Beyond the Federal Phaseout: How FIs Are Realigning Payment Operations

The Federal Shift to Digital Payments Signals a Broader Change—But Checks Aren’t Disappearing Overnight

In March 2025, the U.S. federal government issued an Executive Order mandating the transition away from paper checks for all federal payments and disbursements by September 30, 2025. And while estimates suggest that only about 5% of total U.S. check transactions are tied to federal payments, the move signals a broader shift in payment processing priorities—one that financial institutions can’t afford to ignore.

The government’s move reinforces what many treasury and operations leaders have seen coming: Modernization is no longer optional. It's an operational and strategic imperative.

Still, checks remain deeply embedded in commercial ecosystems—accounting for 40% of B2B payments. And industries like healthcare, real estate, and municipal services continue to rely heavily on paper receivables.

The message isn’t that checks are disappearing. It’s that institutions need smarter, more efficient ways to manage them—without locking themselves into operational models that can’t adapt.

New Pressures, New Priorities

While check volumes are declining gradually, institutions face mounting external pressures:

• Reports of check fraud nearly doubled between 2021 and 2022—and continued climbing into 2023, according to FinCEN.
• Operational costs are rising, while experienced staff turnover accelerates.
• Client and regulatory expectations are shifting toward faster, digital-first payment operations.

Together, these trends are accelerating the need to modernize legacy systems. In a recent American Banker webinar hosted by Iron Mountain—The Great Realignment, CheckAlt’s EVP Lynn Dufrane noted:

"We’re at an inflection point. The systems that worked even a few years ago won’t necessarily carry institutions forward."

This isn't about eliminating checks overnight. It’s about building operational flexibility to meet clients where they are—and move faster when market forces demand it.

How Institutions Are Responding

Leading financial institutions aren’t waiting for check volumes to collapse. They’re realigning now by:

• Digitizing check processing to speed cash flow and reduce manual intervention.
• Implementing SaaS-based receivables tools and APIs to enhance scalability and transparency.
• Outsourcing lockbox operations to reduce overhead while maintaining strategic control.
• Streamlining reconciliation and digitizing receivables to accelerate cash application and reduce manual work.

These steps are designed to protect revenue streams tied to checks—while future-proofing operations for long-term success.

Flexibility at Scale: Scaling Up—and Scaling Down

Institutions today need solutions that can:

• Scale up rapidly to meet growth, new client demands, seasonal fluctuations, or M&A-driven volume surges.
• Scale down efficiently as paper check volumes decline or branches consolidate.

Outsourcing components of receivables processing—whether through fully outsourced lockbox, SaaS, or hybrid models—gives financial institutions the ability to flex without locking into rigid, resource-heavy structures.

Smarter Check Handling Is the Real Goal

Modernizing receivables isn’t about abandoning checks—it’s about handling them smarter, faster, and more securely.

Watch as Lynn Dufrane shares insights on enhancing check processing efficiency in this short video.

During the American Banker webinar, Lynn explained how leading institutions are improving check processing efficiency by embedding automation and leveraging strategic outsourcing—while still maintaining control and delivering strong customer service.

Embedding smarter automation, digitization, and reconciliation tools allows institutions to manage checks more profitably—even as digital payment volumes grow.

How CheckAlt Helps Institutions Prepare

At CheckAlt, we help financial institutions modernize their commercial receivables strategy—bridging traditional lockbox services with SaaS-driven solutions to future-proof operations.

Our capabilities include:

• Traditional lockbox and electronic lockbox processing (including our Catch! electronic lockbox solution)
• Software-as-a-Service (SaaS) solutions to support in-house teams with modern tools
• API-enabled solutions for seamless integration into treasury, core, and accounts receivable systems
• A unified platform to manage all inbound payment channels—checks, ACH, card, digital bill pay, and remote deposit capture—all in one place
• Automation and reconciliation tools that reduce manual work, ensure secure processing, and accelerate cash flow
• Rapid onboarding to support both scaling up and scaling down initiatives

CheckAlt enables financial institutions to modernize receivables management—simplifying payment operations today while building flexibility for tomorrow.

The Bottom Line: It’s Time to Rethink Receivables

The phaseout of federal paper checks may impact only a fraction of total check volume—but the market shift toward digital-first receivables is unmistakable.

Institutions that choose to modernize their payment processing strategies now—through smarter check handling, scalable outsourcing, and flexible technology—will be better positioned to lead the future of commercial payments tomorrow.

Ready to realign your payment operations? Contact CheckAlt today to get started. And for more insights and payment innovations, follow us on LinkedIn and subscribe to CheckAlt Connect, our monthly newsletter—delivered right to your inbox.