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Digital Payments Firms Ride Government Growth Wave

The pandemic and consumer trends have fueled fresh deployments of payment technology for bills, taxes and fees. Can local and state government find new savings via online and mobile transactions?

making a payment
As in many cities across the U.S., residents of Pocatello, a city of more than 55,000 people in southeastern Idaho, appear ready to embrace digital payments for municipal bills.

Pocatello officials this July did a hard launch of technology from Paymentus, a company based in Washington state that went public in May. Paymentus processing allows the city’s residents to pay water, sewer and garbage bills online or via an automated phone system.

The new deployment offers better digital security and a more appealing user interface than the previous vendor did, according to J. Chris Sorensen, the city’s CIO. He said more than 150 people signed up to use the payment service within the first two days of operation.

“Also, the city decided about three years ago to pass the merchant processing fee for credit and debit cards to the users, and Paymentus offered us a seamless way to do so, ultimately saving the city over $180,000 per year in merchant fees which we had been absorbing,” Sorensen wrote in an email to Government Technology.

Comments like that are among the reasons that digital payments providers to local and state governments are enjoying a period of growth. Trends in play before the pandemic have found fuel during the outbreak. Now, as use cases expand in Pocatello and other places, local officials can benefit from those lessons and better meet growing citizen demand for more ways to settle utility, tax and other bills.


It's hard to say exactly how many state and local governments accept digital payment methods such as credit and debit cards, and ACH payments, given the variety of agencies and types of fees and charges paid by citizens. But a pre-pandemic report from the Council of State Governments shows a robust move toward more digital payments — a trend that mirrors movements in the consumer space as e-commerce commands more retail spending.

Take just one finding, albeit from November 2018: Of the 32 states that responded to survey questions from the council, more than half accepted credit and debit cards for tax and fee collections. Individual income taxes was the most popular area for those digital payments, followed by sales tax collection remittance and corporate and business income tax declarations.

All indications are that state and local governments have only stepped up their acceptance of digital payments since the pandemic. Indeed, that trend is underscored by recent business developments in this particular area of the government technology world.


One example comes from Govolution, a digital payments firm owned by business technology company Deluxe. In mid-July, Govolution inked a deal with Pennsylvania-based Fulton Bank to offer the technology to the financial institution’s government clients. Earlier this year, the former owner of Govolution, First American Payment Systems, was bought by Deluxe in a $960 million deal meant to boost the company’s cross-selling opportunities in government, retail and other verticals.

Meanwhile, Kansas City-based startup PayIt is bringing its digital payment services to more areas, including via a recent deal with Toronto that involves the online payment of property taxes, parking tickets, permits and licenses. As that happens, CityBase, headquartered in Chicago, keeps deploying more kiosks at which local residents can use cards or cash to pay municipal bills.

Among the benefits of those kiosks — and some other digital payment systems for local and state governments — is that the processing providers, not governmental agencies, take on the responsibility for PCI compliance, which are a set of security standards for payment cards. According to that report from the Council of State Governments, worries about PCI liabilities have kept some governments from adopting digital payments.

Another hurdle for those governments concerns the cost of accepting digital transactions, especially relatively expensive credit card payments. Those are often passed along to the citizen making the payment, but even so, that process must be seamless for the government officials on the other end.


Pocatello’s experience so far gives an idea about what other governments might expect.

In the first days of the official rollout of the Paymentus technology, the city processed more than $12,000 worth of payments from about 100 transactions, Sorensen said.

“The convenience fee of $2.50 per transaction has averaged out to be approximately 2.1 percent, which is well below the 3 percent we are authorized to collect,” Sorensen wrote. “Paymentus collects the convenience fee directly. The city never touches that fee.”

Paymentus itself offers a picture of how the payments industry is an increasingly important part of the business and investment potential of government technology. In May, it offered 10 million shares of its Class A stock via an IPO at $21 per share. At market close on July 20, the stock price stood at $30.72.

The pandemic has had much to do with sparking those gains, said Nicole Haskins, Paymentus' vice president of sales.

“One big positive that came from the pandemic is that once governments communicated and promoted alternative ways to pay, citizens adopted those self-serve and electronic channels and most, if not all, chose to continue to pay that way going forward,” Haskins said. “Another entire demographic who had previously chosen not to use automation were now forced during the pandemic to change their ways and turn to self-serve options. Those consumers became comfortable with doing business that way and now have moved to paying for government services using these channels and are demanding other options and channels for paying bills.”

Still, making digital payments even more popular among government and citizens requires significant work.

For starters, governments must serve all demographics, which means they might have a harder time than retailers in leading residents to particular payment systems. A typical city, for instance, usually is not in the position to offer, say, shopping or money-back rewards for switching to digital or mobile payments.

“The second challenge is that government services are provided through a lot of different departments, creating silos and disparate systems for staff to manage and citizens to navigate,” Haskins said.


Those challenges are certainly not insurmountable, at least when going by the Pocatello experience so far.

“We will be migrating all of our other city departments to Paymentus between now and (Oct. 1),” Sorensen wrote.

The way he tells it, in fact, the technology seems almost a natural hit with many citizens, given that by mid-July, city officials had done relatively little to market the new service.

“So far, we’ve only done one news release, updated our city website’s page that deals with utility billing, placed a slide on our reader board in our City Hall lobby and are prepping to add a note to future bills,” he said. “As we become more comfortable with the Paymentus platform, we will be doing additional marketing and publicity.”
Thad Rueter writes about the business of government technology. He covered local and state governments for newspapers in the Chicago area and Florida, as well as e-commerce, digital payments and related topics for various publications. He lives in Wisconsin.