FedNow Goes Global: How Proposed Reg J Changes Could Enable Cross-Border Instant Payments

Episode Description

The Federal Reserve just proposed changes to Regulation J that would allow FedNow participants to designate intermediary banks — opening the door for cross-border payments over FedNow for the first time.

Joe Casali breaks down what the rule actually changes, how the domestic and international legs of a cross-border FedNow payment would work, and why this might be the moment ISO 20022 finally proves its value. He covers the competitive implications for Fedwire, the BSA/AML screening challenges of real-time international transactions within a 20-second timeout window, and what community banks and credit unions on FedNow should be thinking about right now.

The 60-day comment period begins April 10, 2026. If your institution has a perspective on this proposed rulemaking, now is the time to make your voice heard.

References: Federal Reserve Proposed Rulemaking — Docket No. R-1891, RIN 7100-AH23 | Regulation J, Subpart C — 12 CFR Part 210 | Submit comments at federalreserve.gov/apps/proposals | FedNow Operating Procedures v3.5 (February 2026)

Transcript

Wrestling Payments -  FedNow Goes Global: How Proposed Reg J Changes Could Enable Cross-Border Instant Payments, season 4, episode 3

Joe Casali (00:01.41)
For years, we've been told that this ISO 20022 thing is going to change everything. It's going to modernize payments. It's feature rich. It's data rich. And I've honestly had trouble really believing that. I think today that's going to change.

Joe Casali (00:27.138)
So today I'm going to introduce a new, again, another new model to wrestling payments. I'm sorry, I've been gone for a little while. We've had some technical issues and I think they're resolved now, but we'll see. And today I'm going to do a news style like presentation. And it's a really important topic. It's more than important. think it's, you know, it's one of those moments where you say to yourself that that's game changing.

be wrong. Love your opinions if you disagree. But today, I thought I would have breaking news and I waited a day and it's no longer breaking news. It's all over the place. We're going to talk about what the Federal Reserve just dropped. It's a proposed, one of the proposed rulemaking. They've got a 60 day release on a rule that they're planning to implement. And that rule is an adjustment to Reg J.

You may say to yourself, what are you talking about, Joe? I don't know what the adjustment to Reg J is. Well, part of Reg J was changed to allow FedNow to operate and settle. They're looking at changing it, and they're looking at changing it to designate intermediary banks, opening the door for cross-border payments over FedNow for the first time. Now, it is not going to be an international payment.

It will enable them. And I have a lot of notes here. I thought I could do a combination of weekend update and a real news report. Let's see how that goes. These are not minor tweaks. It's not a minor, we're going to increase the dollar limit or we're going to maybe add a new feature. I think these are pretty, pretty game changing. But again, you decide. I first thought of this, I'm an ACH guy as you know.

My first thought of this is, is this IAT for FedNow? And if you don't know, ACH has an international payment. It also does not leave the country as an ACH transaction, but it does enable information to be exchanged. So let's talk about this. When the Fed launched FedNow, and you'll see this in the press release from the Federal Reserve, I will share that link. They set up front, we're going to start with...

Joe Casali (02:55.745)
domestic only. That's what we're going to start. But they said later on, we would evaluate cross border. We're here. We're at the rules for cross border. And I'm going to explain everything. I had a lot of questions. I worked through all my questions, and I'm hoping to share that with you right now. So if you're a participant in FedNow, you now have a new use case that you could start working on.

They're looking for responses to the proposed rule. So it's a great time to say, yes, we like this, but no, we don't like this, but and give you feedback. They read them all. They work on them. What? So my next section is what does the rule actually change? Today FedNow payments can only involve two banks. And if you look at the model, it really is a bank to bank or

financial institution to financial institution model. It doesn't include the end parties, right? You as a participant in FedNow enable the end parties. You enable an app, a tool, a website, a login, whatever you enable, you enable that to send the transaction. The FedNow itself is financial institution to financial institution, beginning and end. There are no intermediaries. There are no pass through.

entities. This changes that. This works great for domestic, because domestic payment goes from an institution in the US to another institution in the US. But it makes international impossible because there's no way to route them through a correspondent bank. If you aren't familiar with international payments at all, there is an entity called an intermediary bank that has enabled a cross-border payment.

that could be enabled because they've entered into a contract with a party in another state, country, where they send the payments back and forth between each other. They're a correspondent. The proposed rule change, and it's an odd name to the rule change because regulation J started as check. So the introduction to the change starts as changes to checks.

