The Future of Government Payments – No More Paper Checks Later This Year

Key Takeaways

• New executive order mandates a general transition to electronic payments and the elimination of paper checks for federal payments, such as distributing tax refunds, Social Security benefits, veterans' benefits, and other key government payments, as well as making payments to the federal government, with limited but undefined exceptions.
• The executive order does not prohibit private parties from using paper-based checks, except for any payments made to the government.
• The policy shift will likely specifically benefit financial services providers that facilitate government fund disbursement programs, including prepaid card programs and electronic payment services that process and distribute payments to recipients.

On March 25, 2025, President Trump signed two executive orders aimed at modernizing and securing the federal government's financial infrastructure. These orders, titled "Modernizing Payments To and From America's Bank Account" (Modernizing Payments EO) and "Protecting America's Bank Account Against Fraud, Waste, and Abuse" (Fraud Protection EO), represent a major shift toward digitizing government payments, aiming to create a more efficient, secure, and transparent financial system for making and receiving government payments.

Modernizing Federal Payments

Historically, the U.S. government has relied heavily on paper-based checks and money orders for making and receiving government payments, leading to high costs, delays, and significant fraud risks. The Modernizing Payments EO highlights that U.S. Treasury checks are 16 times more likely to be reported as lost, stolen, or altered than electronic payments. The new EO mandates a comprehensive shift to electronic funds transfers (EFTs) for federal disbursements such as tax refunds, Social Security benefits, veterans' benefits, and other key government payments, aiming for fully digital payments (essentially no paper checks) by September 30, 2025—an ambitious timeframe. Additionally, it requires that any payments made to the federal government be processed electronically, "as soon as practicable, and to the extent permitted by law."

The transition to EFTs for government disbursements is expected to dramatically reduce costs tied to paper checks and related systems, which, according to the EO, cost taxpayers over $657 million in 2024 alone. By adopting methods like direct deposit, debit and credit cards, prepaid cards, digital wallets and real-time payment systems, the federal government aims to enhance the speed and security of transactions while minimizing fraud risks.

The Modernizing Payments EO, nevertheless, includes exceptions for individuals without banking access and special cases like national security- or law enforcement-related activities, though without any specificity other than where non-digital transactions are "necessary or desirable." The federal government will also collaborate with financial institutions to help unbanked and underbanked populations better access digital payment options.

Eliminating Fraud in Federal Payments

The Fraud Protection EO focuses on eliminating fraud in government payments. With trillions processed annually and an estimated $233 billion to $521 billion lost due to improper payments, the order mandates greater oversight and transparency. It empowers the Secretary of the Treasury, in consultation with the Director of the Office of Management and Budget, to develop and enforce stricter verification processes, ensuring that every dollar disbursed is legitimate. Within 90 days of the order, federal agency heads are to review and modify, as applicable, their relevant system of records notices under the Privacy Act of 1974 to include a "routine use" that allows for the disclosure of records to Treasury for the purposes of identifying, preventing, or recouping fraud and improper payments, to the extent permissible by law, along with a compliance plan.

Key Considerations

While the transition to a more modern digital payment system is expected to increase efficiency, new challenges are likely to arise.

• Different demographics, different adaptability. Older individuals, particularly those who are accustomed to only using checks as alternatives to cash, may face difficulties adjusting to electronic payment systems or may not be able to adapt to exclusively using these new technologies. Additionally, other individuals may lack adequate internet access or the necessary technology to install and set up apps, direct deposits, and other digital solutions. Outreach and support will likely follow, but challenges may persist. (Of course, populations that are older or less accustomed to digital payments are particularly sensitive and vulnerable to check fraud too so a transition should provide them greater protection as well.)
• Financial and other crimes. While paper checks present fraud concerns, EFTs are not immune from fraud, as new risks continue to emerge and evolve. Cybercriminals may exploit the increased use of digital payments to launch cyberattacks, identity theft, fraud, and other crimes. As payments become more digital, the federal government and private financial institutions will need to continue focusing on investments in cybersecurity infrastructure and processes to control for these threats.
• Privacy. The move to more electronic payments also raises privacy concerns. While the use of electronic payments may reduce the risk of physical theft, it increases the prospect of impersonations, and when personal data is shared and stored digitally, questions arise about how this information will be used and protected from unauthorized use or disclosure. Striking the balance between security and privacy will be a key issue as the move to fully digitizing payments progresses.

Conclusion

By pushing for the adoption of broader digital solutions, along with increased fraud mitigation, the EOs should have the effect of creating new opportunities for banks, fintechs, and other payments companies to innovate and become more involved in and support federal government digital transactions, provided that both the federal government and these entities can address adoption, privacy, and other concerns that will inevitably arise from these EO mandates.