Blog & Insights
Payments-as-a-Service: The Right Choice for Government Agencies
Today’s citizens use digital channels to pay for just about anything — food, clothes, entertainment, and more. But, at some small government offices, these digital citizens aren’t able to use digital means to pay for services. It’s time for these government agencies to move beyond the world of cash and checks only and adopt digital payments. And the Payments-as-a-Service model might be their best option.
End of an era
The era of paying only by cash and checks has ended. The explosion of digital payment options is one factor. The increase in underbanked and unbanked citizens is another. According to one study, an estimated 5.9 million U.S. households were unbanked in 2021. This means that no one in the household had a checking or savings account at a bank or credit union.
This isn’t a new phenomenon. Some individuals have steered away from banks since they were created. Today, any number of reasons can keep someone from using a bank or credit union, including:
- Poor credit history
- Lack of trust in mainstream banking
- Convenience and access
- Problems with language and literacy
- Unemployed or lack of steady income
The explosion of digital payment options — prepaid cards, online payment apps, and more — has made it easier for individuals to leave banks and credit unions behind. And today’s citizens have eagerly taken advantage of these options.
The FDIC reported that the use of prepaid cards was much higher among unbanked households (32.8%) than among banked households (5.7%). And unbanked households were twice as likely to use prepaid cards or nonbank online payment services to conduct four or more types of transactions compared with banked households.
Among other reasons, some organizations hesitate to accept digital payments based on the notion that these options are expensive and they just can’t afford them. They believe that accepting checks, for example, is less expensive.
But that isn’t necessarily true.
In fact, paper checks can cost you up to 10 times more than digital payments when you consider more than just processing fees to consider — such as manpower and incidental costs — which are not included when processing payments via digital alternatives.
Bank of America estimates that a check can cost a business anywhere from $4 to $20, based on the check price and postage. And that doesn’t even take into account the time your finance team spends writing, mailing, collecting, and reconciling the check. Similarly, the Wall Street Journal reports that a business can easily spend up to $25,000 on materials, manpower, postage, and bank fees.
Let’s rethink this
Even the federal government has recognized the need to move away from checks. A federal initiative has been proposed to develop the infrastructure for accepting real-time payments — thus further marginalizing checks.
According to a 2015 government report, even the U.S. government recognizes the need to move away from traditional payments and toward more efficient payment options.
The report states: “Technology is rapidly changing many elements that support the payment process. High-speed data networks are becoming ubiquitous, computing devices are becoming more sophisticated and mobile, and information is increasingly processed in real time. These capabilities are changing the nature of commerce and end-user expectations for payment services. Meanwhile, payment security and the protection of sensitive data, which are foundational to public confidence in any payment system, are challenged by dynamic, persistent and rapidly escalating threats. Finally, an increasing number of U.S. citizens and businesses routinely transfer value across borders and demand better payment options to swiftly and efficiently do so.”
Like its second nature
The federal government likely realizes just how much business is being conducted by digital means, and it wants to get in on the action. After all, in 2021 alone, 2.14 billion people made purchases or payments online. That translates to billions of dollars in digital transactions. But, how much exactly?
Well, according to one report, the amount of digital payments in 2022 reached $1.7 billion, and the total transaction value of digital payments in the U.S. should reach more than $3.5 trillion by 2027.
And a recent YouGov survey showed just how comfortable citizens are with digital payments. The survey showed that 65% of U.S. citizens prefer to pay regular monthly bills online, while 57% prefer using websites or mobile apps to make one-time bill payments.
Clearly, online and digital channels are the preferred way to make payments by a host of citizens. So it’s incumbent upon for government agencies to incorporate these options.
A new model
But government agencies must incorporate the right solution to enable them to accept all types of digital payments without completely overhauling their existing infrastructure. For many of these agencies, the Payments-as-a-Service (PaaS) model is a welcome option.
Similar to Software as a Service (SaaS), a PaaS solution allows companies to offer multiple payment services through a single channel. When you use a PaaS model, the payment is no longer just a means to an end. Rather, it’s an overall experience designed to be easy, frictionless, and convenient for citizens.
With PaaS, government agencies can:
- Increase constituent satisfaction with a fully integrated, end-to-end payment, communication, and workflow platform that gives your constituents a frictionless, easy-to-navigate payment experience.
- Increase revenue recovery by offering flexible, modern payment options and plans, including online payment capabilities.
- Provide additional convenience with easy-to-schedule recurring payments and a PCI-compliant call center available for quick over-the-phone payments.
- Better serve the public, including those without access to banking services.
- Improve security with an all-in-one solution.
The era of digital payments is here. And you must ensure that your government agency has the right solution to thrive in this new era.