Joe Casali (05:18.379)
via FedNow that allow them international cross border. And you might read that quickly and say, what are you talking about? So let's keep going. So let's give an example, right? How would this actually work, right? And why is this an ISO use case that changes everything? So how does this work?

And I asked this question, I use AI, I asked this question of my AI, it understands FedNow, it knows what FedNow is, knows how it works. I said, why can't you do this today? Right? Why isn't it possible to do it today? Say, and we'll use Big Bank as the name of the bank that has the contacts to send overseas to send cross border. So say you send a payment to Big Bank with an instruction, a letter, an email or something that says, hey, when you get that,

Once it's settled, can you send that to our partner in Mexico, Spain, England, wherever you want to send it? And they'll do that, right? So in essence, you could send the FedNow payment that will become an international payment. There's a delay, there's a process. FedNow would settle the transaction instantly in the master account, and then it would route the payment overseas as a different transaction.

With the rule change, this becomes one end-to-end coherent transfer. It becomes one transfer. They don't have to say, stop, here's another instruction. The instructions are embedded in the FedNow message, not two separate transactions, which is super interesting. It takes a little bit, if you're completely familiar with international payments, it takes a little bit to understand that, but this may be.

ISO 20022's moment. Let me see my note.

Joe Casali (07:22.957)
I have been waiting. here, my note says, my note, you know, it's AI talk. So my note says, okay, this is part of the most exciting, this is the part I'm most excited about. I'll be honest, I've been waiting for a real tangible example of ISO 20022. I have been, you know, there are lots of things that are set along the way, along the journey of payments. And one of the things set around along the journey to payments is,

ISO is going to change it all. It's feature rich. It's data rich. You're going to be able to send transactions. I haven't seen it. I really haven't seen it. As I did in the opener, I haven't seen it. This is a use of that. And I know I'm going to ruin my presentation. This is my script. And I told my AI, I'm not really good with scripts. Can you give me a Joe script that isn't a script? This is close to a script.

Here's where I'm going to ruin it first. What we've seen in the past year is Swift, Fedwire, Chips, and we have RTP and we have FedNow all operating, not in the same, it is not the same version, but they're all operating on ISO 20022. It is not a heavy lift to include a message coded as a PACS.008, 

if you're not familiar with a PACS.008, you should be familiar with a PACS.008. It is the credit transfer in FedNow. It is the credit transfer in RTP. It is the credit transfer in Fedwire. It is called the PACs payment schema PACS.008. They have in its origin, the correct pieces that need to be

transmitted. So it's not a big lift. The big lift here is that Reg J had to be updated to allow for the movement of this and the redesignation. when you send this payment, the US institution, Big Bank, is no longer the receiving participant. The receiving participant is overseas. They're the financial institution that is the cross-border

Joe Casali (09:43.15)
debtor that's going to get the payment. They follow the rules for an intermediary bank, which are different than a receiving bank. So they can pass that transfer right along. FedNow speaks ISO 20022. This section is called, Why ISO 20022 Changed the Game Here. FedNow speaks ISO 20022. oh, here it is. Swift speaks ISO 20022. Fedwire speaks.

ISO 20022. All the data fields are the same. you know, there are, I don't know, it's almost like an accent, right? They all, FedNow has its own accent, right? There's a couple of little tweaks that that's how FedNow works. RTP has its own accent. It's probably a Brooklyn accent, but it has its own accent. I have a comparison here too, because that's where I started. I started with, wait a minute.

