Wire

A wire transfer is an electronic payment service for transferring funds “by wire” through either the CHIPS, FedWire, or SWIFT payment systems.

Wires most commonly used for high dollar value - low volume type transactions
Wires can only be used between banks
Available only during non-holiday weekdays and during business hours
Transactions are not reversible
Cannot be used to request funds
High sending fees (chase pays $.15 per wire, but charges $25-45 per outgoing wire), $15 to receive..additional fees for non-USD wire, failed wires, etc…
Fees make it impractical for small transfers, individuals can send up to $100K
Used in payment clearing & settlement

Fedwire & CHIPS used for large value domestic & international USD payments

Operated by The Clearing House (TCH) - a banking association and payments company that is owned by the largest commercial banks.
Private sector counterpart to Fedwire
- Note: UK equivalent to Fedwire is called CHAPS and is operated by the Bank of England
Organized in the 70’s
Only available to ~50 member banks - by the banks that use it
Primary clearing house in the US for large banking transactions
It is a Deferred Net Settlement (DNS) system
Subject to supervision and examination by the Federal Reserve and other federal bank supervisory agencies
CHIPS is designated as systemically important by FSOC- under Title VIII of the DFA (Dodd-Frank Act)
Generally used for large-value interbank funds transfers
- Settles roughly $1.8T every day in domestic & international payments
Cheapest wire service & therefore the default choice for banks
Slower but less expensive than Fedwire => is not a real-time system
Funds are generally settled intraday => so available next day
Funds are netted against debits & credits across all transactions at the end of the day
Operating hours are 9AM - 6PM Eastern

Clearing - transfer & confirmation of information between the sending financial institution and the receiving financial institution.

Settlement - the actual transfer of funds between sender & receiver

Used by US banks, credit unions, government agencies & the federal reserve
- Service users must be account holders at a Federal Reserve Bank - subject to terms and conditions specified in Operating Circular 6 and the PSR policy
It is a real-time gross settlement (RTGS) system - more expensive than CHIPS, but provides immediate settlement on individual transactions
- Puts more pressure on banks to insure they have sufficient liquidity available to settle
- A credit transfer system - a debit entry is made to an originator’s account and credited to the receiver’s account
Most widely used wire transfer system in the US => May 2021 => 16 million transfers totalling $75.6 trillion
System is closed during the weekends & federal holidays => operating hours
ISO 20022 - Federal Reserve info
- Migrating to ISO 20022 messaging format no earlier than November 2023

Formed in 1973 & Based in Belgium => Created by a consortium of 239 banks to faciliate cross-border payments
- Today - SWIFT connects more than 11K FI’s across 200+ countries
Analogous to a simple email system enabling secure messages across it’s members
- Averages 40million messages/day that include orders, payment confirmations, FX exchanges and trades
Uses standardized MT (message type) messages
Looking to fully migrate to ISO 20022 by 2025
Plans to test Tokenization in 2022, with participation from Clearstream, Northern Trust, SETL
Wires typically take 2-3 days
cutting off a nation’s banks from swift access restricts flows into and out of that nation => this can result in real economic pain