Coinbase launch brings UPI use for crypto under lens


Mumbai | Bengaluru: The launch of Coinbase Global Inc’s crypto trading platform in the country may have already hit a roadblock.

The US-based company’s decision to allow clients to use the Unified Payments Interface (UPI) – a key digital payments railroad – to make rupee deposits for buying cryptocurrencies in India is under regulatory scrutiny, said sources directly briefed on the matter.

Coinbase, which
began offering its trading services in India on Thursday, said it was using UPI, which is managed by the National Payments Corporation of India (NPCI), to enable rupee deposits on its platform. NPCI, however, denied any knowledge of “any crypto exchange using UPI”, in a statement issued on Thursday.

“Banks had no clue. Some other smaller exchanges were also doing it and banks blocked it,” a person aware of the matter said. “Coinbase, because of its scale and much-hyped event on Thursday, has caught everyone’s attention. This is now being investigated.” The person added that the NPCI probably had to step in as there was still no clarity on the legality of cryptocurrencies in India. “After the NPCI clarification, there is little left for banks to do other than stop these accounts,” the person said.

In response to NPCI’s statement, a spokesperson for Coinbase said that the platform was “actively experimenting with a number of payment methods and partners to enable our customers to seamlessly make their crypto purchases. One of these methods is UPI, a simple to use and rapid payment system”.

Collection Agent

“We are committed to working with NPCI and other relevant authorities to ensure we are aligned with local expectations and industry norms,” the spokesperson added.

Meanwhile, sources also said that fintech firm Mobikwik, which was facilitating cryptocurrency purchases through its wallet, had stopped the service amid the regulatory uncertainty.

Mobikwik was one of the most used e-wallets for cryptocurrency transactions in India.

The company’s co-founder and chief executive Bipin Preet Singh also confirmed to ET that it had stopped offering the service for virtual digital assets, which include cryptocurrency.

Legal experts said currently no law prohibits crypto exchanges from using UPI services for payments on their platforms as the Reserve Bank of India (RBI) or the NPCI had not formally restricted it yet.

“So, they are free to do so. However, RBI and NPCI’s stance on crypto has always been decidedly cold,” said Anupam Shukla, partner, Pioneer Legal. “The Indian banking ecosystem has also taken its cues from this and maintained an arms-length approach from the crypto sector. This has resulted in the (crypto) exchanges being able to provide only limited payment options on their platforms.”

Multiple industry sources have alleged that Coinbase and other crypto platforms had been using UPI so far without attracting the regulator’s attention, and that was the reason why the NPCI was forced to issue a statement.

To be sure, Indian crypto platforms including CoinSwitch Kuber allow users to deposit rupee through UPI on their platforms to buy cryptocurrency.

Operating in a Grey Zone

As there is no law governing the operation of international crypto exchanges in India, the UPI transactions of Coinbase are being completed through multiple UPI accounts.

ET has reviewed payment screenshots, including of Aliquid Enterprises, a Delhi-based integrated payments and analytics platform.

In response, Coinbase said, “It is our standard practice, as well as others within the industry, to work with multiple payment aggregators to give users the best experience and to create redundancy.”

Industry experts said Aliquid Enterprises is likely acting as Coinbase’s direct collection agent.

ET reached out to Aliquid through the number and email listed on its website but did not receive a response till press time Friday.

According to Shukla, at present there is no law that stops international crypto companies from offering their services in India or appointing direct collection agents. There are also no registration requirements for either domestic or foreign exchanges as of now.

During the event on Thursday, Coinbase co-founder and chief executive Brian Armstrong said, “We know it’s not going to be a straight shot to bring this technology (in the region). We don’t know exactly how it’s going to evolve but we’re committed to working with bank partners, regulators, most importantly, the Indian people because they showed a real spark of interest in cryptocurrency and there’s a real desire to get access to some of these services and products.”

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