The operators of the two U.S. wire transfer networks are preparing for tests next year on a format for including remittance details, a feature that users have long wanted but that goes beyond the capabilities of other widely used payments systems.

Executives praised the format, which will let corporate customers explain to a recipient the reason for the transaction. But they said that leapfrogging over the systems now in place will require users to upgrade their own payments technology before it could achieve its full potential, especially abroad.

"The U.S. moved way ahead on that, absolutely," said James Wills, a senior business executive with the international wire transfer provider Swift. "They're ahead of the curve, globally."

In May 2008 the Federal Reserve banks announced plans to upgrade their wire formats to include a 9,000-character data field that senders could use to include remittance details. The Federal Reserve Board and The Clearing House Payments Co. LLC are also developing a cover payment format that would make information about senders and receivers available to every bank that handles the payment, a capability that regulators demanded to curb money laundering and other illegal transactions.

The Fed plans to begin testing the cover payment system with banks and vendors March 23. Chips, the wire transfer unit of The Clearing House, will follow suit in June. Final testing for both systems is scheduled for the weekend of Nov. 21, and the cover payment format is expected to go live Nov. 23.

The Clearing House and the Fed expect to begin testing the remittance detail feature in the second quarter of next year, with a full rollout set for the fourth quarter. The two organizations shared their schedule this week at the Swift Operations Forum Americas Conference in New York.

Corporate customers have long wanted a way to include remittance details. However, Henry C. Farrar, the Clearing House senior vice president who oversees Chips, said many users are not ready to incorporate a 9,000-character data field into their payments applications. "When we went out and talked to all the central banks around the world, we found out we were a little bit ahead of the game," he said.

A key issue is standards. Much of the world is moving toward a format called ISO 20022; it is mandated, for example, in the Single Euro Payment Area for cross-border automated clearing house transactions in the euro zone.

In the United States, however, the electronic data interchange format called STP 820 is still widely used. And the new Fed wire format is technically neither, though it was designed to be compatible with both.

Lauren Hargraves, a senior vice president at the Federal Reserve Bank of New York and its wholesale product manager, said the Fed, Chips and Swift, formally the Society for Worldwide Interbank Financial Telecommunication, are trying to make the various payments formats more compatible.

One major goal is mapping the ISO 20022 data fields to the elements of STP 820, and the Fed and The Clearing House have even requested changes in the two standards so they align more closely, Hargraves said.

And though the Internet-friendly ISO 20022 standard is widely seen as the future of payments, that does not mean it is the standard now, she said.

When it comes to cross-border wires on Swift, she said, banks and corporate clients have said, "This is where we want to go, but maybe not right now."

As a result, Hargraves said, when the remittance detail feature does go live next year the Fed and Chips expect it will be used mainly for domestic payments at first.

For one thing, the new U.S. wire format has more capacity than the Swift format, making it difficult to include the full 9,000-character data field in an international wire.

Hargraves said the information in wires and international ACH payments will not be compatible anytime soon. Sepa payments include a 140-character field for remittance information, and so will the international ACH transaction, IAT, that the United States is to begin using this fall, she said.

Hargraves said that with most of the technical issues for the new wire transfer format settled, the next step is convincing payments executives to buy the software they will need to use it.

"At this point, we're spending a lot of time talking about the business part of this," she said.

Swift also introduced at the conference an ISO 20022-based cash reporting system for multinational corporations that need to track their liquidity with banks around the world.

"There's no such thing as end of day anymore in this context. When the day ends and when the day begins depends on what currencies you are working in," said Bryan Kirkpatrick, a vice president at Bank of New York Mellon Corp. and its senior product manager for Swift global client access.

The cash reporting system translates between the 20022 format and other standards, including EDI and the standard maintained by the Bank Administration Institute, a Chicago-based industry group focused on operational issues; that standard is widely used in the United States.

"Widespread adoption and support will be evolutionary and will take a long time," Kirkpatrick said in a presentation. "But Swift's effort to add value is money well spent."