The Financial Action Task Force (FATF) is consulting on revisions to its travel rule that will affect all payments and value transfers. The proposed changes form part of the G20’s roadmap for enhanced cross-border payments. However, they pose a threat to the speed, cost, and inclusiveness that the international community expects from global remittances. So why the change?
The main motivation for the proposed revisions stems from the major changes in payment innovation over the past years. After more than two decades, the standard adopted in the aftermath of 9/11 – requiring originator and beneficiary data to accompany all payment messages (Recommendation 16) – is simply outdated. Moreover, the G20 has recognized gaps in the international payments system and is pursuing the roadmap project on enhancing cross-border payments envisaging a new design. As part of that project, the FATF is required to ensure enhanced transparency of payment messaging.
Unfortunately, elements of the current proposal to change the travel rule are more likely to negatively impact financial inclusion without improving the integrity of payments. This remains the case despite the FATF Secretariat’s genuine efforts to reconcile the original proposal (made in 2024) with comments received in the first round of public consultations.
More data, more costs
The new proposals envisage more originator and beneficiary data to be collected and verified than is currently the case (see Table 1). That means more costs associated with a transaction and a higher barrier to financial inclusion for individuals, micro-entrepreneurs, and small businesses.
More data collected and shared across borders also comes with more privacy risks. Abuse of such data may feed identity fraud and scams and these in turn may undermine confidence in using formal payments services. It is of value to ask whether the benefits served by such increased transparency outweigh the risks. Will these measures reduce more crime than they might inadvertently cause? How helpful is the additional data, and to whom?
Table 1: Required originator and beneficiary data (transactions over 1,000 USD/EUR)
For cross-border payments, value transfers, and card-based P2P payments above USD/EUR 1,000, the required originator and beneficiary’s data must be verified. For transactions below USD/EUR 1,000 data can be limited to the name of the originator and beneficiary and the originator and beneficiary’s account number or other unique transfer reference number. These do not have to be verified unless there is a suspicion of money laundering or terrorist financing.
Card-based merchant payments are favored over fast payments
Importantly, card-based purchases of goods and services are excluded from the above requirements as long as the card number accompanies the transfer, and the names and locations of the financial institutions concerned are available on request. This exemption, however, does not extend to card-based fast payments (P2P). These payments, whether card-based or using, for example, QR codes and mobile wallets, must meet the Recommendation 16 messaging requirements. Such fast payments have become a standard component in the digital public infrastructure enabling fast growth of digital financial services and financial inclusion.
De minimis exception of limited inclusion value
In principle, the simplified data requirements for low-value payments can be beneficial where countries elect to adopt them. However, the design of the current exception is flawed as it does not support a risk-based approach appropriately. Large banks choose not to simplify data requirements in relation to these transactions and may de-bank smaller institutions that do. The USD/EUR 1,000 limit has furthermore not been adjusted since 2004, effectively lowering the threshold in real value beyond the initial intent (mostly due to inflation over the past two decades). An increasing number of transactions for lower-income people will therefore come within the ambit of Recommendation 16’s standard data requirements in the future. This poses an exclusion risk for those who cannot offer easy verification of their residential address or date of birth. It also creates exclusion risks for smaller businesses that are not officially registered and that lack a unique official identifier or an official and recorded name, required to obtain a LEI.
Good intentions are not enough
The FATF is committed to preventing undue financial exclusion. It amended its Recommendation 1 in February 2025 to better support financial inclusion and is currently preparing updated financial inclusion guidance. FATF is also required in the G20 roadmap project to support the standardization of payments data in support of cheaper, faster, more transparent, and more accessible cross-border payments.
Asking for richer party data will improve transparency across institutions in the payments chain. However, it will likely also undermine the financial inclusion of millions who are undocumented and living beyond the bureaucratic reach of their governments. To mitigate this risk, the FATF is proposing non-binding guidance on how to address the plight of people who may not be able to provide or verify data such as a town name (for people in rural areas) or date of birth. Non-binding guidance is, however, unlikely to solve the challenges that will arise in practice when data requirements are embedded in ICT systems. Vulnerable people lacking such data may become outliers that are too expensive to serve.
The rule-based data requirements of Recommendation 16 are furthermore likely to limit the simplification of data requirements where money laundering and terrorist financing risks are assessed as lower. These data fields are likely to form the new baseline of simplified identity requirements to prevent users from being excluded from making or receiving payments or value transfers in the future. Revisions to the Recommendation 16 requirements may therefore limit the risk-based approach and proportionality that FATF supports in relation to financial inclusion.
What to do?
The financial inclusion community is invited by the FATF to weigh in and contribute constructive solutions by April 18th, 2025, before the final revised travel rule is voted on at the FATF June plenary meeting. FATF recognizes the potential negative impact and is inviting constructive submissions and proposals.
Effective submissions would clearly identify the concern, offer an alternative approach and/or specific wording of the revision, and provide evidence to back the arguments. Submissions can also call for more evidence to assess the potential impact of the proposals and for sufficient time to consider the best implementation design for the new measures.
