From the state taxing authorities to the state administrators who disburse federal funds to the local utility companies, state and local governments distribute trillions of disbursements every year to their citizens. But paper checks still abound, and the overwhelming majority of those citizens rate their experience receiving and processing them as negative.
Digital payments for disbursements are on the rise, but as Brian Page, head of Government Treasury and Southwest Government Banking at JPMorgan, told Karen Webster, the transformation to digital conduits will be a marathon, not a sprint. The motivation to change and upgrade payments processes, he said, is borne out from recent experiences, where pandemics and disasters have underscored the need to get paid quickly. Though the crises have shone a spotlight on payments urgency, said Page, “the reputation of a [government] body for getting out in front of a new technology or a new rule that hasn’t been written is just not worth the risk. So they fall back to the ways that they’ve always processed and paid payments.”
Complexity’s an issue, too. In the bid for payments modernization, there are a number of stakeholders in the mix, spanning municipal, state and local authorities. There are the lawmakers who create the laws, and there are layers of administrative personnel who implement the rules, and the technologies and solutions that govern payments.
Innovation is hard to come by and anyone around the table can slow things down. The state treasurer who has the authority to collect the monies to fund payments may not have the same authority that the comptroller does. And though there may be similarities across the states, there are differences too, which means that payments and solutions providers must be cognizant of those differences.
The governments themselves are often cash-constrained or have limited staffing power and don’t have the timeliness or know-how to bring new technology on the premises or to the cloud to address these needs — and budget shortfalls only exacerbate the pain points.
“The timelines of the government are not short,” he said, noting that all manner of agencies, as they mull a great digital shift, must grapple with the creakiness of legacy constraints — not just technology but the policies in place too. For public officials, ideally, accountability and transparency are non-negotiable — and those things take time.
“You’ve got to have a long term mindset,” he said, of providers like JPMorgan, as they seek to educate and provide information to the aforementioned stakeholders.
The tide is shifting given the fact that so many government employees and analysts are of the digital age — they are younger and are not used to carrying cash or writing checks to make payments or get paid.
Fraud, as is always the case when it comes to payments, can be a motivator to modernize, particularly with check and ACH fraud — a problem worth tens of billions of dollars, said Page.
“The larger the size of the population,” and the state, he told Webster, “the bigger the scale of the problem if you do not get it right.” In the meantime, the smaller states and the municipalities are largely dependent on their vendors to manage tech stacks and risk — especially as we move toward faster payments.
For the governments, he said, the key considerations revolve around whether those vendors and suppliers and banks can bring the technology that enables constituents to make payments online. Digital wallets used in the service of paying tolls are a prime example here, he said.
Broadly speaking he said, the digital shift can be a boon beyond payments, as digital channels to get permits, approval and to generally make doing business easier can help attract new firms and talent to cities and states. “If you fall back on legacy constraints, you’re likely to fall out of being a competitive place,” he said, “where people choose to work and play.”
Payments are the natural onramp to those system and city-wide improvements, he told Webster. “At the end of the day it’s about demystifying payments — and helping policymakers better understand what’s right at their fingertips.”
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