Modernize or miss out? Wire automation upgrades get a compliance nudge

A version of this article first appeared in the July BAI Executive Report: Modernizing payment methods. Find more insight within the issue on topics including consumer payment preferences, FedNow and RTP, check fraud and more.

Wire modernization is critical for financial institutions as they adapt to regulatory changes and technological advancements. The Federal Reserve has said that the U.S. needs to join the money-transfer messaging and data standards adopted in much of the world—standards that make it possible for financial systems to communicate with one another regardless of smartphone or ATM type.

For banks and credit unions, next year’s U.S. deadline for the Geneva-based International Organization for Standardization (ISO) to launch its ISO 20022 means the work to comply needs to begin early.

The upcoming ISO 20022 deadline, set for March 10, 2025, necessitates that institutions upgrade their wire transfer systems to:

• Provide richer data
• Promote domestic and cross-border interoperability
• Provide opportunities to improve existing processes or add new services
• Keep U.S. payment systems on pace with the rest of the world

The Fed will adopt the new format in a single-day implementation and replace all Fedwire Application Interface Manual (FAIM) messages with ISO 20222 messages.

ISO 20022 offers a robust data model that allows for significant transaction information, better compliance checks, enhanced fraud prevention capabilities and improved customer service through detailed transaction metadata. A modern funds wire solution can assist banks and credit unions with preparation for the Fedwire migration in 2025.

Modernizing wire systems also involves integrating new technologies and automating processes such as wire verification and exception management, which Alacriti estimates can save banks up to 50% in handling time per transaction. This modernization not only ensures compliance, but also streamlines operations, minimizes errors and positions institutions to offer faster, safer and more cost-effective services to their clients, thereby enhancing overall operational efficiency and customer experience.

Alacriti’s Kristen Jason, director of product marketing, speaks with Neeraj Gupta, SVP of product management at the company, to discuss the modernization of wire transfers and the importance of ISO 20022 compliance.

Kristen Jason: Let’s dive right in. With the ISO 20022 compliance deadline approaching in March 2025, what are your thoughts on transitioning to this new standard?

Neeraj Gupta: This is a significant transition for financial institutions. The deadline is firm, and the Federal Reserve has mandated that all participating financial institutions and their vendors communicate using ISO 20022 standards by March 10, 2025. This change promises to streamline processes, enhance data robustness and improve interoperability across global financial services.

It is also an opportunity to evaluate the issues plaguing our current wire transactions, including cumbersome processes for managing exceptions, document handling and the negative impact on user experiences. Further, it allows us to assess the amount of manual, error-prone, repetitive work associated with wire transactions and explore how these processes can be improved.

Kristen Jason: For those who don’t know, can you please explain what exactly ISO 20022 is and why it’s so important?

Neeraj Gupta: ISO 20022 is a global standard for electronic messaging among financial institutions and other organizations across the financial services ecosystem. Unlike older, more free-form formats, it’s highly structured and robust, enabling stronger fraud detection, AML screening and overall data validation. This standardization is already used in over 70 countries and is forecast to be part of 80% of the clearing and settlement of high-value payments in 2025. Its adoption is crucial for maintaining the competitiveness and efficiency of U.S. payment systems.

Kristen Jason: You mentioned the automation opportunities modernizing legacy wire solutions can bring. Can you elaborate on how automation can enhance wire transfers?

Gupta: Absolutely. The ISO mandate is a terrific forcing function that will move wires to the new, far-improved standard and present institutions with an opportunity to reassess and modernize their current processes. Automating areas traditionally laden with manual intervention can eliminate inefficiencies, dramatically reduce operating costs and bolster customer experience. For instance, automating data entry for frequent users can save significant time.

Additionally, integrating digital banking channels with wire processing systems can eliminate the need for manual data entry, thereby reducing errors and operational overhead. Document management, automated review processes and efficient exception handling are other areas where automation can lead to substantial cost savings—we would say up to 50% in some cases.

Kristen Jason: That’s impressive. We conducted a poll during our American Banker–hosted webinar about the current state of ISO 20022 implementation. The results showed that 39.7% of institutions are in the planning stages, 33% are in progress, 3.2% are fully implemented and about 20% haven’t started yet. What do you make of these results?

Neeraj Gupta: These results are quite telling. It’s encouraging to see that a significant portion of institutions are already in the planning or progress stages. Given the complexity of the transition, a low percentage of fully implemented institutions is expected. The key takeaway here is the urgency for those who haven’t started yet to begin their planning and implementation processes immediately.

Kristen Jason: As we wrap up, what would you say are the critical steps for financial institutions to ensure they are ready for the ISO 20022 deadline?

Neeraj Gupta: First, assembling a cross-functional team that includes business, technology, finance and operations experts is crucial. Next, conducting a thorough inventory of current data flows and identifying areas that need updates to comply with ISO 20022, while also looking for ways to improve these data flows, is essential. Another critical step is working closely with vendors to develop a robust implementation and testing plan. Finally, having a contingency plan is vital to address any unforeseen issues that may arise during the transition.

Kristen Jason is Director of Product Marketing, and Neeraj Gupta is SVP of Product Management, at Alacriti.