The pandemic has broadly impacted money movement and a new sense of urgency, from retailers seeking faster ways to pay suppliers to insurance firms adopting digital methods to issue claims payouts to waiting recipients.
Government agencies fall among the cohort of institutions that need to disburse funds with more speed than usual, but they’re tasked with sending stimulus checks and business loans to the financially vulnerable, making the stakes higher for those who fail to quickly respond to these pandemic-driven changes.
Government agencies can struggle to move funds to waiting recipients with the necessary speed. Part of this is because these agencies are not used to managing multiple payment types, said Linda Jun, senior policy counsel for consumer financial advocacy group Americans for Financial Reform. Many government agencies are simply used to doing things one way, she explained, rather than supporting the increasing variety of disbursement methods preferred among consumers of different demographics that require aid.
“The IRS is ready to deal with direct deposit if you have a regular bank account, and they are ready to deal with paper checks, [but] they are not used to dealing with [more] payment methods on a widespread scale,” Jun said in a PYMNTS interview. “I have noticed, with a lot of these systems, with [the pandemic], that available systems are either entirely internet-based or completely old-school, like paper. We need to push the government to do more to reach those places where neither of those is an option.”
Relying on outdated disbursement methods can potentially lead to financial harm, especially as rising unemployment figures and economic fallout is still occurring. Government agencies must find disbursement methods that can reach consumers who exist in that gap for their relief to be effective.
The Digital And Paper-Based Balance
Part of the issue is that government agencies need to send money to individuals in every economic or social bracket, and different consumer demographics have wildly different payment expectations. Many consumers are now expecting their payments to arrive digitally and much more quickly to their bank accounts.
Agencies must deliver money to individuals with the speed they are expecting, but they must also support disbursement methods that can quickly get money to consumers who do not have access to bank accounts or digital tools, Jun explained. Many agencies are still using paper checks to do this, but that often means consigning more financially vulnerable consumers to waiting for their money longer — and that is if all of the details are right and the money is being sent to the correct destination, Jun said.
“There is also the concern about making sure that paper checks actually arrive and reach the intended recipient,” Jun said. “I think there are natural delays with paper that — for certain people — is going to cause more of a [financial] hardship.”
One tool that could potentially be used to meld digital and paper-based offerings is the use of prepaid cards, she explained. These cards do not require bank accounts and can be used right away, meaning that underbanked consumers will not have to wait to cash paper checks to gain access to their funds. Other digitally connected tools, such as mobile wallets, could also offer similar benefits in this space, she said, especially as the number of Americans who are using smartphones is growing steadily, even though many of these users may not have traditional bank accounts. There are still several factors to analyze before mobile disbursements can be widely applied, however.
“[Mobile is] worth exploring,” Jun said. “I think a lot of concerns with mobile is just how they are regulated and how those funds are protected, both with fraud and with deposits and that sort of thing. I think there are a lot of questions outstanding to make sure that the money and the use of the mobile wallet itself is adequately protecting people, but in a world where those protections could be implemented the way they should be, then [mobile disbursement] is definitely worth exploring.”
It is crucial for government agencies and regulators to analyze how mobile and other emerging payment tools are truly being used before they are implemented as part of their disbursement systems, she noted. Failing to do so could lead to even more financial harm if the proper precautions are not taken.