The migration to the ISO 20022 messaging standard for Fedwire is fast approaching, and the industry is grappling with progress and setbacks as it works to meet the March 2025 deadline. A new report from Datos Insights provides an in-depth look at the current state of readiness among financial institutions (FIs) and vendors. The Federal Reserve maintains that the migration is on track overall, but the report uncovers some concerning trends that warrant close attention in the coming months.
FIs and Vendors Have Missed Critical Testing Deadlines
Despite the Fed’s optimism, as of August 31, 2024, the Readiness Portal shows that many FIs and vendors have fallen behind on Depository Institution Testing (DIT2) certification testing. This puts a sizable portion of Fedwire participants “at risk” of missing the end-of-year testing target.
FI Confidence Is Cautious
Despite the missed milestones, FIs remain cautiously optimistic about meeting the final March 2025 deadline. Of the FIs surveyed, 86% said they were on track, but they expressed concerns about their preparedness and the timely delivery of vendor software updates. Many FIs are wondering whether the Fed will ultimately need to extend the migration timeline.
Vendor Readiness Is Mixed
There is a varied state of readiness among vendors providing Fedwire and Swift ISO 20022 upgrades. Some have delivered most of the necessary software, but others are still working to get updates out by the end of 2024 or early 2025. This mismatch in vendor delivery timelines and FI preparedness creates potential risks for the migration’s overall success. Vendors also have concerns about the industry’s readiness, feeling that the Fed’s timeline may be too aggressive.
Test Plans Vary Widely
FIs have taken different approaches to testing, with some focusing solely on internal payment system changes and others attempting more comprehensive end-to-end payment ecosystem testing. This variance is partly due to the Fed’s lack of specific industry-wide testing requirements. Some FIs believe their internal test plans are insufficient and that the lack of industry-wide testing requirements from the Fed is a source of concern.
Value-Added Services Are on the Horizon
Despite the migration headaches, FIs are optimistic about the long-term benefits of ISO 20022. By leveraging the richer data and interoperability enabled by ISO 20022, FIs believe they can offer a range of innovative services that will improve the customer experience and drive greater efficiency. Those that can successfully navigate the complexities of the migration will be well-positioned to differentiate themselves in the market.
The Road Ahead
The road ahead will not be easy, but the industry is committed to crossing the finish line. FIs and vendors must redouble their efforts in the coming months to ensure a smooth transition. Those that can successfully navigate the challenges will not only meet regulatory requirements but also unlock new opportunities to enhance their payments capabilities and deliver the innovative services their customers demand.
To view the survey results and insights on Fedwire migration readiness and ISO 20022 adoption, see Datos Insights’ report, Fedwire Migration and ISO 20022 Readiness Updates, November 2024.
