CED Newsletters & Policy Alerts

Policy Alert: Requiring Electronic Government Payments

March 28, 2025

Action: On March 25, the President signed a pair of Executive Orders addressing how the government makes and receives payments. The first directs agencies to transition to electronic payments (e.g., direct deposit, debit and credit cards) for all payments to and from the government with small exceptions for circumstances when electronic payments are not feasible (e.g., an individual does not have access to banking services or electronic payments). The second directs agencies to take a variety of steps intended to reduce improper payments, including ensuring that all payments are subject to “pre-certification verification processes” and increasing data sharing across government databases to reduce improper payments. That Order also seeks to reduce the number of entities across the government that are authorized to make payments and consolidate more payment operations within the Treasury Department.

Key Insights

• Most Federal payments not related to government borrowing are disbursed by the Treasury Department’s Bureau of Fiscal Service Federal Disbursement Services (FDS), which provides payment services for more than 250 Federal agencies. In the last fiscal year, FDS issued more than 1.27 billion payments totaling $5.45 trillion, including Social Security benefits, tax refunds, and payments to Federal workers and vendors. About 97% of those payments were made electronically.
• This high percentage reflects general growth in electronic payments and specific efforts to phase out the use of paper checks. For example, a 1996 law required that most Federal payments be made electronically by January 1, 1999 with some exceptions, and government agencies have taken steps to transition payees to electronic payments. However, as of March 2025, about 0.7% (450,000) of Social Security payments were made by check.
• Because Federal agencies are already required by law to use electronic payments and the President’s Order maintains exceptions for circumstances where electronic payments are not feasible, it is not clear what impact the Order will have. However, the Order may increase the Treasury Department’s adoption of the Federal Reserve’s new real time payment system, FedNow.
• In addition to payments from the FDS, about 22% of Federal disbursements are made by Non-Treasury Disbursing Offices (NTDOs) authorized by Treasury, including NTDOs in the Department of Defense and Department of Veterans Affairs.
• The second Order seeks to consolidate more payment operations within the FDS, which the Administration believes will reduce expenses and improve oversight.
• The Order directs that the Treasury Secretary should “minimize administrative barriers,” exercise the authority permitted by law to waive legal restrictions on matching data across government databases, and amend regulations and guidance to facilitate greater data sharing between agencies. It echoes an Order issued earlier this month also aimed at sharing data across agencies, which experts have noted raises privacy and oversight concerns.
• Finally, the Order directs Treasury to consider issuing instructions for agencies to follow “pre-certification processes” before issuing payments, including ensuring a proper taxpayer identification number (e.g., Social Security Number) is provided for the payee, that payees are not deceased, and that the account number receiving the payment belongs to the payee. These measures could enhance Treasury’s ongoing efforts to combat fraud, though they may also inadvertently delay some legitimate payments.