How the Fed is managing payments' 'new GPS'

Graeme Sloan/Bloomberg

The world's largest payment systems are updating the messaging that accompanies transactions, putting pressure on banks to decide how to update their processing systems.

Fedwire is the latest to move to the ISO 20022 standard, following FedNow and the RTP real-time processing networks, with Swift on deck for November. The ISO 20022 migrations have been years in the making and have included several delays. The standard involves complicated bank technology work that is necessary to compete in a world that increasingly involves data-heavy and risky real-time payments and digital cross-border transitions. 

"It's a global language for payments, so to speak, and when everyone is speaking the same language it's better," Mark Gould, chief payments executive for Federal Reserve Financial Services, told American Banker. "This is the biggest thing we have taken on in quite some time." 

ISO 20022's details

The Federal Reserve added ISO 20022 to its FedNow real-time processing system at launch in 2023, and migrated Fedwire on July 14. The Clearing House's RTP network also uses ISO 20022, and Swift's deadline is November 22. ISO 20022 standardizes the messaging in financial transactions in a way that increases the amount of information and with consistency. It's a key element in making different payment systems interoperable, a common challenge as usage of instant processing and other digital finance expands.

"ISO 20022 enables the payments and the information about the payments to flow together," Gould said, noting these two data sources traditionally exist in separate digital or paper documentation. 

Fedwire provides real-time gross settlement for payments between banks and financial companies. More than 2 million payments ran through the Fedwire funds service in 2024, a 8.5% increase over 2023.

ISO 20022 is better than traditional processing messages in several ways, according to the Fed. The updated standards have more data fields with more specific categories. This enables senders to include granular information about the parties involved in a payment, and the reason for the transaction. 

Read more about real-time payments. (Real-time payments | American Banker)

By adding more detailed data, reconciliation is easier because invoices can be included with payments. The data is also presented in a manner that is easier for people and computers to understand, the Fed said.

The Fed also acknowledges the work involved in the update, noting that ISO 20022 "contrasts" with free-form data found in older payment systems. Processing methods and data need to be updated and these changes may "trickle down" to integrations between general ledger and accounting software between financial institutions and business clients. 

Gould said he appreciated the work by banks to adopt ISO 20022, calling payments a "team sport." He also likened ISO 20022 to the improvements in driving navigation, where the addition of complexity also yields noticeable improvements.

"GPS used to be a box that got me from point a to point b, now it tells me where to get gas, where to find businesses …this is the same thing for moving payments from one area to another," Gould said. 

Pressure on banks

There is an impetus for banks to adopt ISO 20022. CapGemini's World Payments Report for 2025 found that only 6% of American banks have the "high business and technology readiness" to lead in instant payment adoption, which includes using the ISO 20022 standard. 

Capgemini argues ISO 20022 will "make it easier to identify suspicious patterns, flag anomalies, and improve transaction monitoring accuracy."

And as Fedwire aligns with global ISO 20022 standards already used in FedNow and Swift, U.S. banks can unify their compliance tools and processes across domestic and international rails, CapGemini said. 

The ISO 20022 migration has been a heavy lift for banks, and many will likely use a workaround for the time being, Deepak Gupta, global senior vice president at financial technology firm Volante, told American Banker. 

"All banks participating in the Fedwire funds service are technically compliant with the ISO 20022 mandate. After all, no financial institution wants to risk falling afoul of regulators. However, compliance and true modernization are not the same," Gupta said.

By converting legacy message formatting in and out of ISO 20022, banks can "check the compliance box" without fundamentally modernizing their payment infrastructure, he said. That can buy the banks time, but it does not position banks well for the future, because the workaround (which adds translation layers to a bank's technology stack) adds more systems to maintain and creates more points of potential failure, according to Gupta. 

"Translation isn't inherently wrong, but it is inherently limited. Likewise, replacing an entire wire system purely for ISO 20022 compliance may not be necessary for every bank right now. What forward-thinking institutions understand, however, is that more changes are coming," Gupta said. 

Bank trade groups have said smaller banks and credit unions may lack the resources to upgrade their payment systems to accommodate ISO 20022, leading some to outsource the work.  

At First Bank, "all in all this transition went very smoothly," Ramona Brown, senior vice president and director of deposit operations at the bank, said in an email. "[Bank tech firm Finzly] had training sessions which were very beneficial and also provided documentation. We tested, tested and tested." 

The $6.5 billion-asset bank, which operates in Missouri, Illinois and California, did a full upgrade of its payment system to support ISO 20022. Over a period of several months, it used test scripts to manage the additional information involved in ISO 20022, and met with the technology company to update the bank's payment system to accommodate the new standard. 

"These are 30- to 40-year-old systems that banks don't like to change," Finzly CEO Booshan Rengachari told American Banker, likening the disparate systems that banks have added to their core processors over the years to "spaghetti."