Does FedNow have now an IAT transaction? So we can compare it to the IAT. The thing it says here, and as an ACH guy, I'm a little tiny bit offended, but it's not wrong. With the ACH IAT, it is cramming information into specific addenda records. So there's the 710 record, the specific type of addenda record that contains the

who's sending the money. Then there's a record for who's the financial institution sending the money. Then it has a record for who's the institution receiving. It's all kind of jammed in there. With the ISO 20022 record, it gives you more room to be able to say, here's all the parties along the way. There is a big, so that the downside or the warning signs.

are we talk about in one segment. So there are warning signs and things to be aware of. And as a note, I should have said this at the beginning. These are all my opinions. These are not the opinions of Nietzsche. These are not the opinions of any of the network people. This is my opinion on things. All right, what's the competitive angle? This now makes FedNow a direct competitor with Fedwire for international payments.

Joe Casali (12:07.341)
fascinating, right? And it's 24-7-365. Whoa. Cross border payments initiated on a Saturday night. Domestic leg settles in seconds over FedNow. Try that with Fedwire. Ooh, that's a little mean. We like you, Fedwire. For strategic plan, is this kind of capability that should be in your three-year roadmap conversations right now? And I don't know if I mentioned it here, but if you are

a FedNow participant and your receive only participant and you're looking for your use case, this is now a use case. Do you have a demand for this type of transaction in your portfolio? This may be the use case for you. All right, here's the downside, here's the negative. Here's the things we have to worry about, right? And it feels like I've been training faster payments for a really long time because we had...

We finished last year, I finished the enrollment in the AFPP training, the accredited faster payment professional training, did a bunch of modules for that. We're now training on the FedNow rules and the RTP rules. So it feels like I've been talking about this forever. And again, my own opinions, nowhere in the rules, either FedNow or RTP, does it say

You must have a real time BSA AML program. It doesn't say it in the rules. That's my statement. That's where I'm standing. If you can show me where it does say it in the rules, I'm happy to be wrong. I never have a problem being wrong. Happy to be wrong. Teach me. Show me.

So what does that mean for BSA? Now you're talking about really sending international transactions. is a heavy lift on making sure you are not sending money to bad guys, right? You don't wanna go the wrong direction against OFAC, BSA, AML screening. You do not wanna be in that boat. So let me introduce,

Joe Casali (14:22.978)
I introduced that in a minute. Let me finish this statement and I'll introduce it.

So when we talk about an IAT, right, the screening on an IAT is you're gonna screen the transaction as you send it. If it says it's going to an international party, even though an IAT only travels domestically, it triggers enhanced OFAC and BSA screening, right, for both the sender and the receiver, okay? The proposed FedNow rulemaking does not appear to create the equivalent

explicit cross border flag. the screening, and I'm in this little foresight, the screening's gonna have to take place at the beginning and at the end. And it's gonna be like a prime time ready. When you send that international FedNow, you have to believe that it has been screened That's, know, big red stop sign if that's not something you can do.

These may not be for you. Next section, The news update. There's only a little bit more, more than halfway through. Real-time screening, are you ready? So I did mention, FedNow rules, I can't find where it says must have, must have real-time screening. It doesn't say it. RTP rules, I can't say where it says you must have real-time screening.

You have to have a real, you have to have a screening and BSA and a compliance program in place before you ever touch any of these instant payment programs. Got to have it in place. It doesn't say it has to be real time. If you jump over to the regulators and what the regulators are looking at, they do say you really should have a real time system in place for real time screening of these payments.

Joe Casali (16:20.375)
So that's where the difference is. The regulators may expect it of you. Your regulator may expect it of you.

