Last week should have marked the first full week of FedWire running on the new ISO 20022 format, with go live date of March 10th. However, to absolutely nobodies surprise, on February 13th, Federal Reserve Financial Services (FRFS) announced that the launch would move back to July 14th.
We had been predicting that this was in danger of happening for over a year.
To be clear, this was not meant as a criticism, but a reflection of the simple fact that this is one of the largest migrations in US payments history, with many banks running systems decades old. Few organisations ever do such a large and critical project. It also relies on the vendors to be ready. For some, the ISO format is something they have deep experience in; for domestic Wire vendors it was likely a steep learning curve. For both, figuring how to migrate clients to the new platform was, and remains, a challenge.
It’s also easy to have the benefit of hindsight as well. Many aspects perhaps could have been done better, but equally it’s difficult to know what, if any, impact they would have had. Better communication may have helped, as even as discussions at Nacha in May 2024 suggested not all banks were convinced it would happen and/or were aware. Equally, greater levels of communication doesn’t always mean that people will listen!
So why the delay?
We assume in two key areas.
First, the volume of participants being ready. Here, there will need to be a trade-off. For banks who submit above a certain volume of transactions, it’s imperative that they are ready. Picking through the FAQs, it’s clear that not all were. The underlying data here. This should be fixable. Realistically, while over 4,000 banks have to migrate, only small number will qualify for "have to", and likely in the low hundreds. As I've discussed many times before, the 1% rule of payments likely applies - in most markets 1% of banks account for 60-80% of payment volumes.
Yet equally there is a very long tail in terms of lower average volumes – at some point, a call will have to be made about being ready enough. Waiting for every single bank isn't possible. My first hand knowledge of other similar migrations shows that not every bank will ever migrate.
The other part is something we have spoken about at length and detail, for years. ISO readiness isn’t just about your payments engine, but anything and everything that touches that message. It’s very telling that the announcement explicitly said (my emphasis) “Urgently review your entire wire ecosystem and ensure it is ready”. (Pdf here)
An observation is that some banks saw the testing as to whether they could send and receive the format, not that they could everything else up and down stream. That's a little like measuring whether your new car will fit under your existing garage door - but not measuring the width of the gateposts, the length of the garage, etc. The data has to generated somewhere, parsed somewhere, stored somewhere... It comes back to a common misconception that the migration was "just" a format and payment thing, and not part of a deeply embedded value chain that connects clients and banks, and bank systems to bank systems.
So will the July deadline happen? Put simply – it has to.
