WazirX, CoinSwitch And ZebPay's Banking Troubles Highlight Urgent Need For Cryptocurrency Guidelines

Over the past few days, things have become quite complicated for apps that allow users to buy and sell cryptocurrency in India and also for those who are investing in cryptocurrencies such as Bitcoin, Ethereum, Cardano, Dogecoin and others. The lack of regulation at this time, which would in particular dictate how banks and payment gateways could be supporting cryptocurrency transactions, has led to a situation that crypto investors in the country are struggling with a significantly hampered experience of buying and cryptocurrency. There is a certain amount of trepidation among investors, about the future support for cryptocurrency platforms by banking institutions. It is reported that the Government intends to set up a panel of cryptocurrency experts as a first step towards regulating cryptocurrency in India.

For investors, cryptocurrency panel recommendations cannot come soon enough. Over the past few days, Paytm Bank has taken back support for banking services from three popular cryptocurrency trading apps in India. This comes after other banks have also withdrawn support over the past few weeks and months. WazirX, CoinSwitch Kuber and ZebPay have shared official communication with users guiding them on alternate methods of depositing money into the in-app wallets for buying cryptocurrency at this time. At this time, it isn’t clear what Paytm’s reasons for withdrawing support from WazirX, CoinSwitch Kuber and ZebPay aren’t clear—Paytm has declined News18’s requests for a statement, at the time of writing this.

“We are excited that more stakeholders such as governments, policymakers, academics, and investors are paying closer attention to the crypto-economy. We welcome the Government’s potential plan to set up a new panel to study the possibility of regulating cryptocurrencies in India,” says Artur Schaback, Co-Founder and Chief Operating Officer of Paxful, in a statement shared with News18. The numbers by the peer to peer (P2P) trading platform Paxful indicate that as of December 2020, India is the second largest Bitcoin market in Asia. And the sixth biggest market in the world, behind USA, Nigeria, China, Canada and UK. It is expected that the volume of transaction and investment would have increased since. Schaback believes that the new panel looking into regulating cryptocurrencies in India would help provide a fresh perspective and increase the understanding of the technology.

“We as an industry have been facing INR deposit issues & we are committed to offering a better resolution for the same. We are in talks with newer partners who will help strengthen this process for all our users,” says CoinSwitch Kuber, in a communication shared with users. ZebPay also says that they are working to add deposit options to the platform, as their existing Paytm Bank account is no longer available for users to make bank transfers to. Earlier, WazirX had informed users that Paytm Bank banking services were no longer available for bank transfers, and the WazirX P2P method was the only available option at this time—in our experience, that is a bit of a hit or miss, depending on how lucky you get. “We’re at the finishing stages to add new banking partners and bringing in multiple INR deposit options for our users to deposit funds to WazirX wallet,” WazirX has shared an updated statement on Twitter. Since then, Nischal Shetty, Founder and CEO, WazirX has tweeted to say that top banks in India are refusing to work with crypto startups, indicating that all is not well.

Earlier this month, IndiaTech.org which is an industry association set-up by Founders and Investors of internet based Indian start-ups, released a whitepaper proposing five recommendations for regulatory clarity for cryptocurrency in India. One of the recommendations is to categorize crypto coins digital assets and not currencies. “Classify crypto assets as “current assets” on corporate balance sheets, similar to stocks or marketable securities, but not as cash or currencies. If India considers crypto a currency, it can levy neither income tax nor GST,” suggests the whitepaper. There are also recommendations on disclosure and taxation, KYC for customer verifications, traceability and bringing cryptocurrency within the money-laundering regulations.

Paytm Bank isn’t the first to seemingly withdraw support cryptocurrency platforms. Banks and payment gateways have been showing a reluctance to engage with cryptocurrency. There are no official guidelines or regulations from the Reserve Bank of India (RBI), since the Supreme Court of India set aside an earlier RBI circular, issued in April 2018, and overturned the circular banning cryptocurrencies in India. At that time, the RBI had directed banks to step back from transacting with cryptocurrency platforms. There have been no fresh guidelines since the Supreme Court ruling in March last year, but banks still remain hesitant. “ICICI bank and other banks are distancing themselves from exchanges supporting Bitcoin and cryptocurrency trading. This is happening despite the supreme court lifting the banking ban imposed by RBI on cryptocurrencies,” says CoinSwitch in a blog post.

The National Payments Corporation of India, which runs the UPI real-time payments system, has refused to ban cryptocurrency transactions in India. Instead, they have asked banks to make their own guidelines with regards to transactions that involve cryptocurrencies. At this time, only the CoinDCX platform supports the MobiKwik mobile wallet as an option to add money, while Google Pay, PhonePe and Paytm remain conspicuously absent as payment options on cryptocurrency trading apps. “It’s unfortunate that crypto sector in India is facing trouble with API based payment processing access. Supreme Court order was clear and it should be accepted by everyone in the country. Crypto industry should not be cut off from banking access,” says WazirX’s Shetty, while also pointing out that as many as 1.5 crore Indians are transacting in crypto coins and there are as much as Rs 15,000 crore of crypto assets in the country.

In March, Finance Minister Nirmala Sitharaman clarified that, “There will be a very calibrated approach to be taken on crypto” and insisted that there will be a “window available for all kinds of experiments”, something that continues to be seen as a positive for the cryptocurrency space in India. Banks have not yet issued any clarifications on their stand regarding cryptocurrency platforms in India, and neither have banks issued any guidelines or advisories for customers who may be interested in investing in crypto coins.

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