Crypto cards enter RBI's radar as Indians use offshore wallets for everyday payments

Mumbai: A new animal, which had crept into the world of Indian payments, is now being hounded out. Unbeknown to most, crypto cards, which are prohibited here, had landed up in the hands of several tech-savvy residents. Familiar with crypto wallets, they figured out how to obtain these pre-paid crypto cards and use them for any transaction within India - online purchases, recharging mobile, and booking flights.

For local merchants selling goods and services, crypto cards come across as regular debit cards from Indian banks. Just as money is debited from bank account, cryptos, like stable coins, lying in users' wallets are converted into rupees to pay merchants. Accessed from international fintech service providers like RedotPay, crypto cards are supported by global payment processing networks like VISA and Mastercard.

But, unlike ordinary debit cards, crypto card transactions may escape radars of Indian banks, regulators, tax department, and other authorities. Persons with undisclosed cryptos may store them in designated wallets to spend without leaving a pattern. The cards costs $40-50, have 3-year validity, and high daily transaction limits.


This seemingly furtive payment mode has now caught the attention of Reserve Bank of India (RBI) and Financial Intelligence Unit (FIU), the agency tracking suspicious transactions, two persons told ET.

Significantly, over past few days several Indian residents' access to pre-paid crypto cards and websites of service providers have been blocked.

This may have been triggered by alerts from organisations like Digital South Trust, a Bangaluru-based blockchain research entity, which obtained a virtual VISA-backed RedotPay crypto card to do multiple domestic online transactions in August. It shared the card and online purchase details with Indian authorities.

"Today, even routine Visa or Mastercard payments in India can be funded by cryptocurrencies or dollar-backed stablecoins through offshore card programmes, some of which advertise limited or no KYC requirements. We independently examined multiple crypto-card programmes, documented their use for everyday payments in India, and submitted the findings to relevant authorities. We trust the government to examine the risks," said Sudhakar Lakshmanaraja, founder of the non-profit Digital South Trust. Sources said RBI and FIU are understood to be in touch with VISA and Mastercard on the matter. However, no confirmation was available from the payment firms or the central bank as none of them responded to ET's queries.

"Users can only deposit, not transfer coins from designated wallets unless cards are used. What's significant is the technology working seamlessly at the background. Besides online purchases within India, there are videos doing the rounds on use of physical crypto cards to withdraw cash from ATMs of large Indian banks. Users have no bank accounts but cryptos from their wallets are converted to pay banks the amounts withdrawn," said another person.

Deactivation of cards

Since Thursday, there have been social media posts by a number of users complaining that their crypto cards could not be used in India. Sources do not rule out the possibility where firms like VISA may have started deactivating crypto cards for transactions within (or, from) India.

Though kosher and popular in many jurisdictions, crypto cards trample multiple Indian laws. Linking a crypto wallet with a foreign service provider, paying with cryptos (which are banned as currency) for purchases, and using cryptos to pay overseas residents or merchants may violate Foreign Exchange Management Act (FEMA) among other statutes.

"The pre-paid crypto card phenomenon has been around for some time, but many individual users are clueless about FEMA implications. Of late, internationally there are questions around fund source and beneficial ownership of tokens, including whether they were stolen or hacked. While some cards can be procured with little KYC and AML checks, agencies can use tools like chain analysis to trace token use and path to go after users. The risk is cross-border, not just domestic," said Manavendra Mishra, white collar crime & investigations partner at law firm Khaitan & Co.

According to Harshal Bhuta, co-founder and country co-head (international tax and FEMA) at Ascentium India, a foreign crypto debit card effectively circumvents the pre-paid instruments (PPI) and payment and settlement systems (PSS) regulatory frameworks and raises concerns under FEMA regulations, given that crypto wallet balance is held through foreign custodian account and is automatically converted from cryptocurrency into fiat currency to facilitate merchant payments in India and abroad.

Global growth in crypto card spend is largely driven by stablecoins. This is increasingly visible on traditional rails, with Visa disclosing more than 150% growth in volume across 5 million cards and a stablecoin settlement run rate surpassing $25 billion in annualized volume, said Vedang Ratan Vatsa, founder of Hashtag Web3, a Web3 research and career resource platform. These cards, he said, seem to function less as parallel payment system and more as added funding layer on traditional networks that convert crypto balances to local currency.