies to accept payments from constituents through multiple digital channels, including credit and debit cards, ACH, digital wallets, and real-time payment networks. By integrating Catalis Payment Solutions, governments can enhance the security, accessibility, and efficiency of transactions while minimizing operational costs and reducing fraud risks.
Coconino County, AZ faced challenges with fragmented tax payment systems that caused confusion and strained customer service. Treasurer Sarah Benatar implemented Catalis Tax Payments, a streamlined platform supporting cards, e-checks, PayPal, Venmo, and digital wallets. The county saw a 480% increase in electronic payments and a 98% collection rate. The solution improved efficiency and brought private-sector convenience to government services. (Coconino County, AZ case study)
Conclusion
The adoption of digital payments is no longer a question of if but when. Governments must act swiftly to modernize payment methods, reducing reliance on outdated and vulnerable paper-based systems. By embracing digital payments, agencies can enhance security, efficiency, and citizen convenience.
Failure to act will only exacerbate financial inefficiencies and increase vulnerabilities to fraud and crime. The future of government transactions is digital, and the time for action is now.
To learn more about how your agency can modernize payments and improve service delivery, visit Catalis for a comprehensive list of our government and public sector solutions.
References
- Trump Signs Executive Order to Eliminate Paper Checks for Treasury Payments
- PYMNTS Money Mobility Tracker (January 2025): Checks at Risk – How Paper Payments Weaken Fraud Prevention
- Modernizing Payments To and From America’s Bank Account
- Fact Sheet – President Donald J. Trump Modernizes Payments to and from America’s Bank Account
- FinCEN Says Banks Reported $688 Million in Mail Theft-Related Check Fraud
- FinCEN Alert Mail Theft-Related Check Fraud
- Coconino County, AZ case study