The End of Government Paper Checks: Why the 2025 Transition to Digital Payments Is Necessary and Possible

In March 2025, a U.S. executive order set in motion a historic transition: phasing out paper checks for all federal payments in favor of fully electronic transactions. The mandate, titled Modernizing Payments To and From America’s Bank Account, directs the Treasury Department to stop issuing paper checks for all disbursements, from Social Security and veterans’ benefits to tax refunds and vendor payments — by September 30, 2025. 

The stated goal is to reduce costs, improve efficiency, and combat fraud that disproportionately affects the paper-based system. While over 96% of federal payments are already electronic, the remaining 45 million paper checks issued annually represent an outdated, costly, and fraud-prone payment system that urgently needs modernization. This article explores the rationale behind the mandate, how prepaid cards can bridge remaining gaps, and why, despite concerns, the transition is not only feasible by the deadline but overdue. 

Why Eliminate Government Paper Checks? 

Paper checks impose substantial financial burdens on federal operations. A Treasury analysis revealed that the government spent over half a billion dollars in a recent year just to maintain paper-based payment systems. These expenses covering everything from check stock and postage to lockbox facilities ultimately fall on taxpayers.  

Beyond costs, paper checks introduce significant delays through postal transit times, clearing periods, and re-mailing when addresses are incorrect. In contrast, electronic payments move at network speed within a day or even seconds with modern instant payment systems, getting funds to recipients faster and improving cash flow for both individuals and government agencies. 

• Costs and Delays: In 2024, maintaining paper check infrastructure cost taxpayers over $657 million. These costs include printing, postage, lockbox processing, staffing, and legacy systems maintenance. Paper checks are also inherently slow, subject to postal delays and reissuance if addresses are incorrect. In comparison, electronic payments arrive within a day or even seconds with real-time systems. 

• Fraud and Security Risks: Treasury checks are 16 times more likely to be lost or stolen than electronic payments. Mail theft, check washing, and counterfeiting have surged. In just the first half of 2023, suspicious activity reports linked to mail-related check fraud totaled more than $688 million. By eliminating checks, the government cuts off a major fraud vector and ensures that payments reach intended recipients securely. 

• Efficiency and Accuracy: Paper-based systems introduce manual touchpoints and opportunities for error. By contrast, digital payments are easier to track, reconcile, and audit. Real-time validations prevent many of the issues associated with outdated account info or delivery failure. 

• Public Expectations: Americans have embraced mobile banking, digital wallets, and instant payments. Paper checks clash with these expectations. Modernizing government payments aligns public sector services with the digital-first experience citizens already expect. 

How Check Fraud Affects Federal Payments

Despite declining overall check usage, criminals have concentrated their efforts on the checks that remain, especially government-issued ones. The American Bankers Association noted in 2025 that, “despite a continued decline in the use of checks, check fraud has continued to rise,” reinforcing that electronic payments are a faster, cheaper, and safer choice for both consumers and government agencies. Fraud manifests in two primary ways: 

1. Theft during transit: Mail theft targeting federal checks, particularly tax refunds and benefit payments 

2. Deposit fraud: Check washing, forgery, and counterfeit check production 

The FBI and U.S. Postal Inspection Service report that check fraud nearly doubled between 2021 and 2023. In many cases, fraudsters drain funds before recipients even realize their check was intercepted. The cost of these schemes is twofold: financial loss to the Treasury and harm to individuals who depend on timely payments. Delayed benefits can mean missed rent, skipped medications, or going hungry, consequences with a disproportionate impact on low-income families, seniors, and veterans. 

With electronic payments, interception is virtually impossible. Direct deposit and prepaid card transactions go directly into authenticated accounts. Identity verification tools and Treasury’s Do Not Pay system further ensure payments are legitimate. While cybercrime risks exist, they’re easier to monitor and defend against than widespread paper check fraud. Digital forensics allows real-time monitoring, which helps flag suspicious activity before money is disbursed. 

The Federal Government’s Payment Policy Defined 

While the 2025 executive order represents a decisive turning point, the federal government has been working toward digital disbursements for over a decade. Early initiatives, such as the All-Electronic Treasury campaign, significantly reduced reliance on paper checks. Between 2008 and 2019, paper benefit checks fell from 143 million to just 15 million, pushing the electronic payment rate for federal benefits from 82% to over 98%. The Social Security Administration and Department of Veterans Affairs were early adopters, transitioning most of their disbursements to direct deposit and Direct Express® prepaid debit cards. 

