Indian Crypto Exchanges Go P2P to Skirt Payment Channel Restrictions

India’s crypto industry is constantly seeking ways to circumvent government and banking restrictions to serve the increasing demand for digital assets in the country.

A number of Indian cryptocurrency exchanges are facilitating peer-to-peer transactions as part of an ongoing effort to get around restrictions imposed by banks and payments companies.

Once the exchange receives a buy order, it links the buyer with the seller directly. The buyer can then transfer using a bank or payments platform to the seller who moves the crypto in their exchange wallet to the buyer’s wallet.

This way, there are no transfers between payments platforms or banks to the exchange.

Indian crypto payments blockade

The move has come in response to recent restrictions placed upon payments platforms in India according to local media reports on April 18. An anonymous official at one of the exchanges told the outlet:

“This is not how an exchange should be functioning. It’s certainly less efficient. But apparently there is no violation of any regulation or law. It’s a simple money transfer from A to B,”

Third-party payments processors would usually be the fiat on and off-ramps between the client and the exchange. However, the Reserve Bank of India has issued a number of warnings to them regarding payments to crypto exchanges.

Just a few days after Coinbase launched in India, it was forced to suspend its payments partner due to pressure from the central bank. The exchange planned to open with the popular Unified Payments Interface (UPI) service, but state financial regulators put the brakes on that, stating that they were not aware of any exchange using UPI.

Last week, Indian exchange CoinSwitch Kuber also halted crypto deposits and withdrawals through the payments network on its platform.

This has left Indians with a dwindling number of options for fiat to exchange payments as the banks tighten their grip on digital assets.

Circumventing the bankers

Some exchanges have resorted to different methods of payments, receiving funds directly in their bank accounts from customers. Once the deposit has been made, the exchange credits the user’s crypto wallet enabling them to buy digital assets.

A lawyer told the outlet that this method could also be problematic for exchanges:

“If it’s perceived that by directly accepting funds from buyers, an exchange is offering some kind of a wallet facility to the trader, there would be regulatory issues,”

Investors and traders are already beginning to move funds overseas to use on international exchanges, however, there are also restrictions on this by India’s overreaching banking sector, and so further circumvention is needed.


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