Crypto goes abroad, comes back as shopping money: How Indians are using overseas platforms to turn USDT, stablecoins into gift cards to buy groceries, fuel, food, mobile recharges and even gold

The vouchers are closed-loop prepaid instruments issued by specific entities.

The world of cryptocurrencies is a strange one. And the way some Indians are ‘round tripping’ cryptos is another interesting facet of it.Someone ‘earning’ crypto through either legitimate or illegal activities can also use it via international organisations, without the transaction necessarily passing through local high-street banks or coming to the notice of the tax authorities.For those familiar with cross-border money transfers, this is hardly a secret.What remains less understood by regulators, government agencies and people outside the payments industry is how Indians can use crypto to pay for a wide range of everyday purchases, from groceries and fuel to mobile recharges, food delivery and even gold within the country.Let’s take a look:

How the crypto re-routing works

The mechanism involves leading fintech and e-commerce platforms incorporated in Sweden, Germany and Singapore, according to an ET report. Individuals can use these platforms to obtain gift cards or vouchers, which effectively serve as proxy money, by transferring stablecoins from their private e-wallets to overseas entities.These offshore platforms, in turn, purchase gift vouchers in bulk from voucher issuers and aggregator companies in India that operate as their partners.The vouchers are closed-loop prepaid instruments issued by specific entities and can be used to make purchases from the brands and stores designated by them.Because such instruments cannot be used to make payments to third parties or withdrawn as cash, they are not subject to monetary limits and fall outside RBI regulation, the report said.The overseas platforms either maintain an inventory of digital card codes or generate the codes through technology arrangements with their Indian partners.The crypto received from Indian users, whether USDT/stablecoins or other virtual digital assets (VDAs), is sold overseas by the platform’s parent or an associated company. The proceeds from those sales are then used to make payments to the Indian voucher partners.This voucher procurement mechanism, which is a round-tripping of sorts, was recently brought to the attention of the finance and home ministries by a blockchain research organisation that advises 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”, Sudhakar Lakshmanaraja, founder of Digital South Trust was quoted as saying.According to him, the scale and cross-border nature of these pathways merit further examination for their potential implications for regulatory oversight.

Deep Dive

Indian users who are keen to avoid leaving a transaction trail would generally not withdraw their crypto from VDA wallets maintained with Indian exchanges. Instead, they would transfer the coins directly from private wallets, accessed through their laptops, to overseas platforms using blockchain-based pathways.The foreign platforms play an important role in this crypto-to-gift-card chain and make money from the conversion rate applied when crypto received from Indian users is converted into vouchers.One such platform, which issued more than 16 million cards to Indian users, offered a conversion rate of 88, meaning one USDT was converted at 88, compared with a rate of more than 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 the crypto source is suspect,” said a crypto industry official.The mechanism also raises questions around India’s existing framework for cross-border payments, said Moin Ladha, partner, Khaitan & Co.“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 the 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.A payment industry official said gift cards can also create scope for misuse when someone is deliberately looking to circumvent existing laws, since the code can be transferred 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.