Tax refunds lagged behind, with electronic adoption plateauing near 80% by the mid-2010s. Still, the IRS continues to encourage direct deposit each year, and newer tools like prepaid cards and real-time payments offer promising paths to the remaining paper-based use cases. By 2021, the U.S. Treasury was still issuing 49 million checks annually, even though that was a fraction of total national check usage. Within the context of federal payments, however, this residual paper footprint is both significant and expensive. Under the new order, agencies must: 

• Transition to electronic formats for all outgoing payments 

• Eliminate incoming paper payments, such as checks mailed for federal fees or loan repayments 

• Use Treasury’s shared services and payment platforms, including prepaid cards, ACH, digital wallets, and FedNow™ 

• Submit implementation plans and progress updates to Treasury 

In addition to direct deposit, agencies are being encouraged to leverage prepaid cards and real-time digital payment options for those without traditional banking access. Treasury has committed to providing centralized infrastructure, training, and shared services to ensure even small or under-resourced agencies can comply. For many, this will require IT upgrades, procurement of new vendors, and retraining of staff. Still, the foundation already exists, and the timeline, while ambitious, isn’t insurmountable. 

The Current State of Government Electronic Payments

As of 2025, the federal government already disburses the vast majority of its dollars electronically. In 2022, over $5.4 trillion in payments (more than 96% by value) were delivered through electronic funds transfer (EFT), such as ACH. Still, the tens of millions of remaining checks present a costly and risky gap. Among the holdouts are: 

• Taxpayers who haven’t enrolled in direct deposit still receive paper IRS refunds 

• Vendors and grantees relying on checks for manual invoicing processes 

• Individuals without bank accounts and no alternative on file 

The 2025 mandate directly addresses these segments. Taxpayers who fail to provide bank details may now receive refunds via prepaid debit cards, an option that enhances security and reduces fraud. Vendors will need to accept ACH or card-based payments. And wherever legal and practical, Treasury will stop issuing paper altogether. 

How Will Payments Be Made to the Government? 

The order also directs agencies to eliminate paper-based incoming payments, such as fees, loan repayments, and tax checks. This means moving away from outdated channels like money orders or checks mailed to IRS lockboxes. Instead, agencies are expected to expand digital portals like Pay.gov and support broader access to e-collection systems. 

By 2023, about 83% of federal tax payments from individuals and businesses were electronic, leaving room for improvement. The new directive accelerates efforts to achieve near-universal adoption of digital payment methods for both outbound and inbound payments. 

Benefits of Government Prepaid Cards 

Paper checks are inefficient as well as insecure, often expiring or going uncashed, being returned for incorrect addresses, and require reissuance and customer service. In 2023 alone, $25 billion in IRS tax refunds were delayed or unclaimed due to paper check issues. This adds unnecessary overhead for agencies and stress for taxpayers. 

ACH significantly reduces these problems by sending funds directly to a recipient’s account. Errors like closed or incorrect accounts typically bounce back quickly for correction. Still, ACH requires up-to-date banking information, which many recipients — especially in transient populations — can’t provide. 

Reducing Waste and Errors: Why Prepaid Cards Complement ACH

Prepaid cards offer an even more effective solution for minimizing waste and errors, particularly by ensuring that all people, even those without traditional bank accounts, can receive electronic payments like tax returns and benefits. For populations with unstable living situations like the unhoused, transient, or those in disaster areas agencies can load funds onto a card that’s independent of mail delivery.

The success of the Direct Express card program provides a compelling example: By offering a prepaid option, the Social Security Administration reduced the need to reissue lost or stolen checks by 1.2 million a year. Prepaid cards don’t expire if not activated and can be replaced if lost. Funds remain available, and agencies can reclaim balances after a period of inactivity. Cards also provide recipients with tools such as balance-checking apps or SMS features, customer service support, and no-fee ATM networks that reduce the friction associated with receiving and using federal payments. 

Financial Inclusion: Government Payments for People Without Bank Accounts

As of 2023, about 5.6 million U.S. households (4.2%) are unbanked with an additional 19 million (14%) are underbanked, meaning they may have a bank account but rely on payday loans or check cashing services. Further, the bank-averse may avoid them because of fears of garnishment, fees, or previous bad experiences. These populations are disproportionately low-income, younger, and minority. For them, government prepaid cards offer vital access to digital payments. Key benefits of prepaid cards, especially for a subset of seniors in rural areas or irregular access to banks, include: 

• FDIC-insured through the issuing bank 

• Usable at ATMs and point-of-sale 

• Don’t require permanent addresses 

• Easier onboarding for homeless and disaster-affected individuals 

Prepaid cards eliminate the need for physical bank visits or check deposits—helpful for homebound or mobility-limited recipients. When agencies provided basic education on card use, satisfaction among seniors remained high. Populations that benefit: 

• Unbanked: Direct Express reaches over 5 million users, 68% of whom remain unbanked 

• Underbanked: Prepaid cards reduce reliance on costly check-cashing services 

• Seniors: Especially homebound or in rural areas, benefit from simplified card access and phone-based support 

• Disaster survivors: Prepaid cards can be distributed instantly on-site at shelters 

For homeless individuals, prepaid cards act as both a payment method and a stabilizing tool. Some municipalities issue benefit cards that double as identification, helping recipients access services and secure housing. In disaster zones, FEMA can deliver assistance more rapidly and securely using prepaid cards, especially when physical addresses are compromised. Prepaid cards enable financial inclusion, allowing recipients to securely store, access, and use funds, in some cases for the first time. 

