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

CHIPS - Clearing House Interbank Payment System
  • 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

Fedwire Funds - owned and operated by the Federal Reserve
  • 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

SWIFT - International Payments - Society for Worldwide Interbank Financial Telecommunications
  • 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