Uncle Sam Goes Digital (1997)

In a sweeping three-pronged drive, Washington is moving to eliminate the flow of paper checks out of the federal treasury by December 31, 1998. The inflow of checks for employer-withheld tax payments will end for all but the smallest businesses. A checkless U.S. Treasury will affect tens of millions of individuals who receive government pay meets or in-kind benefits, millions of businesses that withhold taxes from their employees, and the small and large banks that service all of the above. An annual flow of a billion electronic payments worth about a trillion and a half dollars--one-fifth the value of the gross domestic product--will speed the economy's transition to a new era of paperless transactions, digital cash, and wallets embedded in plastic cards. The campaign, directed by the Treasury Department's Financial Management Service (FMS), has three related parts: EFT99, which says that all federal payments to individuals or businesses must be made electronically; Electronic Benefits Transfer (EBT), which says that paper food stamps must be replaced by debit cards and that cash benefits must be delivered electronically; and Electronic Federal Tax Payment Service (EFTPS), which says that companies over a certain size must pay withholding taxes electronically. None of these functions are new, except EBT. What's new is the breathtaking scope of the programs and the short time left to test and deploy systems that will affect all banks and their corporate and retail customers. The Treasury program illustrates the quickening pace of electronic banking. It took some 20 years for the industry to get 58% of the individuals who now receive federal payments choose direct deposit (DD). The industry must bring the remaining 42% on board in the next 18 months. Bankers won't be going the course alone. Treasury conducts outreach programs and provides explanatory materials. The American Bankers Association was a key player in designing the new systems. ABA's point man in representing bankers' interests is Bill Phillips, director of policy development and senior legislative representative. This spring he hit the road with Treasury counterparts to hold 30 day-long seminars, sponsored by state bankers associations, in every part of the country. Phillips sees the Treasury initiative as part of a historic contest for control of the nation's payments system. are consciously moving down the road toward electronic banking, he said. All banks need to understand that the fight for control of the payments system isn't going to happen in a few years. It's happening right now. We cannot wait for glitzy new vendors to steal our customers away from us. We must give our customers the tools they must have to deal with the world as it is evolving. This means we will most likely also evolve and change as we go forward. EFT99 means no more federal checks The audacious goal of the Electronic Funds Transfer Expansion Act of 1996 is to totally eliminate paper checks in federal benefit and vendor payments by January 1, 1999. FMS says it can issue an electronic payment for two cents, compared with forty-three cents for a paper warrant. As for security, the government expects to prevent more than 100,000 crimes every year by making mail theft, forgery, and counterfeiting impossible. Electronic funds transfers are 20 times less likely to create errors and handling problems. They are expected to forestall most of the present 1.7 million inquiries from recipients about checks that have been lost, stolen, damaged, or delayed during delivery. EFT efficiencies will also save taxpayers $100 million every year in postage and check-production costs, FMS estimates. The accompanying chart breaks out the main categories of more than 424 million payments that FMS made in the first half of fiscal year 1997, of which 58% were electronic. (The Defense Department made an additional 70 million payments but did not say how many were electronic. …