Closing the Gap: Government Prepaid Cards

This is where prepaid debit cards offer a clear advantage. They enable fully electronic payments even for individuals who don’t or can’t provide bank account details. For transient or unbanked populations, prepaid cards ensure delivery without relying on a fixed address or traditional banking infrastructure. 

The Treasury’s Direct Express® card program illustrates this impact: by offering a prepaid option, the agency reduced the number of lost or stolen checks by 1.2 million per year . Each card is registered to a recipient, enabling agencies to track usage, confirm delivery, and reclaim unused funds if necessary. These capabilities simply don’t exist with paper checks. Prepaid platforms also offer customer support portals and SMS services where recipients can check balances, report issues, or update their information to free up agency resources.

The Treasury reported a 98% reduction in reissued checks across major programs by 2022, thanks to the combined rollout of EFT and prepaid cards. However, inefficiencies persist among groups not reached by ACH, which is a gap prepaid cards are uniquely positioned to fill. 

Comparative Summary: Waste and Administrative Burden 

Digital Infrastructure and Implementation Challenges

While the benefits are clear, the transition does bring challenges. The full benefits of electronic payments requires government investment in digital infrastructure and addressing risks tied to cybersecurity, privacy, and equitable access. 

• System integration: Agencies must upgrade or replace legacy systems, modernize APIs, and use Treasury’s centralized platforms 

• Cybersecurity: Electronic payments require encryption, MFA, fraud detection, and 24/7 monitoring 

• Privacy concerns: More data is generated; policies must ensure it is used only for disbursement and fraud prevention, with protections under the Privacy Act 

• Digital access: Some recipients lack smartphones or internet; offline solutions (IVR systems, ATM access) are essential 

• Legal barriers: Some statutes require checks; agencies may need waivers or legislative amendments 

Agencies must act quickly but carefully. The executive order includes milestones for compliance, and prior transitions (e.g., SSA’s 2013 EFT push) demonstrate that rapid adoption is possible when paired with support and outreach. Agencies also need to train staff, develop multilingual education campaigns, and monitor feedback to ensure rollout is equitable.

Investment in user-friendly design and call center capacity will be key to building trust and minimizing disruption. For underserved communities, physical outreach events and partnerships with local organizations will help bridge the digital divide. 

Is the Electronic Payments Deadline Realistic?

Successfully modernizing the U.S. federal payment system is not a task the government can tackle alone. With millions of transactions flowing daily, it will take a coordinated effort between public agencies, financial institutions, fintech companies, community organizations, and technology providers to make the transition away from paper checks smooth, secure, and inclusive. 

The 2025 executive order explicitly calls for collaboration with banks, fintech firms, and consumer groups to ensure that the shift to electronic payments meets the needs of all Americans—including the unbanked, underbanked, and vulnerable. 

• Banks and credit unions are key to onboarding direct deposit users and supporting prepaid card programs 

• Fintechs like PayPal, Cash App, and Square could deliver payments through digital wallets, especially to younger users 

• Tech firms provide fraud detection, real-time rails, and ID verification 

• Nonprofits and community orgs help with outreach to seniors, unhoused individuals, and non-English speakers 

• State agencies and the Federal Reserve offer critical infrastructure and alignment with federal goals 

Banks have a financial incentive to participate: reducing check processing saves them money, while onboarding new low-cost deposit accounts generates long-term customers. Payment fintechs (like Corpay) can offer faster identity verification, direct-to-wallet transfers, and innovative fraud monitoring tools. Community organizations can provide the human touch needed to guide hesitant users through the transition. 

The federal government is already engaging with these partners through working groups, RFPs for prepaid card vendors, and outreach initiatives with local governments. This collaborative framework strengthens the likelihood of success, and it can realistically be attained by the September deadline if the work begins now. 

Modernization That Delivers for Everyone 

The decision to phase out paper checks by September 2025 is not just smart policy, it’s a necessary and achievable evolution in how the government serves the public while saving hundreds of millions a year, reducing fraud, and improving access. With direct deposit and prepaid cards, the government ensures no one is left behind. This initiative combines fiscal responsibility, digital innovation, and financial inclusion into a single, strategic reform. 

Cybersecurity and outreach must remain a priority, especially as fraud tactics evolve. But if implemented thoughtfully, the transition will create a system that’s faster, safer, and more equitable for generations to come. We are not just retiring checks. We are building the foundation for a 21st-century government payment ecosystem — and that is long overdue.