7 Powerful Reasons Why India Is Urging FATF to Recognise UPI Payments as a Global Financial Standard
India Pushes FATF to Recognise UPI and Instant Payment Systems: A Battle for Equity in Global Financial Regulation
New Delhi:
The international regulatory landscape for digital payments is at a pivotal moment. As the Financial Action Task Force (FATF) prepares for its plenary session in June 2025, a key debate has emerged that could reshape the global financial architecture: whether to extend regulatory parity to instant payment systems (IPS) like India’s Unified Payments Interface (UPI), or continue privileging traditional card networks under existing anti-money laundering (AML) guidelines.
At the core of the discussion lies FATF Recommendation 16 (R.16), which governs the information that must accompany electronic transfers for the purposes of combating money laundering and terrorist financing. Historically, card-based payment systems have been granted a carve-out from certain reporting obligations under R.16. Instant payment systems, however, despite offering comparable or even superior security features, remain outside that exemption.
India, backed by a coalition of emerging economies including Brazil, Indonesia, and Malaysia, has made a forceful case: the current framework is outdated, inequitable, and risks undermining trust in the global financial order. With the FATF’s own consultations revealing growing support for regulatory parity, the June plenary could prove decisive.
A Narrow Debate with Far-Reaching Implications
At first glance, the question being debated at the FATF appears technical and narrow: Should instant payment systems, if they meet equivalent anti-money laundering and counter-financing of terrorism (AML/CFT) standards, be exempted from certain data-reporting requirements just like card-based transactions?
However, the implications of this decision stretch well beyond the corridors of regulatory policy. The outcome will influence:
- The competitiveness of national digital payment infrastructures
- The pace and inclusiveness of financial innovation
- The credibility of global standard-setting institutions
- Geopolitical balances in global finance
In essence, the FATF is being asked to decide whether its rules will adapt to the innovations of the Global South or reinforce a status quo that disproportionately favors legacy systems from the developed world.
The UPI Model: Innovation with Safety
India’s Unified Payments Interface (UPI) stands at the forefront of the push for IPS recognition. Launched in 2016 by the National Payments Corporation of India (NPCI), UPI has revolutionised retail payments in the country. In the fiscal year 2023–24, UPI processed over $2.2 trillion in transactions, making it one of the largest real-time payment systems globally.
Crucially, UPI does not trade scale for security. With dual-factor authentication, real-time fraud monitoring, and a design embedded within the regulated banking infrastructure, UPI maintains a fraud-to-sales ratio of less than 1 basis point. This is lower than the average for card-based transactions in several OECD economies, where identity-level data is not always mandated.
Despite these robust features, UPI and similar IPS have been denied the exemptions offered to card systems under R.16. Indian officials argue that this discrepancy cannot be justified by risk analysis and reflects a bias in regulatory thinking.
The FATF Proposal and the Pushback
The FATF Secretariat has acknowledged the legitimacy of these concerns and, in recent internal drafts, proposed a middle-ground solution: to allow exemptions for IPS that meet defined AML/CFT safeguards. These could include traceability standards, authentication protocols, and reporting capabilities equivalent to or better than card networks.
However, resistance remains from certain FATF member countries, many of which are also home to major global card networks. The result is a growing perception of a double standard—where legacy systems, primarily from the developed world, are granted leniency, while new, often superior technologies from the Global South are held to a stricter standard.
India, in its formal submission to the FATF, argued that such unequal treatment amounts to regulatory discrimination. It has insisted that if fairness cannot be incorporated into the revised R.16 standards, then the entire reform package should be deferred.
A Global Coalition for Reform
India is not alone in its stance. Several emerging economies that have invested heavily in developing their own fast payment systems have rallied behind the call for parity. Brazil’s Pix, Indonesia’s BI-FAST, Malaysia’s DuitNow, and similar platforms in South Africa and Singapore are prime examples of robust, low-cost IPS infrastructure.
These systems have demonstrated not only technological competence but also social impact. In regions where access to traditional banking is limited, IPS has emerged as a key enabler of financial inclusion, facilitating microtransactions, government disbursements, and small business payments.
