Discover how Alkami supports financial institutions through this transition in digital banking solutions

The financial services industry is a vast and complex ecosystem that relies heavily on the seamless exchange of information in digital banking solutions between various stakeholders such as financial institutions, corporations, payment service providers and more. To facilitate this exchange, experts have developed ISO 20022, a global and open standard for information exchange that’s being widely adopted across different financial domains. This blog aims to demystify ISO 20022, explaining what it is, how it works, and why it matters, with a specific focus on the ISO 20022 FedWire Conversion. 

What is ISO 20022?

ISO 20022 is an international standard designed to provide a common platform for the development of financial messages including payment initiation, interbank settlement and cash management. It was prepared by ISO Technical Committee TC68 Financial Services and aims to address the need for a standardized approach to financial messaging. Key components of this include:

• Modeling Methodology: ISO 20022 uses a modeling methodology to capture financial business areas, business transactions, and associated message flows in a syntax-independent way. This means that the core business information and processes are described without being tied to a specific message format.
• Central Dictionary: A central dictionary of business items used in financial communications ensures that all participants in the value chain use consistent terminology and definitions.
• Design Rules: ISO 20022 provides a set of design rules to convert the message models into XML or ASN.1 schemas. XML and ASN.1 are both syntax formats that can be used depending on the preference of the implementation.

The FedWire Conversion to ISO 20022 in Digital Banking Solutions

What is FedWire?

FedWire is a real-time gross settlement funds transfer system operated by the Federal Reserve Bank. It enables financial institutions to electronically transfer funds between institutions using a secure and reliable network.

Why the Conversion?

The ISO 20022 FedWire conversion is a significant move aimed at enhancing the quality and interoperability of financial messaging in digital banking solutions. By adopting ISO 20022, FedWire will align with global messaging standards, facilitating more efficient cross-border payments and improving the quality of data exchanged in the financial system.

Benefits of the FedWire Conversion

Improved Data Quality

The conversion to ISO 20022 will ensure higher quality data exchange within the FedWire system, supporting better decision-making and enhancing compliance with regulatory requirements. Learn more about the Strategies for Improving the U.S. Payment System.

Enhanced Efficiency

ISO 20022 enables more efficient processing of financial transactions by providing a common business language and standardized message formats. This leads to faster processing times and reduced errors. 

Greater Interoperability

By adopting ISO 20022, FedWire will align with global messaging standards, facilitating seamless cross-border transactions and enhancing interoperability with other financial systems worldwide.

ISO 20022 represents a significant advancement in the standardization of financial messaging. For FedWire, the conversion to this global standard is a crucial step towards enhancing data quality, efficiency, and interoperability in the financial system. As the financial community continues to adopt ISO 20022, it is poised to become the backbone of modern financial messaging, supporting a more interconnected and resilient financial ecosystem. 

Alkami’s Plan for ISO 20022 in Digital Banking Solutions

With the move to the ISO 20022 standard, Alkami is well-prepared to support our customers through the transition in our digital banking platform. Here’s a breakdown of Alkami’s development progress, testing plan, and the upcoming cutover to the new wire format for FedWire.

Development Status

Alkami has already completed the necessary development work in our digital banking platform to ensure full compliance with ISO 20022 format requirements. This includes support for all ways in which our clients use the Alkami platform to originate wires, whether through manual file uploads or automatic file delivery. Additionally, Alkami has integrated with popular systems like Fiserv’s Payments Exchange and Jack Henry’s DirectLine API, ensuring seamless compatibility across different wire origination methods. 

Testing Plan

A number of financial institutions have volunteered to participate in the testing phase for the ISO 20022 format. These tests, scheduled to begin in Q4 of 2024, will be conducted within the DIT2 environments of the participating organizations using FedWire. It’s important to note that testing is currently only available for manually downloading files and uploading them to their DIT2 environment – testing for the Payments Exchange or DirectLine integrations is not yet supported.

Cutover Date Transition

The official cutover to ISO 20022 format for FedWire is scheduled for March 10, 2025, and Alkami is ready to support clients through this transition. After this date, all clients using Retail or Business Wires in Alkami’s digital banking solutions will receive ISO 20022-formatted files, regardless of whether they manually download files or automatically receive them for processing. Institutions using Payments Exchange or DirectLine will also see these changes implemented in their integrations in time for the cutover, ensuring a smooth transition to the new format.

Alkami’s proactive approach ensures that our customers will be fully equipped to handle the new ISO 20022 standard when the transition occurs in our digital banking solutions. 

If your institution is ready to test the ISO 20022 format or needs assistance preparing for the March 2025 transition, reach out to your Customer Success Manager or request a demo today.