Modernizing Government Disbursements: The Case for Real-Time Payments in the Public Sector
Government agencies still distribute billions of dollars through paper checks and legacy ACH cycles. Real-time payment rails exist. The gap between what's possible and what's deployed is a policy and implementation problem — and it's solvable.
The Check Problem Has Not Gone Away
In 2025, the U.S. federal government issued approximately 800 million payments. A meaningful percentage of those were paper checks. State and local governments add hundreds of millions more. In an era when consumers can transfer money between accounts in seconds and receive payroll via instant deposit, the persistence of paper disbursements in the public sector is not a technological problem. It's a procurement, policy, and change management problem — and it has real costs for real people.
The households most harmed by delayed disbursements are the ones with the least financial cushion. A benefits payment delayed by three days because a check was lost in the mail isn't an inconvenience for a family living paycheck to paycheck — it's a crisis. The move to electronic disbursements, and eventually real-time disbursements, is a financial inclusion issue as much as it is an operational efficiency issue.
Where the Modern Rail Infrastructure Stands
The payment infrastructure for real-time government disbursements exists and is operational. FedNow — the Federal Reserve's real-time payment service — launched in July 2023 and has been expanding its network of participating financial institutions steadily since. RTP, the private-sector real-time payments network operated by The Clearing House, has been live since 2017 and reaches the vast majority of U.S. bank accounts.
Both networks support instant credit pushes — the payment model most naturally suited to disbursements, where the sending institution initiates a payment that arrives in the recipient's account in seconds, around the clock, every day of the year. For government disbursements — tax refunds, benefits payments, disaster relief funds, emergency assistance — this model is technically available today.
The gap between availability and adoption is a procurement and implementation challenge, not a technology challenge.
What Implementation Actually Requires
For a state or federal agency to move disbursements from check or next-day ACH to real-time payment rails, the requirements are roughly:
A financial institution that is a FedNow or RTP participant. The government agency's bank must be enrolled in at least one real-time network. Most large financial institutions that serve public-sector clients are now participants or are actively onboarding.
Updated payment origination infrastructure. Legacy disbursement systems were built around ACH batch file formats. Real-time payments use different message formats — ISO 20022 for FedNow — and require API integration rather than batch file submission. Agencies running 30-year-old payment systems need middleware or system upgrades to bridge this gap. This is real work, but it's well-scoped work.
Recipient account enrollment. Paper checks go anywhere; real-time payments require a bank account. Increasing the proportion of recipients enrolled in electronic payment requires outreach, authentication infrastructure, and in many programs, a pathway for unbanked recipients. Prepaid card programs and bank account enrollment partnerships have solved this in commercial contexts — the models exist and can be adapted for government programs.
Updated disbursement policies. Some state and federal programs require legislative or regulatory changes to authorize payment methods other than check. These changes have been made in many jurisdictions; others lag. Policy work is often the longest lead time item.
The Financial Inclusion Dimension
One of the most powerful arguments for modernizing government disbursements is the direct benefit to unbanked and underbanked recipients. Paper checks require either a bank account or a check casher — and check cashers charge fees that can represent 2–4% of the disbursement value. For a family receiving a $1,000 tax refund, that's $20–$40 gone before the money is spent on anything.
Instant payment to a prepaid account or a bank account eliminates that fee, gets the money to the recipient faster, and creates a documented financial history that can help unbanked individuals access mainstream financial services over time. The combination of real-time disbursement and financial institution partnership — where disbursements create a pathway to a full banking relationship — is one of the most impactful levers available to agencies focused on financial inclusion.
Practical Starting Points for Government Agencies
The agencies making meaningful progress on payment modernization have typically started with one of two approaches: a specific high-urgency payment type where speed genuinely matters (disaster relief, emergency assistance) or a high-volume, low-complexity payment type where the modernization ROI is easiest to quantify (recurring benefits, tax refunds).
Starting with the highest-urgency or highest-volume use case builds institutional knowledge, creates a proof of concept for stakeholders, and establishes the infrastructure that can then be extended to other payment types. Trying to modernize all disbursements simultaneously tends to create governance complexity that slows everything down.
The agencies that are furthest ahead have treated payment modernization as a cross-functional program — with procurement, legal, IT, communications, and program offices all represented — rather than an IT infrastructure project. The technology is the straightforward part. The institutional change management is where the work actually lives.