Reserve Bank of India Scrutinizes Offshore Prepaid Cryptocurrency Payment Cards

Indian financial regulators have begun examining offshore prepaid cryptocurrency cards utilized by domestic residents for retail purchases and automated teller machine withdrawals, The Economic Times reported. The payment mechanism allows consumers to fund transactions through digital wallet balances such as dollar-pegged stablecoins that convert into Indian rupees at point-of-sale terminals. Issued by international financial technology platforms including RedotPay, the payment cards operate across established global processing networks such as Visa and Mastercard. Officials from the Reserve Bank of India and the Financial Intelligence Unit initiated regulatory reviews following reports of potential statutory breaches.

Investigation Findings and Compliance Deficits

Regulatory scrutiny followed research investigations conducted by Digital South Trust, a Bengaluru-based blockchain research organization, The Economic Times noted. The research group obtained a virtual Visa-backed payment card in August and completed domestic transactions to demonstrate how offshore balances bypass standard compliance checks. Digital South Trust founder Sudhakar Lakshmanaraja stated that offshore card programs advertise minimal customer verification requirements while enabling payments across Indian commercial networks. Videos circulating across digital networks highlighted cardholders withdrawing cash from automated teller machines at prominent domestic banks without maintaining local accounts, The Economic Times reported. Investigators also observed social media demonstrations depicting individuals using physical cards to withdraw cash from domestic bank terminals without maintaining local bank accounts.

Foreign Exchange and Settlement Violations

Legal and financial specialists warned that using offshore cryptocurrency instruments to settle domestic obligations conflicts with multiple Indian statutes, The Economic Times reported. Converting digital tokens held in foreign custodian accounts into fiat currency to pay merchants raises potential violations under the Foreign Exchange Management Act. Furthermore, the offshore mechanisms effectively bypass the Reserve Bank of India's regulatory frameworks governing prepaid payment instruments and payment settlement systems. Legal advisers observed that cross-border enforcement agencies increasingly utilize blockchain analysis tools to identify transaction trails and trace beneficial token ownership.

Service Deactivations and Industry Trajectory

Amid expanding official scrutiny, multiple cardholders reported access disruptions and card deactivations when attempting transactions in India, The Economic Times noted. Industry sources indicated that international payment networks may have initiated selective transaction blocks on cards linked to offshore cryptocurrency providers. Neither the central bank nor multinational payment card corporations responded to requests for comment regarding ongoing regulatory discussions, The Economic Times noted. Global expansion in prepaid crypto cards is primarily driven by stablecoins operating on traditional settlement rails, according to Economic Times. Regulatory authorities continue evaluating operational compliance risks as cross-border digital financial products increasingly intersect with domestic payment networks.

In 2022, India instituted a statutory crypto taxation framework imposing a 30% tax on crypto profits with no loss offsets and a 1% TDS on every transaction, according to OneKey.