A new message format that could potentially provide “richer payment message data” than the current format used by the Fedwire Funds Service is being proposed by the Federal Reserve.
Under the proposal, the change would be made in three phases over the next five years (with completion targeted for 2023).
In a request for comments over 60 days (published Thursday in the Federal Register; comments due Sept. 4), the central bank describes its Fedwire Funds Service as a real-time gross settlement system owned and operated by the Federal Reserve Banks. The service, the Fed said, enables participants to make final payments using their balances held at reserve banks or intraday credit provided by the reserve banks.
The current message system uses a proprietary message format that supports multiple types of communications, the Fed said in its comment request notice. That includes “value” messages that order the movement of funds and “nonvalue” messages that do not result in the movement of funds but rather communicate information or requests to other participants.
The service also includes messages that enable Fedwire participants to request account balance information and the processing status of payment orders.
The Fed is proposing changing Fedwire messaging to the International Organization for Standardization’s (ISO) standard 20022 (ISO 20022). The standard, the Fed said, includes a suite of messages for the financial industry, including messages for payments, securities, trade services, cards, and foreign exchange. Messages issued under the standard use extensible markup language (XML) syntax and have a common data dictionary that can support end-to-end payment message flow, including payment initiation (i.e., customer to bank messages), interbank settlement (i.e., bank to bank messages), and cash management (i.e., bank to customer messages), the Fed said.
“ISO 20022 messages include structured data elements that provide for potentially richer payment message data than the current Fedwire Funds Service message format,” the Fed stated. “For example, ISO 20022 messages contain fields for three intermediary financial institutions while the current Fedwire Funds message format contains a field for only one intermediary financial institution. Similarly, ISO 20022 messages can include more structured and detailed information than the current Fedwire Funds message format.”
The Fed notice pointed out that it has been considering the changeover to ISO 20022 since at least 2012 and has been working with individual groups and the public on the project. For example, the Fed stated, the reserve banks and The Clearing House Payments Company, L.L.C. (TCH) conducted a survey in 2015 of more than 2,300 Fedwire Funds Service customers, Fedwire and CHIPS advisory group banks, vendors, and industry groups on the potential scope, approach, and timing of ISO 20022 implementation.
The Fed is also proposing a timeline for adopting the standard, as outlined in the comment request. Under the timeline, the Fed envisions three phases:
- Phase 1: ISO 20022 preparation (target implementation date of Nov. 23, 2020).
- Phase 2: ISO 20022 “like-for-like” implementation (target implementation period from March 2022 to August 2023; “like-for-like” refers to the transmission and receipt of ISO 20022 messages that have elements and character lengths that are comparable to the current Fedwire Funds Service message format).
- Phase 3: ISO Enhancements and full implementation (target implementation date of November 2023).
According to the Fed, last year the Fedwire service processed 152.6 million payments with a total value of approximately $740 trillion. (The Fed noted that the other dominant player in the payments market, the “CHIPS” funds-transfer system, owned and operated by TCH, processed 112.6 million payments with a total value of approximately $393 trillion.)