Indians can use crypto to buy groceries, fuel and gold through overseas gift-card platforms

Mumbai: For many in the wonderland of cryptos and cross-border money transfers, it's an open secret.

But regulators, government agencies, and most outside the realm of payments are probably clueless how cryptos can be spent by Indians to buy almost anything -- groceries, fuel, mobile recharge, food delivery, and even gold within the country. A resident 'earning' cryptos for legal or illegal activities, can also spend the cryptos through international organisations without local highstreet banks and the taxman getting a whiff of it.

Such individuals avail services of leading fintech and e-commerce platforms of companies incorporated in Sweden, Germany and Singapore to acquire gift cards or vouchers, which are proxy-money, by sending stablecoins from their private e-wallets to these foreign entities.


The offshore platforms buy gift vouchers in bulk from voucher issuing and aggregator firms in India who act as partners. These are closed-loop pre-paid cards issued by specific entities for purchase from respective brands and stores.

Since these instruments can't be used for third party payments and cash withdrawal, they have no monetary limits and are outside RBI regulation.

The overseas platforms either has inventory of digital card codes or generates codes by virtue of technology tie-ups with the Indian partners.

The cryptos -- either USDT/stable coins or other virtual digital coins (VDAs) --- received from Indian users are sold abroad by the platform's parent or associate firm. The sale proceeds are used to settle the payments with Indian voucher partners.

Recently, this procuring vouchers mechanism -- a round-tripping of sorts -- was brought to the notice of finance and home ministry by an blockchain research organisation advising law enforcement authorities.

"Our key finding is that several overseas crypto payment platforms accessible to Indian users, with payment pathways involving local intermediaries and India-facing channels that enable crypto conversion into vouchers used for direct payments for goods and services", said Sudhakar Lakshmanaraja, founder of Digital South Trust. According to him, the scale and cross-border nature of these pathways merit further examination for their potential implications for regulatory oversight.

The Mechanics

Typically, users in India, who are careful in not leaving a trail, would avoid withdrawing cryptos from VDA wallets with Indian exchanges. They would prefer moving coins directly from private wallets (accessed on their laptops) to foreign platforms through blockchain pathway. Significantly, overseas platforms, serving as key intermediaries in crypto-for-gift card chain, earn margins from the rate at which cryptos from India are converted.

One platform, which issued over 16 million cards to Indian users, offered a conversion rate of 88 - i.e, one USDT for ₹88 - as over 95 in India.

"But, those shopping for jewelleries to airline tickets with undisclosed cryptos, wouldn't mind lower conversion rates generating platform margin. The cryptos are neither reported in I-T returns nor taxed. Particularly, if crypto source is suspect," said a crypto industry official.

"India has clear rules governing cross-border payments, including the permitted manner of payment and circumstances in which a third party may settle an obligation. The concern is crypto being used to achieve the same economic result outside banking system and its attendant checks. While AML and tax requirements apply to VDAs, there's need for express clarity under forex framework on cross-border crypto transfers, particularly when converted into vouchers or other instruments providing purchasing power in India," said Moin Ladha, partner, Khaitan & Co.

According to a payment industry official, if the intent is to find a way around laws of the land, there are ways to misuse the instrument because a gift-card code can be passed from one person to another. "We can make controls as tight as Fort Knox, but that would reduce ease and spontaneity of gifting. The industry is constantly trying to balance fraud prevention with ease of use," said the person.