With crypto exchanges banking on the success of Unified Payment Interface (UPI)’s stupendous growth for user acquisition, it has asked the National Payments Corporation of India (NPCI) to roll back its decision.
An association of crypto exchanges and companies working in the crypto space, Blockchain and Crypto Assets Council (BACC) has recently sent a letter to NPCI to restore UPI service to Indian crypto exchanges.
Since 2018, the Reserve Bank of India (RBI) has locked horns with Indian crypto exchanges and has also issued circulars to banks and financial institutions for not allowing any companies in the crypto space to use their platform for any financial transactions.
RBI had also banned crypto trading a few years back, but it was set aside by the Supreme Court of India in 2021.
In a letter, the council, which is formed by the Internet and Mobile Association of India (IAMAI), that has challenged the RBI’s circular in court, has asked the Indian government-operated payment gateway to start the service, as it is becoming difficult for crypto users to deposit money in their crypto account instantly.
By using UPI, users can instantly deposit fiat in their account and can trade for crypto, but after NPCI statement on 7 April 2022, that said it’s not aware the crypto are purchased using UPI, it has made crypto exchanges to stop the UPI service.
After this, on 10 April 2022, US-based crypto trading firm Coinbase, a well-known name in crypto trading, temporarily disabled the option to buy cryptocurrencies using the UPI in India.
The NPCI decision has created roadblocks for all the online payment gateways that were offering services to crypto exchanges.
Even though the Indian government decided to impose a 30% crypto tax on profit and 1% TDS on all transactions, crypto exchanges are going through these issues.
In the 2022-23 financial budget, Indian finance minister Ms. Nirmala Sitaraman announced a crypto tax, ending all speculations on the crypto ban in India.
However, the minister has said that crypto will be looked at as an asset class and there will be no complete ban on cryptocurrency. Until then, people trading in crypto will have to pay taxes, as there are huge profits made.
Top crypto exchanges like CoinSwitch Kuber, WazirX, and CoinDCX have written to the UPI manager, NCPI, in a letter for restoring the service and they are ready to discuss the regulator’s concerns if any regarding the usage of UPI in cryptocurrencies trading.
A source in BACC said that the council has asked for time with NPCI so that we can understand their reservations and provide them with solutions. “We are ready to clear any misunderstanding they have on crypto trading”, the source said.
Before UPI, users used to deposit fiat to crypto exchange accounts through wire transfers, which used to take a few hours. But after UPI integration, transfers were done within minutes. This also brought in new users, who were not very keen to trade in crypto through wire transfer routes.
As RBI is not very keen to support crypto exchanges due to concerns that they can be banned, it has always asked the banks not to work with crypto exchanges.
However, due to many legal gray areas, crypto exchanges have been serving their users in India for quite some time.
In its letter to NPCI, a not-for-profit crypto advocacy group under IAMAI has reportedly stressed the need for the restoration of the UPI service, citing that several of the crypto exchanges on their own follow a very strict user KYC and other NPCI protocols.
Why UPI is so important
UPI is the fastest growing instant payment system in India today with 323 banks in its fold with 5.95 billion transactions worth $133 billion processed in May 2022, against the previous month of 5.58 billion payments of $125 billion in April 2022.
From just 21 banks using UPI in July 2016 with only 9000 transactions worth $50,000, UPI has seen tremendous growth, which can be seen in the figures for May 2022.
UPI is a real-time inter-bank peer-to-peer (P2P) and peer-to-merchant (P2M) payment system developed by NPCI, which is used by all banks & online payment gateways, like MobiKwik, Google Pay, Amazon Pay, PhonePe, BharatPe, others.
With over 150 million active users, UPI has also crossed $1 trillion in annual transactions.
With crypto usage growing every day, UPI could have been a boom for trading, but NPCI has made the matter worse with its statement cautioning banks not to allow crypto exchanges to use this mode for payments.
In order to take UPI global, Cross border digital payment service provider Liquid Group in September 2021 signed a memorandum of understanding (MoU) with NIPL, the international subsidiary of NPCI, to introduce UPI based QR code payment system from 2022 in Singapore, Japan, Thailand, Philippines, Hong Kong, Vietnam, Cambodia, Taiwan, and South Korea.
NIPL has also signed an MoU with Arab Monetary Fund (AMF) on 8 March 2022 to link UPI with the Buna Payment Platform that is connected with the central banks and financial institutions from the Arab region.
So far, UPI is accepted in Singapore, Bhutan, Malaysia, United Arab Emirates, Nepal, and France. It is also in Australia and Russia for launching its payment interface.
With crypto exchanges following all the KYC rules and other government protocols, it is high time for NPCI to restart the service to crypto exchanges, otherwise, this can impact the growing workforce providing their services to these exchanges.