How US financial institutions are realigning payment operations post federal phaseout

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The federal shift to digital signals a broader change, but checks aren’t disappearing overnight. Institutions are realigning payment operations to modernize receivables, streamline processes, and scale smarter.

May 8, 20257 mins

Earlier this year, the US federal government issued an executive order mandating the transition away from paper checks for all federal payments and disbursements. And while estimates suggest that only about 5% of total US 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.

Checks remain deeply embedded in the commercial ecosystem. In fact, check payments account for roughly 40% of total B2B payments. Industries like healthcare, real estate, and municipal services continue to rely heavily on paper receivables.

The US executive order reinforces what many treasury and operations leaders have seen coming for years: Modernization is no longer optional. And while checks aren't dead, clinging to rigid frameworks will leave you behind. It's time for smarter, adaptable payment operations.

The future of checks: Balancing tradition and tech change

New pressures bring new priorities

In a recent webinar with American Banker and Iron Mountain, CheckAlt’s EVP Lynn Dufrane said, “We’re at an inflection point. The systems that worked even a few years ago won’t necessarily carry institutions forward.” The external pressures are intensifying:

Check fraud increased 84% between 2021 and 2023.
Operational costs are going up, while experienced staff turnover accelerates.
Client and regulatory expectations are shifting toward faster, digital-first payment operations.

For payment processing leaders like CheckAlt and other financial institutions, this isn't about eliminating checks overnight. It’s about building operational flexibility that meets clients where they are and moves faster when market forces demand it.

Where do financial institutions go from here?

Top banks and credit unions are proactively reducing their reliance on checks, anticipating the eventual decline in usage. Here are the top four steps they are taking now to secure their future in payment processing:

Digitizing check processing to speed cash flow and reduce manual intervention.
Deploying 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.

The bottom line? It’s about protecting the revenue streams tied to checks while future-proofing operations.

Scaling and smarter check handling

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 lockbox, SaaS, or hybrid models—gives financial institutions the ability to flex without locking into rigid, resource-heavy structures. Modernizing receivables isn’t about abandoning checks. It’s about handling them smarter, faster, and more securely.

Leading institutions are using automation and strategic outsourcing to improve check processing efficiency, without sacrificing control or customer service. Embedding smarter automation, digitization, and reconciliation tools allows institutions to manage checks more profitably, even as digital payment volumes grow.

It’s time to rethink receivables

Although the phaseout of federal paper checks may impact only a fraction of total check volume, 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.

Get a recap of the webinar with our partners at American Banker and CheckAlt to learn more about future-proofing your payment operations.

Iron Mountain for payment management solutions

Iron Mountain’s comprehensive products and integrated solutions provide seamless receivables management across payment channels and empower financial institutions, fintechs, and businesses to streamline processing and drive growth.

Leveraging our unparalleled footprint of Digital Supercenters, Iron Mountain provides outsourced lockbox services (upfront mail/check receipt & digitization) and simplified operations with intelligent document processing (IDP) to extract and validate data.

Together, we deliver unmatched scale, security, and efficiency for your business.

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Payments and receivables

Through our strategic partnership with CheckAlt, we empower financial institutions, fintechs, and businesses to streamline payment management and item processing.