The World Bank and the International Monetary Fund (IMF), both observers at the FATF, have also weighed in. In consultation responses, they supported the principle of technology-neutral regulation and warned against frameworks that inadvertently penalise developing nations’ innovations.
Same Risk, Same Rules
The principle India and its allies are advocating is simple: same risk, same regulation. No one is asking for blanket exemptions. Rather, the demand is for a risk-based, objective framework where any payment system—card-based or instant—can qualify for exemptions if it meets the required AML/CFT thresholds.
This approach aligns with global best practices in regulatory policy, which increasingly favor outcome-based rather than form-based standards. It also reflects FATF’s own stated vision of being a technology-neutral body.
However, applying these principles consistently across different systems requires both technical understanding and political will—something that remains uneven across the FATF’s membership.
The Geopolitical Undercurrent
The debate also highlights a deeper structural challenge: the geopolitical imbalance within the FATF itself. The body, while setting standards for 200 jurisdictions worldwide, is effectively governed by a smaller set of 39 full members—mostly developed nations.
This asymmetry has long raised questions about the inclusivity and legitimacy of global financial rule-making. With digital public infrastructure like UPI becoming a hallmark of the Global South’s development agenda, resistance to recognising their validity carries the risk of alienating a significant part of the global financial community.
The current presidency of the FATF, held by Mexico, has made financial inclusion a central theme. India and others have argued that sidelining IPS—despite their proven contribution to inclusion—would contradict that very agenda.
Why It Matters Now
There is a growing urgency for the FATF to act. The global payments ecosystem is evolving rapidly, with new platforms, protocols, and players entering the space. If international standards remain rigid or partial, they risk becoming irrelevant—or worse, obstructive.
A decision at the June plenary that favours card-based exemptions without offering a clear, equitable pathway for IPS will:
- Entrench Western dominance in payment infrastructure
- Undermine efforts to modernise the global financial system
- Send a discouraging signal to innovators in the developing world
On the other hand, adopting a technology-neutral, risk-based exemption model could:
- Boost innovation across regions
- Enhance trust in global institutions
- Accelerate financial inclusion goals
FATF’s Credibility on the Line
For FATF, the stakes are institutional as well as technical. A failure to evolve risks diminishing its standing as a credible standard-setter. Already, some observers note that certain FATF norms have not kept pace with the realities of digital finance, where identity verification, traceability, and real-time monitoring have leapfrogged past legacy systems.
Aligning R.16 with modern practices would demonstrate that the FATF remains responsive, inclusive, and forward-looking. It would also help reinforce global cooperation in combating financial crime—a mission that requires trust and buy-in from all regions.
India’s Strategic Position
India has positioned itself as a leading voice on this issue not just to defend UPI but to champion a fairer global financial system. At various forums, including the G20, where India held the presidency in 2023, it has promoted the concept of Digital Public Infrastructure (DPI) as a global public good.
By pushing for FATF recognition of UPI and similar IPS, India is reinforcing that agenda. It is also seeking to export UPI technology to other countries, creating a broader network of interoperable, low-cost digital payment systems that can rival Western-dominated platforms.
This isn’t just about regulation—it’s about shaping the future of global finance.
Conclusion: A Defining Test for Global Financial Governance
As the FATF prepares for its June 2025 plenary, the question of regulatory parity for instant payment systems has become a litmus test. Will the global standard-setting body adapt its frameworks to reflect the technological and geographic realities of today’s financial world? Or will it cling to legacy systems and risk deepening divides between the Global North and South?
India and other emerging economies have made their case clearly: recognition of compliant IPS like UPI is not merely a technical adjustment—it is a matter of equity, legitimacy, and innovation.
The FATF now has an opportunity to reinforce its credibility by updating its standards in line with objective risk assessments. A failure to do so could erode confidence in its ability to guide a rapidly digitising financial ecosystem.
As the world watches, the decision will signal more than regulatory alignment—it will indicate whether the future of global finance will be inclusive and fair, or continue to reflect outdated power structures.
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