Modernizing federal payments: A practical holistic strategy for agencies

Federal agencies are being asked to lead a transformation that goes far beyond technology. Executive Order 14247— “Modernizing Payments to and from America’s Bank Account”—sets a bold vision for a fully digital federal payment infrastructure. But the path to achieving this vision is complex, and agencies need to be nimble as they navigate operational, behavioral, and institutional challenges. 

The challenge is not just upgrading systems. It’s about reshaping how millions of Americans interact with their government. This means building trust, ensuring equity, and designing solutions that meet people where they are—whether they’re in urban centers, rural communities, or underserved neighborhoods. 

Why paper persists—and what we can do about it 

Despite the availability of electronic funds transfer (EFT), paper checks remain a common method of payment and disbursement across federal programs. This isn’t just a technical issue—it’s a human one. 

While many countries have made paper checks a thing of the past, the United States still lags behind in digital payment adoption. Consider these key stats: 

• 1 in 3 Americans used a paper check in the past month. 
• 23% of federal benefit recipients still receive checks or vouchers. 
• Check payments dropped from 6% to 2.5% of all transactions in the last decade, but usage remains much higher than in peer countries (see below). 

By contrast: 

• In Estonia, over 99% of banking transactions are digital; paper checks are obsolete. 
• In Finland, over 95% of residents use mobile or online banking, and most consumer payments are now digital.  
• In Sweden, nearly all consumer payments are digital; paper checks are virtually eliminated. 

Many Americans still prefer checks because they’re tangible and feel secure. Older adults, rural residents, and those without stable banking relationships often view digital systems with skepticism. Past financial disruptions have eroded trust, and scammers posing as government officials have only deepened that mistrust. 

Another challenge is the infrastructure gap—with broadband access limited in many areas and some communities lacking nearby bank branches or ATMs. For many, digital literacy is a barrier—confusing websites, unclear instructions, and financial jargon make EFT enrollment feel inaccessible. 

In many federal agencies, legacy systems may default to paper, and the cost and complexity of replacing them can delay adoption, even when better options exist. Understanding these barriers is essential. You can’t simply mandate change—you need to guide it, support it, and make it feel safe. 

A strategic framework for federal agency transition 

1. Diagnose inefficiencies and opportunities using advanced AI tools 
Use process intelligence platforms to map your current workflows, identify bottlenecks, and understand demographic trends. These tools give you real-time visibility into how payments flow—and where they break down. With this insight, you can prioritize improvements and orchestrate changes across programs. 

2. Enhance data quality to reduce payment exceptions 
Outdated or incomplete recipient data leads to misdirected payments and service disruptions. By implementing data validation and enrichment protocols, you can improve accuracy, reduce fraud risk, and deliver a better experience—especially for underserved populations. 

3. Streamline operations by consolidating fragmented systems 
Design interoperable architectures that unify your payment platforms, standardize data formats, and centralize exception handling. This reduces administrative overhead, improves security, and lays the foundation for scalable innovation. 

4. Encourage payees to adopt digital payments 
Offering EFT isn’t enough. You need to motivate people to choose it—and that requires a public awareness campaign that is clear, inclusive, and supportive. 

• Launch public awareness campaigns tailored to diverse audiences, including seniors, people with disabilities, lower-income households, and rural communities. 
• Use multilingual materials, prioritize clarity, and partner with community organizations for one-on-one support. 
• Make enrollment seamless—mobile-first, secure, and accessible by phone. 
• Expand access by collaborating with Community Development Financial Institutions (CDFIs), Minority Depository Institutions (MDIs), credit unions, and mission-driven fintechs. 
• Leverage large retailers as enrollment points and consider incentive-driven pilots (e.g., gift cards for EFT sign-up). 

Behavior change happens when messaging is consistent, culturally relevant, and delivered by trusted voices. This framework isn’t a roadmap for overnight change – it is for lasting change. 

Real-world examples 

Many federal agencies have made significant progress in transitioning to EFT, and their experiences offer valuable lessons. The IRS used tax return data and the “Get My Payment” tool to move millions to direct deposit during the pandemic. The Social Security Administration achieved near-total EFT adoption through sustained outreach and multiple sign-up options.  

A large federal agency servicing 200 lenders accounts and over 60,000 recipients now issues nearly all disbursements via ACH, resulting in a: 

• 95% ACH adoption rate, 
• Eliminated outgoing checks, and 
• Reduced incoming checks to less than 2%. 

SmartPay Convenience Check Reduction Tool 

Many federal agencies now use a Convenience Check Tool to reduce reliance on costly paper-based checks. Integrated into reporting packages, the tool provides real-time visibility into payment behaviors and supported the shift toward electronic alternatives like purchase cards and ACH transfers. 

Key Impacts: 

• Monthly and year-over-year reductions in check usage 
• Lower operational costs through electronic payment adoption 
• Enhanced analytics to target high-check-usage areas 

Strategies Used: 

• Spend analytics dashboards 
• Policy enforcement and merchant category code blocks 
• Targeted training and change management 

U.S. Department of State Passport Renewal Platform 

The U.S. Department of State launched an online passport renewal platform, transforming a traditionally paper-based, time-consuming process into a streamlined digital experience. This initiative earned national recognition for its user-centered design and measurable impact on service delivery. 

Key Impacts: 

• Dramatic reduction in paper-based applications and manual processing 
• Faster turnaround times for applicants 
• Improved accessibility and user satisfaction 

Strategies Used: 

• User-centered digital design 
• Mobile-friendly, intuitive application process 
• Clear communication and support resources 

What made these efforts successful? Streamlined enrollment, consistent communication, behavioral nudges, trusted partnerships, and incentives. You can build on these traits to design a campaign that works for your agency. 

Additional considerations  

1. Mitigating risk and ensuring security 
Expanding EFT options introduces new risks—fraud, data privacy concerns, and compliance challenges. You’ll need a layered security strategy that includes: 

• Robust identity verification 
• Real-time fraud detection 
• Secure system architecture 
• Compliance with KYC/AML and federal data protection standards 

Industry groups recommend targeted public awareness campaigns, expanded use of secure electronic payment platforms, and enhanced fraud controls for electronic payments. These recommendations are detailed in the joint response submitted by the Bank Policy Institute, The Clearing House Association, and the Consumer Bankers Association to the Treasury’s RFI on the Executive Order ‘Modernizing Payments to and From America’s Bank Account.’ 

Guidehouse’s fraud prevention platform currently monitors over $1.5 billion in potential fraud risk per month across federal agencies. 

2. Navigating regulatory and administrative barriers 
Under 31 U.S.C. § 3332 and 31 CFR Part 208, EFT is mandatory for federal payments unless a waiver is granted. The updated rule, effective March 2024, tightens waiver categories and requires more rigorous justification. 

You may also face administrative challenges such as identity verification, infrastructure limitations, and system incompatibilities. Pilot programs can help you test new technologies, gather feedback, and identify barriers early. 

Successful agencies are consolidating financial agent contracts and modernizing exception processing through AI-enabled platforms. A centralized exemption system would reduce duplication, ensure uniform compliance, and lower operational costs. 

Lead the transformation of America’s Bank Account 

You’re not just implementing a policy—you’re shaping the future of federal payments, one that is more inclusive, efficient, and secure. 

Success depends on your ability to manage complexity, build trust, and adapt to evolving needs. With the right strategy, you can reduce fraud, lower costs, and ensure that every American—regardless of geography, income, or banking status—can access their funds safely, quickly, and confidently.