From “American City & County” | By Jamie Rosenberg, Founder & Executive Chairman, ClassWallet | Published July 28,
2025
The federal government began accepting electronic payments in 1986. Nearly 40 years later, paper-based payments continue to plague agencies with unnecessary costs, delays and risks of fraud.
To combat these issues, the White House released an Executive Order in March to finally end paper-based payments, mandating "the transition to electronic payments for all Federal disbursements and receipts" by September 30, 2025.
The order grants limited exceptions for emergency payments, but in nearly all circumstances, state and local governments must now use digital payment methods to receive federal funding. This is significant because state and federal budgets are "inseparably linked," with the Pew Research Center finding that 36.4% of state revenue came from federal dollars in fiscal 2022.
Federal funding supports state-level public services like health care, education, transportation and infrastructure. To avoid disruptions to these critical programs, states must complete their transitions to digital payment processes by the September 2025 deadline.
In addition to maintaining compliance with the latest federal policies, adopting digital payment methods such as digital wallets can have time and cost-saving benefits for resource-constrained state governments.
Why Is The Federal Government Mandating Digital Payments?
The primary reason driving the shift to digital payments is cost savings. The White House’s executive order states that maintaining the physical infrastructure to digitize paper records cost more than $657 million in fiscal 2024 alone. These outdated legacy systems are unnecessarily burdensome, wasting time and taxpayer dollars. By digitizing payments upfront, government agencies can avoid these duplicative costs.
In addition to reducing spending on legacy infrastructure, migrating to digital payment methods can help public sector agencies at the federal, state and local levels protect funds from fraud and avoid improper payments.
Paper-based payments are far more susceptible to fraud, waste and abuse than digital ones. For example, the White House’s executive order states that Department of Treasury checks are 16 times more likely to be reported lost or stolen, returned undeliverable or altered than an electronic funds transfer. On the other hand, digital payment platforms have robust, built-in cybersecurity features, protecting funds from fraudulent claims and theft.
Improper payments, which include accidental payment errors as well as intentional fraud, are another issue tied to paper-based processes. Concerningly, a Government Accountability Office report found that since 2003, federal agencies have made roughly $2.8 trillion in improper payments. For context, you would have to spend $3 million every hour for 100 years to hit $2.8 trillion.