Small Businesses Feel the Ripple as Government Goes All-Digital

Paper checks have long been a fixture in U.S. government disbursements, but their days are numbered. President Trump’s recent executive order mandating the phase-out of paper checks in federal payments aims to modernize fund flows from agencies and contractors.

The shift is more than efficiency. As check fraud remains one of the most exploited vectors in payments, moving government funds onto digital rails represents both a cost-savings measure and a defensive strategy. Industry leaders expect that as checks recede from federal programs, their diminished role will accelerate adoption of faster, safer channels across the wider economy.

“The vast majority of government payments already are done via electronic methods,” said Reed Luhtanen, CEO and executive director of the U.S. Faster Payments Council (FPC) in an interview with PYMNTS in the wake of last week’s deadline.

But the targeting of the holdouts could deliver ripple effects that reach far beyond government channels.

The Natural Ripple Effect

With the government moving the last of its check-based disbursements to digital rails, adjacent sectors are expected to follow. Luhtanen explained that even where statutory carve-outs allow opt-outs for paper, the default will pull participants toward faster, digital methods.

“People will just naturally sort of gravitate to the better practice, which here is of course digital payments,” he said. “And I think we’ll see that follow-on effect not only from government payments, but also in other aspects of the payments ecosystem. As people get more familiar with the use of digital payments, they say ‘actually, I like that a lot better than getting a check.’”

The result is a positive feedback loop. As public agencies normalize instant disbursements, individuals and businesses accustomed to checks, from small contractors to local merchants, will find digital options increasingly natural.

SMBs and Everyday Business

Luhtanen noted that small businesses represent one of the most immediate areas of spillover.

“A lot of small businesses today still operate by taking checks for one reason or another,” he said. “As they experience [digital payments] in other parts of their life or their business, that’s a natural progression” especially towards faster (and instant) payments.

The Council’s 2025 study on instant payments adoption, released last week, confirms that opportunity: use cases like earned wage access and loan payouts, each cited by 38% of enablers as momentum drivers, are growing quickly. Online gaming payouts (29%) and wallet funding (19%) are also strong tailwinds, while merchant settlement, though cited by fewer respondents (14%), remains a meaningful source of working-capital benefits.

Together, these scenarios demonstrate how faster payments directly improve SMB operations, reducing reliance on credit lines and streamlining reconciliation.

Fraud, Liability and Interfaces

For broader adoption, much depends on progress yet to be made on risk management and usability.

“There is a need for a lot of additional readiness,” Luhtanen said of the third-party providers surveyed by the Faster Payments Council.  Those areas include fraud prevention, and also assignment of liability and exception processing, exception rules and standards and processes.

He added that end-user experience is equally critical: “There’s got to be a button somewhere that you press to make the payment [move],” he said, “whether that’s on your workstation in a treasury back office, on an app on your phone. Those are the interfaces that are appropriate for the different use cases and that provide the level of security that you need…while also making the experience as intuitive and seamless as possible.”

Closing the Send/Receive Gap

One of the clearest imbalances in instant payments today is between receiving and sending.

“The typical implementation approach for financial institutions is to implement receive first, because that requires a lot less work,” Luhtanen said, who also noted that fraud concerns are somewhat lessened when money’s coming in, not out.  To close the gap, he explained, the Council has launched an exception resolution work group to develop best practices for fraud liability and dispute handling.

According to FPC projections, nearly 90% of financial institutions will be able to receive instant payments by 2028, but only about 40% will be able to send them. Aligning standards and building trust in send functionality is central to bending that curve.

Standards and Operational Considerations

On the standards front, the Faster Payments Council new alliance with Accredited Standards Committee X9 is designed to ensure interoperability, build consistent user experiences, and accelerate industry alignment.  Announced Monday, Oct. 6th, the collaboration will look to develop standards for faster payments, bridging technical work with practical implementation across banks and FinTechs.

With federal payments leading the way, standards collaboration underway, and operational playbooks in place, the check’s long goodbye could be the tipping point for instant digital adoption across the economy.

“What we’re going to see is very rapid progress,” he told PYMNTS, as operational readiness paves the way for faster payments.