RBI and FIU Target Offshore Crypto Cards Used for Everyday Payments in India

India's Reserve Bank and its Financial Intelligence Unit are examining offshore prepaid crypto cards that Indian residents use for routine domestic payments, two people told The Economic Times, and access to several of those cards and provider websites has already been blocked in recent days.

The cards work like ordinary debit cards to merchants. Stablecoins or other crypto held in a user's offshore wallet convert into rupees at the point of sale, over rails run by Visa and Mastercard. To the merchant, nothing looks unusual. To regulators, plenty does.

Who flagged it first?

Digital South Trust, a Bangalore-based blockchain research nonprofit, obtained a virtual Visa-backed crypto card from RedotPay, an international fintech provider, and ran multiple domestic online transactions with it in August. The group shared the card and purchase records with Indian authorities.

"Today, even routine Visa or Mastercard payments in India can be funded by cryptocurrencies or dollar-backed stablecoins through offshore card programmes, some of which advertise limited or no KYC requirements," said Sudhakar Lakshmanaraja, founder of Digital South Trust. "We independently examined multiple crypto-card programmes, documented their use for everyday payments in India, and submitted the findings to relevant authorities. We trust the government to examine the risks."

Sources said the RBI and FIU are in touch with Visa and Mastercard on the matter. Neither the payment networks nor the central bank responded to queries from ET, so no official confirmation exists yet.

Are the cards being switched off?

Users began posting on social media on Thursday that their crypto cards had stopped working in India. Sources did not rule out the possibility that Visa itself has started deactivating crypto cards for transactions within or from the country.

A second person familiar with the mechanics described how the system operates: "Users can only deposit, not transfer coins from designated wallets unless cards are used. What's significant is the technology working seamlessly at the background. Besides online purchases within India, there are videos doing the rounds on use of physical crypto cards to withdraw cash from ATMs of large Indian banks. Users have no bank accounts but cryptos from their wallets are converted to pay banks the amounts withdrawn."

What laws are at stake?

Crypto cards are legal and widely used in many jurisdictions, but in India they cut across several statutes. Linking a crypto wallet to a foreign service provider, paying for purchases in cryptocurrency — banned as currency in India — and using crypto to pay overseas residents or merchants may violate the Foreign Exchange Management Act, among other laws.

"The pre-paid crypto card phenomenon has been around for some time, but many individual users are clueless about FEMA implications," said Manavendra Mishra, white-collar crime and investigations partner at Khaitan & Co. "Of late, internationally there are questions around fund source and beneficial ownership of tokens, including whether they were stolen or hacked. While some cards can be procured with little KYC and AML checks, agencies can use tools like chain analysis to trace token use and path to go after users. The risk is cross-border, not just domestic."

Harshal Bhuta, co-founder and country co-head of international tax and FEMA at Ascentium India, said a foreign crypto debit card effectively circumvents India's pre-paid instruments and payment and settlement systems regulatory frameworks, because the wallet balance sits with a foreign custodian and converts automatically from crypto into fiat to settle merchant payments in India and abroad.

How big is this globally?

Stablecoins drive most of the growth in crypto card spending worldwide, and the volume is increasingly visible on conventional rails. Vedang Ratan Vatsa, founder of Web3 research platform Hashtag Web3, cited Visa disclosures showing more than 150% growth in volume across 5 million cards, with a stablecoin settlement run rate above $25 billion in annualized volume. These cards function less as a parallel payment system and more as an added funding layer on traditional networks, he said, converting crypto balances into local currency.

That is precisely what worries Indian regulators: the cards ride domestic rails while the funding sits outside the domestic regulatory perimeter. With the FIU already empowered to block non-compliant virtual asset service providers and the RBI pressing its long-standing case against stablecoins, the current blocking of card access looks like an enforcement opening rather than a closing move. Formal guidance, or enforcement action under FEMA, would be the next step to watch.