Cryptocurrency exchanges in India are struggling to secure payment solutions as banks have started severing ties.
More crypto exchanges have started feeling the squeeze since the Reserve Bank of India (RBI) informally requested banks to distance themselves. Because of the pullout by major payment gateways transaction speeds have fallen, flooding India’s key exchanges with customer complaints.
“Banks are reluctant to do business,” said Avinash Shekhar, a co-chief executive of Indian crypto exchange ZebPay. “We have been talking to several payment partners but the progress has been slow.” Although there are no official records, industry estimates say India has nearly 15 million crypto investors holding in over 100 billion rupees ($1.34 billion).
Dependence on alternatives
To survive, crypto exchanges are depending on a variety of payment alternatives. Some have managed to partner with smaller payment gateways, or build their own payment processors. For instance, at least two exchanges are now working smaller payment processing firm, Airpay, after larger peers cut ties. Others are holding back on immediate settlements or offering only peer-to-peer transactions.
Some crypto exchanges are forced to mix-and-match their capacities when possible, like WazirX only performs peer-to-peer transactions on certain days. In another case, Vauld allows bank transfers with manual settlement, while working to find a payment processor, who would back up settlements.
Unfortunately, these stopgap solutions have proven very ineffective at scaling. Smaller payment gateways are very successful in executing high volumes of transactions. This consequently led to a flood of user complaints.
“Partnership with the smaller payment processors has not emerged as stable yet, and is more of a temporary solution,” said one Indian crypto exchange founder.
Crypto exchanges in India
Despite the regulatory uncertainty pervading the crypto exchange market in India, some see it as too large to pass up. Several exchanges have all initiated talks to understand the Indian market and entry points better. While one exchange has already started due diligence for an Indian firm that it’s considering acquiring, the other two are still weighing their options. They are considering whether to set up their own subsidiaries within the country or to buy a local firm.
Binance set a precedent for the latter when it bought WazirX in 2019. However, both Binance and WazirX have come under particular scrutiny recently. Last month, the country’s Enforcement Directorate (ED) started an investigation into WazirX for suspected violation of foreign exchange regulations. Meanwhile, Binance has been warned against by financial regulators in three different countries.