The Fedwire Funds Service, which moves trillions of dollars around the world daily, completed its first full day on a new international standard Monday without any major reported snafus.
The Federal Reserve payments system, which handles about $4.7 trillion in payments daily, began shifting late Sunday to the new ISO 20022 standard. While a spokesperson for the Fed declined to comment, banks and consultants reported a relatively smooth transition.
“It was (a) seamless upgrade for us,” Finzly CEO Booshan Rengachari said in a LinkedIn message. “Largely, I heard most of the banks swam through,” said Rengachari, whose firm advised financial institutions on upgrading for the new messaging format.
While most major banks upgraded their systems with internal resources to adapt to the new standard, many smaller banks relied on outside vendors to help them get ready for the change.
There was similar feedback from the Independent Community Bankers of America, which represents U.S. community and regional banks. Those smaller financial institutions got a boost from their recent experiences in adopting the Fed’s real-time payments system FedNow since its launch two years ago. Banks have also gradually adopted that new service.
“Based on our discussions with the Federal Reserve and our own member feedback, the Fedwire Funds Service transition to ISO 20022 appears to have gone smoothly, with no issues reported as of Monday evening,” ICBA Senior Vice President Lance Noggle said by email. “This isn’t the first time community banks have encountered ISO 20022 — it’s also the format used by FedNow — so many were already familiar with the standard and well-prepared for the shift.”
The new ISO format is designed to let banks pass more data with each transaction and to enhance other capabilities, such as their fraud-fighting capacity. In addition, the new standard allows for better communication between bank systems worldwide, with particular benefits for cross-border transactions.
The Geneva-based International Organization for Standardization gave the world the ISO 20022 standard over two decades ago to encourage financial institutions around the world to embrace a more modern messaging system. Some 70 countries have already adopted the standard that provides operational efficiencies, more data-sharing and less outdated batch-processing.
The Federal Reserve began Fedwire’s migration to the new ISO standard over the weekend, with the central bank’s former Fedwire Application Interface Manual (FAIM) version operating for the last time on Friday.
“After the Fedwire Funds Service closes at 7 p.m. ET, the current format will no longer work and any FAIM-formatted messages you send will not be accepted and will be deleted during the migration weekend,” the Fed had said in one of many website posts that helped prepare the nation’s banks for the change.
U.S. banks have had years to prepare for the central bank’s shifting of Fedwire to the new standard, with the Fed issuing its first request for feedback on the new standard in 2018. At that time, it proposed that the transition occur in three phases between 2020 and 2023.
Eventually, the central bank had to delay that timing to 2025, and this year it postponed a prior March implementation date, likely because some U.S. banks weren’t prepared for the migration.
The new ISO format is designed to let banks pass more data with each transaction and to enhance other capabilities, such as their fraud-fighting capacity. In addition, the new standard allows for better communication between bank systems worldwide, with particular benefits for cross-border transactions.
Rengachari, whose firm is based in Charlotte, North Carolina, noted that for some banks there may be some overlap between the old and new systems for a while, creating inefficiencies. “Some banks are now dealing with two systems – one with old format and another that translates it, and it has created complexity for them,” he said.
The new ISO standard allows for links to other payments systems run by different organizations, such as the Belgium-based international cooperative Swift. That organization, which is a messaging system for global payments, has allowed users a more gradual conversion to the ISO standard, but is also moving toward a November 22 deadline to complete that transition.
