An important payment network in the U.S. is getting a major upgrade next year, putting the onus on financial institutions now to begin work to ensure they’re ready.
On March 10, 2025, the Federal Reserve Banks will shift the language and format that its Fedwire Funds Service currently uses to the ISO 20022 standard. If they haven’t already, financial institutions should begin having conversations internally and with any external payment vendors about their migration plans.
Fedwire is a crucial part of the U.S. payments infrastructure that financial institutions use to rapidly move large sums of money, says Booshan Rengachari, the founder and CEO of Finzly, a payments infrastructure that works with financial institutions. It originated 15 million transfers in February, averaging 781,000 transfers a day, for a total monthly value of $89.7 trillion, according to the Fed. But the wire uses a proprietary messaging format that limits the amount of information that the payment can carry.
That’s in contrast to the ISO standard, which was developed nearly a decade ago and has slowly rolled out to payment networks and central banks worldwide. The standard offers greater interoperability among global payment systems and types of payments, and richer data that could improve anti-money laundering and sanctions screening, according to the Federal Reserve. The format offers more detail that customers will be able to use for billing and reconciliation, generating more information that financial institutions can capture about their customers’ payments.
U.S. banks may already have some experience with the ISO 20022 standard — and with migrating existing payment systems to it. The Clearing House Interbank Payments System, or CHIPS, migrated to ISO 20022 in early April; it released 555,345 payments for a value of $1.81 trillion on April 8, its first day of operations on the standard, according to a press release. The Clearing House’s Real Time Payments, or RTP, network was built using the standard, as was the Fed’s FedNow. The Federal Reserve was not available for comment by this article’s deadline but a spokesperson did point out that financial institution clients can access the Fed’s ISO 20022 Implementation Center and extensive frequently asked questions.
Financial institutions must ensure they or their vendor upgrade their systems on the March migration date or they will lose access to Fedwire. Smaller institutions likely already use a vendor to manage their payments. But even with a vendor, financial institutions still need to formulate a change management plan that includes the vendor’s migration efforts, says Sergio Aguilar, director of PayCenter at Jack Henry.
“Get familiar with the standard — not the details necessarily but at least understand the high-level flows of how this works,” Aguilar says, adding it’s important that financial institution executives understand ISO to make smart business decisions, keep themselves informed and hold their vendor accountable, even if they don’t need to understand the standard’s technical details.
These efforts and the vendor’s project timeline will help executives create a plan to prepare for the migration and make internal adjustments. Finzly’s Rengachari points out this should include financial crime compliance teams that may need to make subsequent changes to their systems to capture any relevant information now included in the ISO-formatted payment. Banks should also think about their ability to collect and evaluate ISO messaging data and how they will test and validate transactions. If a bank participated in the CHIPS migration, they should think about what they learned from that process and what they would change going forward. Aguilar says robust change management and detailed project timelines are especially important for Fedwire because of the major disruptions that could happen if a bank botches a customer’s wire.
The Fedwire migration is also an opportunity for financial institutions to revisit their broader payment capabilities. The ISO standard could be a boost to financial institutions’ risk management, data analytics and operations teams. Financial crime compliance and risk teams can leverage the standard’s formatting to detect patterns across different types of transactions, like Fedwire, RTP and FedNow. The standard makes it easier for financial institutions to connect payment data to areas like fraud detection and sanctions lists; they can also use its messaging to train fraud mitigation systems and create alerts.
As banks adopt the new ISO standard, Aguilar points out that operations and business intelligence teams can use the robust ISO messaging to inform their reporting and analytics capabilities and understand customer behavior and trends. And banks can use API connections to offer their commercial customers a better payments experience overall.
Banks may be using payment systems that are decades old and use legacy processes that won’t keep up as payments move faster. Rengachari argues that the ISO migration in the U.S. — especially on the established wire networks — is akin to “building the new roads” that the next generation of payments will move over.
“If you go back 40 to 50 years ago, there were not enough cars because you needed to build the infrastructure first to have that economy, and the ecosystem around the roads developed next,” he says. “ISO 20022 is this first step towards that real-time connected banking.
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