This entry settles in seconds, right? So I trained the part one of my FedNow rules yesterday and I've set the time of clock at 20 seconds. This payment from beginning to end from initiation to settlement takes 20 seconds. Are you ready for screening that within 20 seconds this entry could theoretically be in a Spain

financial institution at the receiver's account. Something to be concerned about, something to make sure that you have in place, something that you're comfortable with, where you believe your meeting the requirements of your primary regulator. This definitely isn't a reason not to do it. In today's day and age, there are a lot of tools coming out that are going to for this process.

just have to investigate them and see if this is a business line you want to be out, but be in. Sorry, I've started reading the next line. Other operational considerations. What else do we have here? Defense position, it doesn't create materially new AML or sanction risk, right? Because it doesn't, you're already obligated to do this AML screening. It's not a new screening. The speed of the transaction may change how you do that.

And that's really up to you and your regulator, right? Your regulator might ding you if it believes that you should be doing this real time. There's lots of folks out there doing it, so nothing to be scared about there. It's a very fair point. My note says it's a fair point. But the speed is different, right? Fedwire across border payments give you more processing time. Fed now does not.

Joe Casali (18:28.097)
You know, sometimes AI is wrong. Let's look at this for a second, Fedwire. From the minute the fedwire is sent,

Joe Casali (18:43.851)
And from this, the minute, I guess I have to say second, from the second a Fedwire is sent and from this, the second a FedNow is sent, they are both real time gross settlement payments. So I think, I think to understand these payments, you have to understand not only the network flow, but the processes that take place in advance of the network flow. I could give you a real time payment today.

today's Thursday, that I tell you this must be sent at 5 p.m. tomorrow. When it gets sent, it's instant. Until then, it's not instant. So now I have a little trouble with my script here. So you certainly have to understand your flows and your processes and how these things work. Institutions will need to think about their compliance workflows, true. Their screening technology, true. And their correspondent due diligence in the context of real time.

Think about it. If you, and mind you, I'm a novice at wire, but if you are using a correspondent for wire transfer, you send them the wire information, they do their due diligence, and they forward that payment on to the, say the Spain bank, right? That still has to all happen. It's just now gonna be a little bit easier because you...

probably did the setup work as a FedNow transaction, they really just have to slide that over to the FedWire transaction. And again, not an expert in FedWire, but ISO 20022 and ISO 20022 have to be extremely similar. Okay, one detail from the proposal, the proposed rules, funds availability in important nuance. That's the name of my section. One detail.

that the strategic folks should understand is Reg J's immediate funds availability requirement only applies to the FedNow leg. So you're going to have a sending participant send it to an intermediary. It's no longer receiving participant. It's not their transaction. It's their receiving point of it, but then it's not their transaction. That part needs to follow the timeout clock, 20 seconds.

Joe Casali (21:09.079)
done beginning at the end. If it can't settle, it goes back, reject it. You can also reject it out of hand if you say don't want it. But if it doesn't meet the timing, it has to on the other end be available just like the rules say today for the receiving participant. but there's more. But flip it around. Inbound cross border payments where US bank is a beneficiary bank?

I didn't think of this. I was walking through all the send side FedNows. Let's talk about the receive side FedNows where that bank is still an intermediary bank. It may become the sending, doing the sending function on an inbound transaction, but it is an intermediary bank. It's not their transaction. So, but flip it around. Inbound cross border payments where US bank is the beneficiary bank.

does accept the order over FedNow and is obligated to make those funds available immediately. So on the receive side, once it sends those transactions, it's final, right? It's immediate, 20 seconds, that inbound wire transfer could be, follow those same rules. That's a, I got to go back to my AI voice. That's a powerful valuation, value proposition for receiving international payments.

I hadn't actually thought of that when I was thinking of this episode, but that's a really interesting point. It can come in from a Fedwire, from a Swift, from a chips even. It can come in and travel along the FedNow rails again immediately. What's the bigger picture? These are some of the questions I asked the script to look at. What's the bigger picture? A real time 24 seven,

ISO native payment rail that can now serve as a settlement infrastructure for cross border payments. You know, there was not one conversation about RTP or FedNow back in the beginning. RTP started back in like 2017 and FedNow is working. There was never a conversation where you would say, yes, we're going to build this new system. It's going to be based on ISO 20022. Not 10 minutes later, someone, someone would be saying,

