When Surojit Chatterjee took the stage at a Coinbase Global Inc. conference in Bangalore, India on April 7, he had no reason to anticipate the fallout that would soon follow. Chatterjee, chief product officer of the company, told the gathered audience that crypto investors could now use the country’s online retail payment system to transfer funds to its local exchange.
Hours after Chatterjee’s announcement, the central bank-backed entity that runs the system – called United Payments Interface – said it was “not aware” of any crypto exchange using the network. Within three days of the event, Coinbase had halted transfers of rupees to its trading app through UPI.
The abrupt reversal left Coinbase customers with no way to fund their rupee accounts, dealing a blow to its India expansion plans. “We are committed to working with the NPCI and other relevant authorities to ensure we are aligned with local expectations and industry standards,” a Coinbase spokesperson said in a statement to Bloomberg on the 11th. April, referring to the National Payments Corporation of India, which operates UPI.
Coinbase was not the only one concerned. Since his announcement, at least four other companies that provide crypto-related trading services have either suspended rupee deposits or seen banks and payment gateways withdraw support for money transfers on their platforms, according to business leaders and local media. Two other exchanges had lost support for rupee deposits from a payment service provider before the incident.
The actions put additional pressure on already declining trading volumes, exchange executives said. The industry is also gearing up for a new tax on all crypto transactions above a certain size that will take effect on July 1. The government this month introduced a 30% levy on income from investments in digital assets.
Daily trading volumes on Indian crypto exchanges, which collectively serve around 15 million people, have fallen 88% to 96% since peaking last year, according to data from CoinGecko. WazirX, India’s largest crypto exchange, saw its volumes drop 93% from an October high, according to the data.
Investors cashing in crypto positions on an exchange can still withdraw their fiat currency. Coinbase already offered crypto pair trading in India, which does not require customers to deposit rupees into their accounts.
“After Coinbase’s announcement, anyone who provided industry support withdrew their support,” Vikram Subburaj, chief executive of crypto exchange Giottos, said in an April 12 interview. Giottos payment gateway stopped working with it, he said, declining to name the company. As a result, trading volume on the platform dropped by around 70%, Subburaj said.
Local rival BuyUcoin also halted payments through UPI after notice from NPCI, co-founder Atulya Bhatt said.
NPCI, an initiative of the central bank and the Association of Indian Banks, is an apex organization for retail payments and settlements in the country of 1.4 billion people. He did not respond to requests for comment.
CoinSwitch Kuber, a Bengaluru-based cryptocurrency exchange, has temporarily halted accepting rupee deposits through UPI and other banking channels, the Economic Times reported on April 12. CoinSwitch did not respond to an email request for comment.
Crypto trading firms in India have had rocky relationships with banks and payment service providers since 2018, when the central bank issued a directive asking lenders to stop working with digital asset firms. While the Supreme Court in 2020 overturned this directive, some banks remained hesitant to work with the crypto industry – in part because senior Reserve Bank of India officials continued to publicly call for a ban on cryptocurrencies. currencies.
Due to mistrust from the traditional banking industry, payment gateways like Juspay and MobiKwik have become a crucial link between crypto exchanges and customers looking to deposit fiat currency. Without their cooperation, investors are limited to using methods such as transferring money to stock exchange checking accounts, a time-consuming and error-prone manual process. Coinbase does not offer this option in India.
Investors can also engage in peer-to-peer exchanges, where fiat transfers are handled directly between counterparties, although this is a small market share in India.
A payment service provider stopped working with crypto exchanges last year after being asked by banks to do so, its CEO has said, asking that he and his company not be named due to the sensitivity of the problem.
MobiKwik, a local payment service provider, stopped working with Indian crypto exchanges on April 1, according to a report by news outlet Moneycontrol. MobiKwik declined to comment. WazirX and CoinDCX, another Indian crypto exchange, have both announced that rupee deposits through MobiKwik have been temporarily suspended.
Restricting access to payment without a legal reason is to unfairly single out the digital asset industry, said Jaideep Reddy, a technology attorney at Nishith Desai Associates.
“If a bank denies service to a crypto company, there must be a valid reason other than just the fact that it is a crypto company,” Reddy said. “Banks need to be transparent because account holders also have a bill of rights that includes service provider transparency.”
Edul Patel, co-founder and CEO of algorithmic crypto trading firm Mudrex, said payment gateways in India started withdrawing support after the Coinbase episode. It also happened to Mudrex, Patel said in an April 12 interview, declining to name his partner.
The moves didn’t just impact trade, he said: Inflows into coin sets, a mutual fund-like crypto product offered by the Y Combinator-backed startup, fell by about half over the previous two to three days.
“As exchanges around the world innovate on Web 3.0, Indian exchanges are busy finding the next payment provider,” Giottos’ Subburaj said.