The global payments ecosystem stands at a regulatory crossroads. At its upcoming June 2025 plenary, the Financial Action Task Force (FATF), the international body that sets anti-money laundering standards, will decide whether its Recommendation 16 (R.16) reforms keep pace with the times or if they reinforce a status quo that disadvantages innovation in the Global South.
The issue on the table is deceptively narrow: whether to continue exempting card payments from certain reporting obligations under R.16 while denying the same relief to instant payment systems (IPS), even when they offer equal or better safeguards. But the implications are sweeping - touching on competitiveness, financial inclusion, and global equity in digital infrastructure.
Not A Level Playing Field
The FATF's own consultations have revealed a clear trend. Industry players, regulators, and development institutions such as the World Bank and the International Monetary Fund (IMF), have urged the task force to treat similarly secure systems equally. Yet, a carve-out for card networks, prevalent in the developed world, remains intact, while newer, fast-growing IPS, like India's Unified Payments Interface (UPI), remain excluded.
This exemption appears to rest on the assumption that card-based payments are inherently less risky. The data, however, tell a different story. UPI processed over $2.2 trillion worth of transactions in FY 2023-24, with a fraud-to-sales ratio below 1 basis point, lower than comparable figures for cards in many OECD countries. Unlike many card transactions that lack identity-level details, UPI transactions are tightly monitored through real-time analytics, dual-factor authentication, and regulatory oversight.
India has made its case forcefully. In its submission to FATF, it argued that a blanket denial of exemptions to all IPS, despite objective evidence of compliance and safety, amounts to regulatory inequity. And it isn't alone. Brazil, Indonesia, Malaysia, and several others have voiced similar concerns. The FATF Secretariat itself, to its credit, proposed a middle path: allow exemptions for IPS that meet defined AML/CFT thresholds and security protocols. But several FATF members appear reluctant to move forward.
Being Truly Global
That hesitation risks entrenching an outdated framework. Card networks, mostly headquartered in the West, benefit from historical precedence. IPS, by contrast, are homegrown innovations in emerging markets, cheaper, faster, and vital for financial inclusion. Exempting one while penalising the other undermines the FATF's stated goal of being technology-agnostic and global in its outlook.
The principle at stake is straightforward: same risk, same regulation. No one argues that all IPS are equal. But if an IPS meets or exceeds the risk controls in card networks, it should be treated accordingly. Anything less is not only inefficient - it is unfair.
The FATF's challenge is further complicated by geopolitics. Its membership is dominated by developed nations, while its standards are binding across a much broader global network. This disparity risks alienating large swathes of the developing world, where IPS are not only tools of convenience but of inclusion. Denying them equitable treatment will raise uncomfortable questions about FATF's legitimacy and representation.
India has rightly argued that if fairness cannot be embedded into the final R.16 amendment, then the entire reform package should be deferred. The current Mexican presidency of the FATF has prioritised financial inclusion. Pushing through a standard that sidelines IPS would starkly contradict that agenda.
Global standard-setting cannot operate on legacy assumptions. The FATF must seize this moment to align its rules with the realities of modern payments. A framework that extends card-like exemptions to qualifying IPS would not only support innovation but also encourage best practices globally. Failing that, the FATF risks losing both credibility and relevance.
India and its peers in the Global South have made their stance clear: equity in financial regulation is not optional, it is fundamental. The ball now lies in FATF's court. The world will be watching.
(The author is the founder of ZIGRAM, a registered tech organisation that focuses on anti-money laundering, financial crime compliance and emerging risks.)
Disclaimer: These are the personal opinions of the author
