Has Your Board Discussed Your Wire-Transfer Strategy

I had the opportunity to participate in a conference keynote panel discussion with two industry experts I highly respect and enjoy disagreeing with at times. At one point in the conversation, a panelist asked, "If we could get rid of one payment system in the US, which one would you choose?" I responded, "I think we all agree it should be check, right?" Most of the audience raised their hands and nodded. But the other panelist answered, "I disagree! It should be wires." While neither check nor wires are making their exit soon, he had some good points for strategy deliberations.

On June 27, 2022, the Board of Governors of the Federal Reserve System announced in a Federal Register notice that the Federal Reserve Banks will adopt the ISO 20022 message format for the Fedwire Funds Service in a single-day implementation strategy on March 10, 2025. The Federal Reserve Banks will sunset the existing proprietary Fedwire Application Interface Manual (FAIM) format and replace all FAIM messages with ISO 20022 messages. With this implementation now less than a year away, many wonder how many financial institutions are ready to fully support these changes, especially in consideration of business continuity at the end-user/customer level.

For modern payments, including wires, the ISO 20022 standard is table stakes for financial institutions and payment processors alike. Most payment rails and global market infrastructures are moving to ISO 20022 messaging standards. ISO 20022 has been live on the SWIFT cross-border network since March 2023. Leveraging this global standard for financial transactions and payments enhances affordability, speed, and data. ISO 20022 can promote use of application programming interfaces for seamless integration and communications between parties and applications. There are also revenue drivers tied to ISO opportunities.

But migrations like these require costly investments in legacy payment systems to get them up to speed. Preparing a financial institution's wire systems for ISO 20022 calls for an inventory and upgrade of the systems that support wire operations.

These systems include:

• Direct
  • Cash management systems/Treasury operations
  • Compliance screening (OFAC/AML)
• Downstream
  • Research/analytics
  • Accounting/billing
  • Legal/regulatory reporting
• Upstream
  • Enterprise resource-planning systems
  • Client-facing systems (online banking/mobile payments)
  • Fraud monitoring

To complicate wire-transfer strategy deliberations, financial institutions may be contemplating instant payment systems. Most boards have been talking about their instant payment strategy now that FedNow and RTP (from "real-time payments") are available and ready to reach more end points in the United States. In this regard, not only are instant payments competing for investment dollars but also they are competing for the business use case typical for wires, allowing a switch to a more cost-efficient and already-ISO-20022-enabled payment rail. In my opinion, the greatest opportunity for instant payment adoption is in current wire use cases.

However you adapt your wire strategy for ISO 20022 and new instant payment rails, below are some resources to support your journey.

• FedWire Funds Service ISO 20022 Implementation Center has educational opportunities, testing requirements, key milestones, a preparedness dashboard, and checklists.
• NACHA's ISO 20022 Resource Center has a mapping guide for ACH payments, Introduction to ISO 20022 for U.S. Financial Institutions, a proof of concept, and other educational materials.
• The International Standards Organization ISO 20022 Registration Authority has extensive catalogues of tech specs, data dictionaries, governance guidelines, infographics, and API development resources.
• SWIFT's ISO 20022 for Dummies includes the chapter "Ten Reasons to Adopt ISO 20022," summarizes messaging standards, and contains links for implementers.