Joe Casali (23:37.972)
What about cross border? know, that cross, that ISO is a cross border model as well. Why can't they be cross border? And now why can't they be cross border? So we're looking at these new rules to allow for that. Two years ago, FedNow was a brand, really two years ago FedNow was a brand new domestic system. They've now got like 1700 participants on the network. It becomes a foundational piece.

of a global payments infrastructure. And this is just the rulemaking right now. What's to say it doesn't change? It's been two years. Let's say, let's give it another two years. What's the change that say there's not another change in two years that alters the process again? Super, super interesting. Those are all the news-based facts. What do you need to know? Today is 4.

10. No, yes, no. Today is 4.9. So if you're listening, this is recorded on 4.9. This is actually going to be released, this proposed rulemaking is actually going to be released tomorrow for 10 in the federal register. That's when the official time clock starts. There is a 60 day time period on comments. I found out today, you don't actually have to wait for the thing to be officially released. There is already a comment out there and the comment is thumbs up. We love this.

I'm not sure what industry the commenter is. I don't think it was a financial institution. I think it might've been a trader, but they were all thumbs up about this. They read all your comments. They want all your comments. They want to see if there's something that may change the rulemaking and they could change the rulemaking, but they are looking for your feedback on this rule change. If your institution has a perspective on this, you should respond.

Again, it's open to anyone who wants to respond. You can talk about the opportunity. You can talk about compliance implications. In my comments about the network procedures and rules not saying that you must have a real-time BSA system, maybe that's a comment that says, hey, you know what? Maybe they should make it a requirement. Not that I'm saying.

Joe Casali (26:03.169)
We want mandates and requirements. But if, for instance, your folks back in the office are going to say, well, that's a heavy lift. If we don't have to do it, should we do it? What if you had to do it? Again, not a mandate guy. But if that's your opinion, go to it. Would you be ready? If this turned on tomorrow and you're a FedNow participant,

Let's say you're even a send participant. Would you be ready for that today? Would you be ready to send your first international payment? If they gave you, here's how you format it, here's what it looks like, go. Would you be able to do that? Would that be something you had some appetite for? Is another department interested? I always think I'm talking to the operations folks, but if there's a treasurer on the line, is this something you'd be interested in? Maybe. Again, they want your feedback.

And I say this all the time with the Notch operating rules. When they set out a request for comment, this is a notice of possible rules making, but if they set out a request for comments, this is now the time to say, whoa, this is what's wrong with this idea, or this is why this is the greatest thing and the best use of an ISO 20022 format I've heard in the last five years. You are encouraged to participate. So in closing, let's see what I said here.

We're watching a payments landscape evolve in real time. look at that. Look what I did there. That's pretty cool. Literally. Literally. It says that. We are watching. This is fantastic. I saw this come out yesterday and I said, we're still having production issues with podcasts. I am leaving here and going home and editing this episode. My first episode edited by me ever. So we're having problems, but we'll see how this works out.

And I had to, I had to report on this one. I think it's fantastic. I think this is, you know, this is that ISO 20022 use that is like, I get it now. Look, now that they're all talking the same language, but a different dialect. This is, this is what, this is the vision. Those people in the past who said ISO is the greatest thing, they were right.

Joe Casali (28:29.483)
It is exactly the transformation the industry's been looking for. It is exactly the thing folks been asking for from the beginning. Well, what about cross border? Okay, here it is. It's not theoretical anymore. There's a proposed rule on the table and the comment period. And if I didn't say it, the comment period is gonna run from tomorrow, April 10th, the release date of it for 60 days. can comment anytime in that.

and even now. If you want to talk about this, reach out, comment on the episode. We'll be sharing this, hopefully. Hopefully, you're listening to this now. You'll be hearing it on YouTube. There'll be a LinkedIn. We're still an audio podcast as well. This may be the beginning of a new era in payments where it's no longer theoretical that, it's ISO. It should be international. It is.

Thanks.