Fedwire’s Move to ISO 20022: What It Means for Your Business

Author: Michael Salerno, Vice President, International Banking

If your business sends or receives electronic payments, you need to understand the Fedwire Funds Service change to ISO 20022 messaging standards. The move, set to take place in July 2025, will ultimately improve payments efficiency. However, moving to the new standard could require a transition period for many businesses that are unprepared for the migration.

What Is ISO 20022?

To understand the move to ISO 20022 messaging standards and how it may impact your business, a short primer is in order.

ISO 20022 is a global financial messaging standard that enables richer, more structured and standardized data for electronic payments. It enhances interoperability across financial systems, improves payment processing efficiency and supports compliance by providing detailed transaction information.

Fedwire, operated by the Federal Reserve, is a real-time gross settlement (RTGS) system that processes large-value payments between banks and financial institutions in the United States, primarily mission-critical transactions that need to process quickly. They are usually settled within minutes and have finality in payment without recourse.

Over two million transfers were initiated through the Fedwire Funds Service in 2024, an 8.5% increase in volume over the previous year. It’s not a surprising statistic in light of overall demand for faster payments. FedNow and RTP, instant payment alternatives to FedWire, already use the ISO 20022 format and, according to a Federal Reserve Financial Services study, 86% of businesses used faster or instant payments in 2023, the last time the survey was conducted.

Seeking greater efficiency and global compatibility to support an increasing payment volume, Fedwire will migrate to ISO 20022 for sending and receiving payments in July of 2025.

Why Is Fedwire Migrating to ISO 20022?

Exploring some of the deficiencies with legacy payment messaging systems will help explain the reasons behind the Fedwire migration to ISO 20022.

First up are character messaging limits. With limited space available, important payment details are often truncated or lost. This deficiency makes it difficult to reconcile payments on the business end and can lead to disputes, due to unclear information.

In contrast, ISO 20022 provides more data fields with detailed categories. These enhancements allow banks and businesses to include additional relevant information for moving the payment along, such as details about the sender, receiver or any intermediaries, as well as a reason for the payment.

Enhanced data richness reduces ambiguity, allowing the payment to travel faster across payment rails. Richer data also supports reconciliation, making it possible to link invoices directly to payments and to receive clearer confirmation messages.

The Impact for Businesses

To provide greater clarity about each payment, ISO 20022 uses structured data. In short, that means data is standardized into a consistent format that is easier for computers and humans to read and understand.

What it means for business finance executives and banks alike, is a restructuring of payment and treasury systems. With ISO 20022, information is organized into defined elements. Since this approach contrasts with the often free-form data structure prevalent across legacy systems, data entry and processing methods will need to be updated to the new structured formats.

Some businesses integrate treasury with other finance systems, such as the general ledger or accounting software. As a result, necessary data management updates will also trickle down these affected processes and systems.

However, many businesses aren’t aware of the lift required for the updates. Time, money and energy will need to be invested, but the effort will be worth the investment.

Benefits of Fedwire’s Move to ISO 20022

Despite the short-term disruption to business treasury and financial applications, Fedwire’s move to ISO 20022 should deliver long-term benefits and positive impacts.

• Faster Payment Processing and Reduced Reconciliation Effort: The detailed remittance information associated with ISO 20022 facilitates automated processing, reducing the need for manual intervention to streamline reconciliation. The data rich formats associated with ISO 20022 also eliminate the need for multiple format translations, resulting in faster processing times.
• Improved Payments Efficiency and Lower Costs: Over 55% of businesses report higher costs due to failed payments, citing increased staff workload to resolve the issue and loss of customer trust as critical factors. ISO 20022 structured data reduces the number of false declines, helping businesses manage payments more cost effectively.
• Improved Compliance: By Swift estimations, 10% of international payments alone are stopped along their journey for compliance checks, most of which turn out to be false positives. ISO 20022 includes regulatory reporting data within payments messages, facilitating compliance to reduce payment hold-ups.
• Improved Cash Flow Management: Given the high-level details ISO 20022 provides with each payment, businesses can track and report cash flows more efficiently, supporting stronger forecasting and liquidity planning with reduced effort.

To capitalize on the benefits afforded by Fedwire’s change to ISO 20022, your business may need to update systems and processes now to ensure compatibility with structured data. Initiating frank talks with software providers to assess their readiness is critical first step. You can also speak with your banker if you need more information on how the change will impact you.

The FNBO Global Banking team is here to support your international transactions now and once ISO 20022 is in place. Contact our team today to learn more.

About the Author

Michael Salerno joined the bank in 2002 and currently leads the Global Banking team, which includes business development, international payments, foreign exchange management and trade finance solutions for corporate and correspondent banking customers. International issues can present challenges for organizations, and Michael enjoys creating simple and transparent solutions that reduce the complexity of doing business internationally.