How modernization can help the public sector thrive in challenging times

Payment innovation can be a lifeline to public sector agencies facing complex demands, shrinking budgets, and evolving citizen expectations. Today, more public sector finance leaders realize that embracing innovative payment modernization efforts and AI/automation technology can boost efficiency, control costs and better satisfy constituents. 

Our newest Payment Strategy Report, How Payment Innovation Is Helping Finance Leaders Achieve Revenue Growth, explores how modernization can help manage costs, build constituent approval, and improve day-to-day operations.

Let's look at some barriers to payment innovation and see how overcoming these challenges can help agencies do more with less.

Barrier 1: Outdated technology

62% of public sector finance leaders surveyed agree that legacy technology is the number one barrier to payment innovation. But progress has been made. In 2023, only 21% rated their payment strategy as advanced; this year, 40% did. Updates can’t come too soon, as agencies must contend with:

• Core system breakdowns: Legacy technology can’t keep pace with modern payment technology, leading to costly emergency fixes that don’t provide long-term solutions.  
• Aging workforce: Legacy app developers and architects are retiring, leaving no staff to manage or fix archaic technology.

The opportunity

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
• Improve cross-agency communication to streamline interactions, transactions, and data collection

Game-changing AI

Government agencies are exploring how automation and AI can help lower costs, fight fraud and improve workflow. Here’s how our respondents plan to integrate AI:

• 76% will invest in upskilling staff to work more with AI/automation. 
• 74% will increase automation in external payment acceptance processes. 
• 65% will increase AI/automation for internal AR payment operation processes. 
• 67% are automating processes to decrease staff time spent on managing payment acceptance operations. 

And where they are already reporting positive change:

• 40% see advances in fraud detection and prevention. 
• 38% see better risk management and compliance outcomes. 
• 37% see improved cost reduction

Barrier 2: Budget constraints

54% of survey respondents say budget is a top payment innovation barrier. Nationwide, state and local governments face: 

• Growing uncertainty: Federal funding freeze and agency-wide cuts implemented by the Trump Administration will impact state budgets.   
• Vanishing funding: Pandemic-era state aid and infrastructure funds are expiring, increasing pressure on state and local governments to do more with less. 
• Declining revenue: Weaker tax revenue, infrastructure emergencies, or other unexpected costs can decimate allocations for technology upgrades.   

The opportunity

These current budget challenges must not overshadow the lasting benefits of modernization. Innovative payment options: 

• Are less vulnerable to hacking and fraud
• Reduce staff time spent processing payments  
• Minimize redundant workflow and human error 
• Increase the likelihood of timely payments
• Recoup investment expenses through improved revenue collection 
• Raise constituent satisfaction and build trust with the community  

A moving target

54% of respondents say payment acceptance technologies and consumer preferences change so fast it’s hard to prioritize and keep up with trends.

Barrier 3: Knowledge gaps

76% of respondents agree that lack of internal knowledge about emerging technology is holding some departments back. And these gaps are costly:

• Minimal digital expertise limits agency ability to effectively serve the public.  
• Inadequate internal IT capacity drives agencies to spend more on external contracts. 
• Inconvenient, complex or glitchy payment options erode public trust and impede revenue collection. 

The opportunity

Public sector 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. 
• Use technology to simplify day-to-day operations and manage costs. 

On board with automation 

68% of respondents agree that payers are increasingly comfortable with automated payment options.

Innovation builds trust and satisfaction 

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. Here’s how respondents ranked their payment modernization priorities.

For agencies, succeeding with payments and other aspects of finance in the public sector requires balancing uncertainties, budgets and public expectations. Modern payment technology can help. To learn more about the latest trends, download our full report or schedule a call with a public sector payment expert.  

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