State, local and regional government entities play a critical role in the U.S. economic engine. In 2023 alone, these entities spent $4 trillion on a wide range of public goods and services, spanning programs as diverse as public assistance, education, healthcare, community development, criminal justice and public safety, as well as disaster relief and infrastructure initiatives.¹

Disbursements represent a significant portion of government spend, with an average $7,708 annual spend per person, and account for 22% of all disbursements to consumers—second only to income and earnings payments.²

Even today many disbursements remain largely manual and paper-based. As the volume and diversity of government payments continues to grow, so do the costs, complexity and security risks associated with legacy payment methods.

While significant prioritization and progress of e-government initiatives and services has been seen recently, payments modernization in the public sector has not necessarily evolved at the same pace. This translates to an often slower, less transparent and more cumbersome payments experience in an era in which consumers have become accustomed to expanded digital payment options and the convenience, speed, transparency and security that they bring to our everyday lives.

Changing expectations

The status quo is ready to change for the better. Digital-first experiences in other aspects of constituents' lives can lead to possible heightened expectations for government payments and the want for accessible and intuitive payment choices that deliver greater security, speed, transparency and convenience.

“Individuals want to receive payments efficiently, smoothly and simply,” said Brian Page, Head of Government Banking, Middle Market Banking & Specialized Industries, J.P. Morgan. “Government entities may want to consider all the ways people want to get paid, and think about if they are set up to be able to deliver.”

“Payment modernization is happening in all verticals and industry sectors in the private sector,” said Curtis Webb, Senior Director, Head of Go-to-Market Strategy, Visa Direct North America. “With the gig economy, earned wage access, marketplaces and digital banking, millions of consumers already receive payments within minutes securely to their bank accounts via their debit cards.” Constituents may be asking their government officials to provide the same payment experiences that they have come to expect in their everyday lives.

Instead, constituents face persistent pain points and limited options.

With paper checks, for example, constituents must wait for the check to arrive in the mail, and then take additional time and effort to deposit it. Frequent address changes can result in checks never arriving, requiring re-issuance. There’s no way to track the status of check payments efficiently, which can lead to an increased risk of check fraud.

Further, various digital payment methods, such as direct deposit via ACH, require constituents to provide sensitive account and routing numbers to government entities. Even if willing, constituents may not know or have on hand their account number and routing information, leading to additional effort and inconvenience.

The negative impact of disbursement complexity and fraud risk can be compounded in times of crisis and urgent financial need, such as when constituents are waiting for disaster relief, unemployment or child
welfare payments.

Current state of payment modernization in the
public sector

As state and local government agencies advance in their payment modernization journey, they face a number of challenges, from technology barriers to concerns around the potential negative impacts of change. “Digital payments are easy for constituents to send and receive, but can be complex for government entities to implement and support through the payment life cycle,” said Kimberly Sweet, Managing Director, Head of Public Sector Payments Product, J.P. Morgan.

Legacy systems and budget constraints present some of the biggest challenges. Platforms may not be compatible with digital disbursement methods and undertaking a platform migration can be not only expensive and complex, but can also risk disrupting service. “Legacy payment methods—single-use prepaid cards, checks and ACH—can become ingrained into government systems,” said Rick Malcolm, Head of North America Government Solutions, Visa.

There are also unbanked and underbanked constituents to consider, and those who may mistrust the banking system or are hesitant to change. “Government must serve every constituent, and in the disbursement space, the challenge is how to digitize payments for the underbanked,” Malcolm said.

J.P. Morgan Payments and Visa Direct: Accelerating faster money movement

J.P. Morgan Payments is on the front lines of empowering public sector organizations to advance modernization with secure payment solutions.

Our card-based, money movement offering, enabled by Visa Direct, can help public sector organizations to send secure, convenient, fast payments directly to constituent bank accounts via their existing debit card. It can help state and local government agencies deliver payments to bank accounts within minutes, securely and with greater convenience to end constituents.* This can help enhance effectiveness and increase the resiliency of the communities they serve, all while helping to drive the cost efficiencies needed to justify innovation.

“What really sets us apart is our ability to deliver on capabilities; data privacy, security and information; platform stability; and regulatory oversight,” Page said. “We’re excited to be able to deliver the breadth of J.P. Morgan to clients and their constituents in a way that’s extremely secure with great resources and capabilities behind us, as well as strong redundancy. This enables us to deliver on time and on-demand when clients need it most.”

As an integral part of our vision, J.P. Morgan Payments is focused on helping government entities achieve greater flexibility—and efficiency—for themselves and their constituents and contractors. Disbursements to a bank account via existing debit cards, enabled by Visa Direct, represents a strategic step forward on this front.

The solution, which can support diverse use cases—including disaster payouts, tax refunds, contractor payments, unemployment and social program benefits, and transportation subsidies—brings together J.P. Morgan Payments’ dedication to innovation and client service and Visa’s commitment to security, trust and convenience.

“Our new debit card-based disbursement capability is an important initiative, and alongside Visa, we look to forge an even stronger relationship with government agencies and improve the constituent experience by providing behind-the-scenes support for digital payments,” said Mukund Iyengar, Managing Director, Global Sales Head, Public Sector and Healthcare, J.P. Morgan.

The power of faster payments for the public sector

For state and local governments, the benefits of card-based disbursements enabled by Visa Direct are
far-reaching:

• Support cost efficiencies
  Fast payments to a bank account via debit cards can limit the risk of check reissuances or resources diverted to customer support and can help save internal costs.
• Accelerate innovation without compromising controls
  Visa Direct can help to accelerate modernization and innovation, as it can support data transparency and timely payments on multiple platforms without compromising internal controls.
• Improve the constituent experience
  Bank account deposits via debit card give constituents a convenient option for receiving government payments.
• Expand reach and promote financial inclusion
  Disbursements with Visa Direct can reach virtually every bank account supported by a debit card within minutes, and meet the unique needs of unbanked constituents with reloadable card capabilities.*
• Enhance security
  Visa Direct payments enjoy the same Zero Liability Policy protection as Visa Debit card purchases. If a constituent’s debit card is compromised, a new debit card can be issued, and the constituent is not responsible for unauthorized charges made with their debit card information.** Since providing account and routing numbers is not necessary with Visa Direct, their bank account information remains safe.

“Public sector entities look to J.P. Morgan as a trusted adviser, whether it relates to modernizing their platform or creating new ways to manage data compliance, trust and safety,” Page said. “We are committed to helping them deliver on their promise to deliver funds to constituents in a timely, secure and increasingly convenient and flexible manner. Fast money movement, enabled by Visa Direct, represents a transformative solution for accelerating payments modernization in the public sector.”

Payments modernization is a journey filled with a myriad of challenges, as well as new opportunities for greater efficiency for agencies and a better experience for constituents. We’re ready to solve together. Reach out to a J.P. Morgan Payments expert today to explore new fast payment options with Visa Direct.

*Actual funds availability depends on U.S. receiving financial institutions

**Visa’s Zero Liability Policy does not apply to certain commercial card and anonymous prepaid card transactions or transactions not processed by Visa. Cardholders must use care in protecting their card and notify their issuing financial institution immediately of any unauthorized use. Contact your issuer for more details.