Payments modernization can help the public sector navigate challenging times

Government entities and public sector agencies are navigating a tumultuous landscape,* as they continue to face complex demands and evolving constituent expectations – while grappling with smaller budgets and difficulties with revenue collection. Payments innovation can be a lifeline in this environment. Today, more public sector finance leaders realize that embracing payments modernization efforts and AI/automation technology can boost efficiency, control costs and better satisfy constituents.

Building trust and satisfaction through innovation

The latest U.S. Bank Payment Strategy Report explores how payments modernization can help manage costs, build constituent approval, and improve day-to-day operations. By making its services accessible, convenient, and secure, the public sector can meet citizen expectations and improve its smart government reputation.  Flexible, 24/7 payment options (mobile, text, portal, phone, mail and in-person) for everyday transactions like renewing a license or paying taxes simplify citizen experiences and improve public perception of government capabilities.

Local governments want to put payment choice in constituents’ hands; 50% of public sector leaders in our survey indicated mobile payment innovation as a top priority for payments modernization, closely followed by self-service options like kiosks (49%) and Buy Now Pay Later Options (47%).

Technology, budgets and staff knowledge limit payments potential

Finance leaders understand the benefits of public sector payments modernization for their entities and constituents, but experience many obstacles preventing them from implementing new processes and investing in system upgrades. What’s stopping them? Let's unpack the top barriers to payment innovation identified in our survey.

• Outdated systems and aging workforce can’t keep up

62% of public sector finance leaders surveyed agree that legacy technology is the number one barrier to payment innovation. Legacy technology stacks* in government agencies – including outdated programming languages, unsupported hardware and vulnerable security systems – can’t keep pace with modern payment solutions, leading to costly emergency patches that don’t provide long-term fixes. Meanwhile, members of the aging workforce of legacy app developers and architects are retiring, leaving no staff to manage or fix archaic technology.

• Tight budgets constrain investments in financial infrastructure

54% of survey respondents say budget is a top payment innovation barrier, spurred by several key trends. First, nationwide, state and local governments face growing uncertainty as federal funding freezes* and agency-wide cuts implemented by the U.S. government impact budgets. Further, pandemic-era state aid and infrastructure funds are expiring, increasing pressure on state and local governments to do more with less. To top it all off, most public sector entities are experiencing declines in tax revenues and unexpected costs, limiting their ability to invest in technical upgrades to their financial systems.

Beyond limited resources, it is also difficult to decide where to allocate resources and time. Our survey respondents (54%) say payment acceptance technologies and consumer preferences change so fast it’s hard to prioritize and keep up with trends. This leaves big questions for finance and IT leaders in the public sector, without a clear path forward or trusted sources to turn to for answers.

• Knowledge gaps limit public sector potential

Beyond systems and budgets, public sector finance leaders (76%) in our survey agreed that lack of internal knowledge about emerging technologies is holding their departments back. Without adequately trained and credentialed staff in finance and IT, governments cannot effectively provide services to constituents; they also end up relying heavily on external contracts for IT infrastructure and capacity and lose out on revenue collection opportunities due to inconvenient payment options for constituents.

Overcoming barriers can help agencies do more with less

These challenges are a reality but are not insurmountable. Public sector finance leaders can drive modernization efforts by making compelling cases for expenditures on payments technology upgrades and demonstrating how improvements can both save costs and boost revenue collection.

Public sector leaders in our survey noted the following areas of opportunity to overcome barriers and modernize their payment acceptance processes:

• Moving to the cloud, automating with AI

Rather than trying to extend the life of existing technology, agencies are now migrating digital assets to the cloud while rebuilding legacy apps to control costs. Cloud migration* helps agencies modernize their infrastructure without losing legacy data or systems. This approach can improve operational efficiency and streamline workflow, support automation and AI integration and boost reliability and improve cross-agency communication to streamline interactions, transactions, and data collection.

Government agencies are also exploring how automation and AI can help lower costs, fight fraud and improve workflow. Our survey respondents plan to add AI capabilities into their workflows by investing in staff upskilling (76%), increasing automation of external payment acceptance processes (74%) and increasing automation of internal accounts receivable operations (65%). AI agents* can help public sector finance teams extract data from invoices and purchase orders, streamline reconciliation reporting, monitor financial operations for fraud, and many other manual tasks that reduce operating costs and free up staff time for more valuable tasks.

• Building resilience to save costs over time

While government budgets are tight, finance leaders must demonstrate the long-term value and cost savings that can come from modernizing tech stacks and improving payments collection methods. Our survey respondents agree that innovative payment options are less vulnerable to fraud, minimize redundant workflows and human error, and increase timely payments from constituents – ultimately, increasing revenues and operational resilience while boosting cost savings over time.

• Partnering with a payments processor to upskill staff

 Public finance leaders who reach out to payment providers for insights and scalable strategies can close the knowledge gap and start planning a path forward. The more agency leaders and staff know about evolving technology, the more they can scale and adapt to changing technology, improve decision-making about solutions that meet their needs and leverage new financial technology to streamline operations.

The road ahead

Governments and public sector agencies will likely still face revenue challenges and cost pressures over the next few years. The key to navigating these challenges, while maintaining public trust and providing quality services, is investing in modernized payment acceptance solutions and automated accounts receivables processes – ultimately, boosting operational costs and improving revenue collections to build resilience over time.

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