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 rupee transfers to its trading app via UPI.
The abrupt reversal left Coinbase customers without any way of funding their accounts with rupees, dealing a blow to its expansion plans in India. “We are committed to working with NPCI and other relevant authorities to ensure we are aligned with local expectations and industry norms,” a spokesperson for Coinbase said in a statement to Bloomberg on March 11, referring to the National Payments Corporation of India, which operates UPI.
Coinbase wasn’t the only one affected. Since its announcement, at least four other companies that provide crypto-related trading services have either suspended rupee deposits or seen banks and payment gateways pull support for money transfers onto their platforms, according to executives at the firms and local media reports. Two other exchanges had lost support for rupee deposits from a payment service provider before the incident.
Those actions put additional pressure on already falling trading volumes, exchange executives said. The industry is also bracing for a new tax on all crypto transactions above a certain size that will take effect on July 1.
Daily trading volumes on Indian crypto exchanges, which collectively cater to about 15 million people, has tumbled by between 88% and 96% since peaking last year, data from CoinGecko show. WazirX, India’s biggest crypto bourse, saw volumes drop 93% from an October high, according to the data.
Investors who cash in crypto positions on an exchange can still withdraw their fiat currency. Coinbase already offered trading in crypto pairs in India, which doesn’t require customers to deposit rupees into their accounts.
“After the Coinbase announcement, whoever was providing support to the industry has withdrawn support,” said Vikram Subburaj, chief executive officer of crypto exchange Giottus, in an April 12 interview. Giottus’s payment gateway stopped working with it, he said, declining to name the company. Trading volume on the platform plunged about 70% as a result, Subburaj said.
Local rival BuyUcoin has also halted payments via UPI after the notice from NPCI, said co-founder Atulya Bhatt.
NPCI, an initiative by the central bank and the Indian Banks’ Association, is an umbrella organization for retail payments and settlements in the country of 1.4 billion people. It didn’t respond to requests for comment.
CoinSwitch Kuber, a Bengaluru-based cryptocurrency exchange, temporarily halted accepting rupee deposits via UPI and other banking channels, the Economic Times reported April 12. CoinSwitch didn’t respond to an emailed request for comment.
Crypto-trading firms in India have had an uneasy relationship with banks and payment services providers since 2018, when the central bank issued a directive to lenders to stop working with digital asset companies. While the Supreme Court in 2020 reversed that directive, some banks remained hesitant to work with the crypto sector — in part because top officials at the Reserve Bank of India have kept calling publicly for cryptocurrencies to be banned.
As a result of the wariness from the traditional banking sector, payment gateways like Juspay and MobiKwik have become a crucial link between crypto exchanges and clients seeking to deposit fiat currency. Without their cooperation, investors are limited to using methods like transferring money to the exchanges’ current accounts, a time-consuming manual process prone to errors. Coinbase doesn’t offer that option in India.
Investors can also engage in peer-to-peer trading, where transfers of fiat is handled directly between the counterparties, although that represents a small share of the market in India.
One payment service provider stopped working with crypto exchanges last year after being told by banks to do so, its CEO said, asking that he and his company not be named due to the sensitivity of the issue.
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 via MobiKwik have been temporarily suspended.
Restricting payment access without legal grounds for doing so adds up to unfairly singling out the digital asset industry, said Jaideep Reddy, a lawyer at Nishith Desai Associates for specializes in technology.
“If a bank denies service to a crypto business, there has to be a valid reason other than the mere fact that it’s a crypto business,” Reddy said. “Banks have to be transparent, as account holders also have a charter of rights which includes transparency from the service provider.”
Edul Patel, co-founder and CEO of algorithmic crypto trading firm Mudrex, said payment gateways in India started withdrawing support after the Coinbase episode. That happened to Mudrex as well, Patel said in an April 12 interview, declining to name its partner.
The moves didn’t just impact trading, he said: Inflows into Coin Sets, a mutual fund-like crypto product the Y Combinator-backed startup offers, fell by roughly half in the previous two to three days.
“While exchanges around the world are innovating on Web 3.0, Indian exchanges are busy finding the next payment provider,” Subburaj of Giottus said.