Grey zone in Indian payment laws: Crypto goes shopping in rupee using QR-linked loophole

Synopsis

Unified payments interface is now being used for buying cryptocurrencies through applications like goat.cash. Consumers can conveniently convert their cryptocurrencies, such as USD Coins, to pay vendors for goods. This involves scanning QR codes and entering necessary details, which facilitates quick transactions. Intermediaries help complete the process by converting USDC to rupees for vendors. Additionally, stable coins often trade at a premium within the Indian market.

Mumbai: Unified payments interface (UPI), the ubiquitous system that has transformed the way Indians move money, is being misapplied to shop in cryptocurrencies.

Web applications like goat.cash and conversion merchants acting as intermediaries are seamlessly converting cryptos in buyers’ wallets into rupees to pay sellers of any goods and services in less than two minutes.

All a shopper has to do is scan the vendor’s ‘quick response’ or QR code using the goat.cash application, type the purchase amount, email ID or mobile number and country of location, enter the OTP, and load USD Coins (USDC) into a designated wallet.

USDC is a variety of cryptocurrency pegged to the dollar. The buyer may move USDC from her regular wallet to the designated wallet created for the transaction.

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Almost instantaneously the application scans a list of merchant intermediaries and picks the one offering the best rate for USDC. The USDC coin(s) equivalent to purchase amount, gets debited from the designated wallet and goes to the intermediary acting as liquidity provider.

The latter pays the vendor in rupees from its INR bank account to settle the transaction and sells USDC to recover cost and fees. Typically, stable coins like USDC and USDT trade at a premium in India.

“The difference between the rate at which the intermediary sells USDC in the market and the rate quoted for conversion is the margin that it probably splits with the application provider. Once a buyer shares the India location, the UPI option crops up,” said a digital activist who bought a cup of latte and petrol on Monday morning by scanning vendors’ QR codes.

He tested the payment option after watching the video posts of Jasneet Singh Saini, a software engineer, and Shruti Malviya, a Web3 content creator, who purchased ice-cream and Mumbai local train tickets by accessing goat.cash on their handsets.

When contacted by ET, an official of National Payments Corporation of India (NPCI), the RBI regulated entity which developed UPI, said that as per directions of the Supreme Court, it is not possible to formally stop such transactions.

GAP IN RULES?

The observation carries weight. While cryptos are not accepted as legal tender in India, a three-judge bench of the apex court in 2020 had set aside the Reserve Bank of India’s (RBI) April 2018 circular that had banned banks and regulated financial entities from providing services to crypto-related businesses or facilitating banking transactions for buying or selling cryptos.

Technically, no law is broken as vendors are eventually paid in rupees (and not in cryptos). “A middleman sells the user’s crypto and pays the vendor in INR. This is not banned, but it sits uneasily with the law. Crypto is legal to hold, though not legal tender. Whoever converts on a user’s behalf, in the course of business, must register with FIU-IND. Else, it may be running an unauthorised payment system under the Payment and Settlement Systems Act. NPCI cannot readily see how a payer’s money was funded. The first point of failure is the bank holding the account: its KYC should capture the business activity behind the flows, and transaction monitoring should flag them. Regulators may not learn of it unless a bank, an aggrieved party or a vigilant citizen reports it. These are arguable readings; no ruling tests them,” said former banker Anil Katia who specialises in payments systems.

The transaction has two legs: first, crypto transfer and conversion; second, INR payment to the vendor. The question that crops up is whether RBI regulations kick in when the two are combined in a way to offer a smooth payment experience that is no different from UPI and G-pay.

According to Purushottam Anand, partner at Solvo Legal, “Conversion of users’ VDAs into INR may be undertaken by a VDA service provider registered with FIU-IND. However, such registration does not permit the entity to undertake payment services on behalf of its users. The subsequent payment leg, involving UPI-based settlement to merchants, should be handled by an RBI-authorised entity, such as a PPI issuer or Payment Aggregator. Where a single entity undertakes both activities, the arrangement may qualify as a PA service.”

SIMILAR TO CRYPTO CARDS

The crypto debits with goat.cash are akin to crypto cards backed by VISA and Mastercard, and issued by international service providers. ET had reported on Nov 2, 2026 that many such cards issued to resident Indians have been deactivated after RBI and FIU got a whiff of it.

However, an immediate clamp down on QR scan for crypto to cash conversion may be tougher: whereas a card network can block an offshore issuer, UPI has no such obvious choke point.

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