All about

US Wires

A wire transfer is a method of transmitting money electronically between people or businesses in which no physical money is exchanged. The sender is the one who provides all the instructions for the transfer, which may include the recipient’s name, bank, account number, amount, and sometimes a pickup location.

At a glance

01

Wire Payments are the heart of many banking institutions.  Wire payments cover high value payments – also known as wholesale payments but also support end user payments (like your home down payment etc).

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Wire payments are real time and the money is settled between the financial institutions in real time.

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Wire payments are irrevocable which means they cannot be taken back. If a wire was done accidentally, the receiver of the funds would need to initiate a return payment and send the money back.

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Wire payments in the US can clear and settle through two operators.  The Federal Reserves Fedwire Funds service, or the Clearing house’s CHIP service.  

The difference between the two schemes

FedWire

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The Fedwire service utilizes master accounts at the federal reserve.

CHIPS

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The clearing house chip service utilizes a joint account at the federal reserve where funds are moved in and out at the start and close of the Fedwire cycle date.  This allows the clearing house to net the amounts during the day saving the banks fees and ensuring efficient liquidity management throughout the day.

Banks may choose to send a wire over Fedwire or Chips based on business decisions, like if the receiver is on the network (Chips has around 46 or so participants while Fedwire has thousands) and other requirements for liquidity/netting and such.

The payment landscape

The Wire payment landscape is going through a significant change with the migration to ISO 20022 from the current proprietary formats.

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The CHIPS migration to ISO is November 2023.

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The Fedwire migration to ISO is currently planned for May 2025.

How wire transfers work

01

A bank initiates a payment to another bank.

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The bank sends the payment to Fedwire via Form3.

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Fedwire validates the receiver, the funds and other things and then settles the wire.  By debiting the sender and crediting the receivers master accounts at the federal reserve.

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Fedwire then sends an acknowledgement to the sender that the funds have moved and an advice to the receiver that they received funds.

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