Kicking The Paper Check From Its Public Payment Perch

While paper checks are increasingly passing into the realm of consumers’ memory, there are certain niches where they have managed to hold on, even as the rest of the world tries rather adamantly to move on. It is not so much affection keeping checks around in government disbursements as much as it is inertia, as Kathryn Cleary, Mastercard’s senior vice president of business development for North America, told PYMNTS in a recent conversation. What checks lack in appeal, they make up for in history – and every government agency at every level knows how to stamp an address on one and ship it out.

But as of 2020, she noted, a growing number realize that history is not enough reason to stick with the check as a primary disbursement tool. At base, every government agency wants three simple things when it comes to disbursements: increased efficiency, transparency and security. Checks, when stacked against the various digital options that have bloomed over the last 15 or so years, don’t deliver in any of those categories.

That’s why Mastercard has been working with public agencies for the last decade-and-a-half via its “marquee” Direct Express platform, which allows public institutions to push funds to citizens via a prepaid solution. But while that’s a great starting place, said Cleary, the opportunity is much bigger in terms of widening the menu of options and customizing it to citizen’s needs – while also making it more secure and stable.

“We’ve known for more than 10 years that there are issues with mailing checks, which is why we’ve seen over 4.5 million Americans using Direct Express to capture their disbursements annually,” she said. “That is just the start of what institutions can do with a digital disbursement program as they continue to evolve with new technologies and mechanisms to improve.”

The challenge moving forward is to enable the right players to connect to the right set of technologies and mechanisms for their needs, said Cleary.

A Patchwork Project

The main challenge in innovating public payments in the U.S. is that there are an awful lot of public institutions – federal, state, county and municipal – serving a population that is widely spread geographically and diverse demographically, noted Cleary. Different solutions work differently across those various fragments. In Oregon, Mastercard is working with a department of revenue officials to improve their direct deposit architecture, while in Idaho the desired improvement is a wider project that would tie tax, healthcare and other types of public disbursements into an online platform.

“We believe that the digital disbursements will be rolled out in more of a patchwork fashion, at least at first, when it comes to public entities. But if you think about the U.S. as an example, we’ve seen this patchwork before with other public projects,” Cleary said.

She cited as a prime example the rapid acceleration of contactless payments through the U.S. transit markets. That is a project that had been lagging in the U.S., but has rapidly exploded in the last 24 months – as of the start of 2020, Mastercard was working with about 20 cities as they migrate to open-loop acceptance for contactless in their mass transit systems. When it works in one place – and delivers on that promise of efficiency, security and transparency that every public institution is trying to achieve in the world of payments – success breeds interest, which breeds adoption, which breeds success … and so goes the virtuous circle.

“We are seeing that contagion effect in transit, and our hope is that it’s very similar with digital disbursements,” said Cleary. “One success story emerges – and others will look to implement them as well.”

Explore and Developing Advances

As innovation in this area will happen in a patchwork, what emerges as an advance will likely be more varied than standardized in the immediate future, noted Cleary. Places with local leaders who are willing to act as change champions to really push innovation and improvement from the top down, historically tend to see the most progress.

But patterns in advancements are emerging. There is increasing interest in using programs like Mastercard Send for push payments as an alternative to ACH, simply because it offers a cleaner authentication path and requires less sensitive user data. Instead of requiring sensitive account and routing numbers, Cleary said, the government is interested in leveraging the “much more secure path” of pushing funds to cards, with the 16-digit debit/credit/prepaid number acting as an authenticator.

“In addition to that, we’re working on a biometric card, which could have an interesting application and government disbursements. Those cards combine chip technology with fingerprints to conveniently and safely verify the cardholder’s identity,” she said.

As those innovations are rolled out from Mastercard and others, and are adopted, Cleary strongly suspects they will speak for themselves in terms of improvements and citizen satisfaction. They won’t cull the check from public payments root and branch overnight, she noted, as there are consumers who are used to checks and intend to use them forever. A truly inclusive payments system respects those wishes and will keep paper in place for what will likely be a fair spell longer.

But for the consumers who want something digital, the holdouts are becoming fewer and farther between. The questions at this point, at least among the public officials Mastercard deals with these days, aren’t about why they should be doing this, but about how they should begin.