Through the past several months, PYMNTS Intelligence, alongside Ingo Payments, has found that government disbursements have been commonplace and are ripe for a continued shift away from paper checks toward digital channels. About half of the individuals we queried said they had received at least one government disbursement in the previous year.
A separate study found that government disbursements accounted for an average of about $7,708 annually for those receiving such payments. Roughly 43% of consumers opted to receive those payments instantly. In terms of speed and convenience overall, 78% of consumers who primarily receive instant disbursements are highly satisfied.
Payment Networks Weigh in During Commentary Period
The commentary period related to the executive order, which was formally titled “Modernizing Payments to and From America’s Bank Account,” is closed. Amid the 248 responses, payment networks and several FinTechs weighed in on the ways and means by which the government might modernize its payment efforts.
“Facilitating the transition to digital payments as envisioned by E.O. 14247 will require transforming both government receipts and disbursements, as well as considering the needs of banked and unbanked populations,” Visa said in a letter.
Visa can advise the fiscal bureau and agencies “on optimal payment channels and help create infrastructure to better accept electronic payments,” the letter said. Through its Visa Direct capabilities and “the power of our money movement platform and our expertise, Visa can help Treasury and other government agencies streamline operations and deliver a more responsive, secure and seamless constituent experience” through four capabilities.
Visa Direct would reach virtually any bank account in the U.S. with efficiency; move money in minutes to bank accounts and digital wallets; protect every transaction with security and reliability; and simplify disbursements through familiar cardholder experiences, per the letter.
For unbanked populations, prepaid cards offer a more secure option than checks, the letter said.
Mastercard said in its own letter that it “recommends leveraging and expanding existing mechanisms — including Direct Express, U.S. Debit and Pay.gov — to capture remaining check-based payments. Doing so will provide Treasury and its partner agencies with the clarity, certainty and security that are paramount to government payments.”
“Innovation can and should happen around these existing payment rails, including but not limited to adding more digital payment functionalities, identifying new communications channels, and launching campaigns, incentives, rewards and beyond,” the letter said.
“Partners, like Mastercard, can help convene a network of public-private partnerships to augment existing acquisition and communication channels, while providing the necessary trust, outreach, amplification and education needed to move remaining check-based users to digital forms of payment,” the letter said.
From the FinTechs
Some FinTechs urged the government to consider alternatives to the card networks. In one example, Trustly said in a letter: “One cannot assess the current U.S. payments landscape without highlighting the importance of open banking, especially in modernizing non-card payments such as ACH.
“Prior to open banking, accepting ACH required a business or government entity to validate the payor’s ACH number,” the letter said. Doing this was a cumbersome process and often riddled with errors and operational risks.”
“Preserving pay-by-bank through open banking would result in significant savings for the federal government and consumers alike as the department transitions towards modern electronic payment methods,” Trustly said later in the letter.
Plaid said in its letter: “The Treasury’s modernization efforts present a timely and critical opportunity to align public infrastructure with the more efficient, consumer-centric technologies and systems people already use and trust.”
In a messaging campaign, the letter said, “government agencies could consider co-developing toolkits with FinTech partners to amplify outreach.”
The government could take some cues from the private sector, wherein there can be a “default to digital” that would “offer digital payments as the norm, with opt-out options, rather than requiring citizens to opt in,” the letter said. The government could also “leverage private sector solutions for account and identity verification to prevent misdirected payments and reduce fraud.”
“Emerging innovations like tokenized account numbers (TANs)” replace “sensitive account or transaction data with app-specific, revocable tokens,” the letter said. “Even if compromised, these tokens protect consumers’ real information, like a smart key offering limited, secure access.”
“To be effective, TANs must be interoperable, allowing institutions and platforms to work together seamlessly,” the letter said. “Open, standards-based token frameworks curb gatekeeping, accelerate innovation and preserve consumer control across the financial ecosystem.
“The Treasury should encourage the adoption of bank-account-based payments, including both ACH and instant options such as [the FedNow® Service] and [RTP® network], supported by modern safeguards,” Plaid’s letter said.
