For years, state and local government modernization has been defined by a simple benchmark: Can residents pay online? Increasingly, agencies have worked toward that goal; 78% of government leaders reported that their agency already accepts online payments for at least one fee or service, according to new research from PayIt.
These services span property taxes, utilities, court fees and more — and a growing number of these platforms include familiar features, such as bill reminders, saved payment methods, installment plans and support for Apple Pay, Google Pay and peer-to-peer options.
Digital payments in government may be widespread, but simply adding a payment button to a website leaves a lot of value untapped.
The adoption gap
Today, the average digital payment adoption rate is just 49.5%, according to a PayIt survey of more than 600 state and local government leaders across the United States. This means more than half of these transactions still rely on higher-cost manual channels, such as mail, in-person, or over the phone.
Meanwhile, agencies are reporting much higher adoption targets, with nearly half of respondents aiming to have over 75% of payments digital within the next two years.
So, why the gap? What should state and local leaders prioritize in this next phase of modernization to realize digital’s full value, while driving channel shift among residents?
The innovation layer
Leaders are increasingly focused on identifying ways to deliver a better experience within the constraints of their existing systems of record. When asked, public sector leaders most frequently cited integration with older systems as the top barrier to modernizing the resident-facing digital experience. This challenge also appears in Deloitte’s 2025 Government Trends, among other industry reports.
Payments are typically the first place modernization gaps surface. Amid high transaction volume, multi-system handoffs and regulatory requirements, payment processing exposes legacy issues faster than other services. The consequences are familiar: manual reconciliation, middleware workarounds, disconnected reports, audit exposure and security risk.
Often decades old and with workflows built around them, legacy backend systems remain part of the operational landscape for government — but they no longer have to dictate the pace of progress. Strategic investments in modern experience layers, including user interface platforms, integrated payment systems and emerging AI capabilities, are enabling agencies to work across these constraints.
Designing for adoption
If the availability of an online service isn’t enough, what actually drives adoption?
State and local leaders point to ease of use, which aligns with PayIt’s consumer research showing that residents increasingly expect digital government services to mirror the simplicity and convenience of private-sector experiences.
In practice, that means reducing friction across the entire journey: fewer logins, clearer navigation, flexible payment options and an accessible user experience. It also means meeting residents where they are, whether through mobile devices, reminders, or integrated service portals.
A front-end user experience that integrates with an agency’s backend system can help build this experience and drive higher adoption — without ripping and replacing decades-old infrastructure.
The role of data and AI
In this next phase of modernization, governments are exploring how AI can improve service delivery and operations — nearly 90% of survey respondents working for agencies are planning to or are already using AI. Early use cases are pragmatic: automating data entry, assisting with reconciliation and streamlining internal operations.
But the impact of AI depends heavily on readiness. Without integrated systems and reliable data flows, AI remains limited to point solutions rather than enabling broader transformation. This is why many digital government frameworks now emphasize foundational capabilities; clean data, system interoperability and secure infrastructure. This work builds the infrastructure for long-term, scalable innovation.
From access to outcomes
The new focus in state and local government reflects a broader shift: Modernization is no longer defined by whether services are available online, but by how well they work. This includes improving operational efficiency, reducing costs, collecting revenue on time and delivering a better resident experience.
Payments surface this opportunity. When digital payments work well, they reduce administrative burden, improve data accuracy and create a seamless experience for residents. When they don’t, they quickly expose the limits of disconnected systems and damage resident trust.
The next phase of modernization is not just about adding more digital services. It’s about making those services work together across systems, departments and channels. For government leaders, the path to greater outcomes is clear: design for customer experience, insist on vendor integration, consolidate payments into a single experience and build the operational infrastructure needed to support these evolving digital services.
