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  • Writer's pictureRoy Urrico

Finastra Expert Provides ISO 20022 Primer as Fedwire Deadline Approaches

By Roy Urrico


The clock is ticking for credit unions and other U.S.-based financial institutions (FIs) to test and adopt the Federal Reserve’s ISO 20022 payment standard for Fedwire. FIs must complete testing of the new messaging format by the end of 2024 and prepare for its single-day implementation on March 10, 2025.


Mihail Duta, director, global solution consulting, payments for Finastra.

"Credit unions and FIs should also think about the benefits that ISO 20022 will bring them. It is a rich format that provides a lot more details for payments,” said Mihail Duta, director, global solution consulting, payments for Finastra. Duta in an interview with Finopotamus provided an overview of ISO 20022 and how the approaching deadlines will impact credit unions and other U.S. based financial institutions.


“That richness of data can be leveraged in learning more about our customers (and) learning more about their behavior when it comes to payment processing and basically serving them better,” added Duta. “ISO 20022 is not just a mandatory change, which of course it is, but it is also an opportunity to really provide better service to our customers, to our members, when it comes to payment processing. Also keep in mind it is an international standard that is already used in other geographies in many other countries.”


To comply with ISO 20022 standards, financial institutions must select payment processors capable of supporting the new ISO standard.


“We are certified with all of our payment solutions from an ISO perspective,” said Duta. Finastra, a global provider of open financial platforms, software applications and marketplaces, announced recently that it completed testing and certification for ISO 20022 for four of its solutions: Payments To Go, Global PAYplus, PAYplus USA, and PAYplus Connect.


The Deadline Approaches


The go-live for the new ISO 20022 format to replace the Fedwire Application Interface Manual (aka FAIM) format is March 10, 2025. “On that Monday next year, basically every single financial institution and credit union processing Fedwires will have to process Fedwires in the ISO 2022 format.”


Duta explained there is a lot of work that needs to happen between now and then, both from the providers, like Finastra, as well as the credit unions and other FIs.


All providers, such as Finastra, had to be certified by the end of April, 2024, with the new ISO 20022 format, pointed out Duta. “We actually worked very closely with the Federal Reserve from the very beginning when this process started.” He added, “This helps our customers and any other credit unions and FIs in the market looking for a partner, gives the confidence that Finastra is a reliable partner and we are fully prepared for the ISO 20022 upcoming changes.”


Next Steps for Credit Unions


What are the next steps for a credit union or bank to complete ISO 20022 testing?


“Basically, they need to be on the right version of the software. Moving from the existing Fedwire format it is not an insignificant change,” Duta noted. “The format structure is very, very different. So that requires an upgrade. Then of course, they have to deploy this this solution first in a UAT (User Acceptance Testing) environment.”


To be fully compliant, however, that is just the beginning. “They'll have to test the ISO-formatted messages between themselves and the Fed using our solution, or any solution for that matter, that's ready for ISO 20022,” said Duta. He added that the Federal Reserve created a dedicated testing environment, Depository Institution Testing (DIT2) for financial institutions to run through a series of predefined tests for ISO 2022.


FIs also have to make sure the existing format works. “Financial institutions cannot wait until March 10 (2025) to make that upgrade. They are going to make their upgrade to production as soon as they are ready, which means that they will still have to process messages in the current format between now and March 7, 2025. So that implies that will continue to process in the current format until March 7th, at which point they will switch the ISO 20022 format.”


One More Thing…Not so Fast


Duta provided some cautionary guidance. “So that Friday (March 7, 2025) before the switch to ISO 20022. Make sure that you are keeping your Fed connection until the Federal Reserve closes at 7:00 p.m. Many credit unions and the smaller FIs tend to close early, let us say 5:00 p.m. Then they handle any transactions coming after they close their Fed connection as late day wires. That is not something that is recommended, certainly on that weekend, because you do not want to be switching to an ISO format and still have in-queue messages in the old format waiting to come in.”


Duta also suggested credit unions think about future validated payments. “Depending on the solution that you use, make sure that all your future validated payments that are dated March 10th and beyond are in ISO (20022) format. You do not want to try and send an old formatted message.”


Some other elements credit unions should consider, noted Duta, include connections to compliance and fraud solutions. “In particular, make sure that those connections are capable of handling ISO messages.”

 

No Backup Plan


“In the unexpected scenario where, let us say, a credit union or a financial institution is not ready, the only option is really to switch to FedLine Advantage, which is a product that the Federal Reserve offers,” said Duta. “Let us be clear; it is an absolute last resort. I certainly hope no credit union or financial institution in general has to rely on FedLine Advantage unless that is their main way of processing Fedwire payments.”


Otherwise, FIs should not expect a lifeline. “The Federal Reserve was very clear. There is no rollback option. So, there is no option that the Fed is considering where if something were to go wrong, then we switch back to the old format. As of right now, there is no such option. It is all full steam ahead, that is why it is very important that credit unions, financial institutions, if they have not already started the process, they should certainly start now.”

 

Finastra’s Role

 

Finastra as a provider of financial software applications and marketplaces, services more than 8,000 institutions, including 45 of the world’s top 50 banks. ISO 20022 allows FIs to communicate with market infrastructures and customers using a common language. The standard was introduced in 2004 to provide a platform for sending and exchanging payment messages. Adoption of ISO 20022 will align the Federal Reserve’s Fedwire Funds Service message format with a global standard.


Duta also clarified what Finastra does in relation to the ISO 20022. “We connect to the FedLine Direct service provided by the Federal Reserve. This is not a credit card rail to be clear. This is what we call wholesale payment. It is also known as Fedwire payments, which is where the ISO effort or an initiative from the Federal Reserve comes in.”


According to Finastra, its ISO 20022-native payment solutions support compliance and enable financial institutions to boost payment processing automation, improve fraud risk management, operational efficiencies, and customer experience.

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