As Indian crypto ban looms, blockchain projects find new life
India's potential cryptocurrency ban is pushing distributed ledger developers and banks into supply chain payments to stay compliant and competitive.
The Indian government is considering banning most cryptocurrency payments and cryptocurrency trading, following a July ruling from India's top court, which backed restrictions on banks providing cryptocurrency services. The moves could keep projects such as Facebook Libra out of the country.
India's IT industry has lashed out against the move, with trade group Nasscam saying it would harm startups.
"India has been lukewarm to cryptocurrency," said Rajashekara Maiya, vice president of business consulting for the cloud and blockchain business and ecosystem innovation at Infosys Finacle in Bengaluru. "But there are a lot of other use cases for blockchains and distributed ledgers that the government will support."
Infosys Finacle is the company's open platform to push blockchain-related payments, among other use cases, and has attracted about 15 banks in India.
Infosys is in a position similar to U.S. banks about three or four years ago regarding cryptocurrency, though for a different reason. U.S. banks shied away from cryptocurrency because of the perceived risk and lack of regulation, while in India independent usage of crypto has been removed as an option entirely.
U.S. and European banks have found other uses for cryptocurrency's underlying distributed ledger technology, such as bolstering security and streamlining cross-border payments.
Infosys has found similar success with blockchain alternatives. The company supports India Trade Connect, a consortium of local banks that uses a blockchain to automate domestic trade finance, handling payments and documentation for a $2.45 trillion market for domestic supply trade payments, according to Celent.
"Distributed ledgers have helped provide a low cost KYC solution," Maiya said. "It also addresses fraud in paper checks, and we're also looking at how to use distributed ledgers to manage insurance issues in supply chains."
It's still possible cryptocurrency payments could find a way to exist in India. The proposed ban is on cryptocurrency that's not regulated by the Indian government, leaving room for a government-backed virtual currency, Maiya said. "They are trying to be open about this," he said.
More uses for crypto and blockchain would be helpful for Infosys, as its trade product comes amid a broader push at Infosys to dramatically increase its revenue in India, which will require a major contribution from Infosys' blockchain and payment units.
The trade finance play, which Celent says is a favorable use case based on Indian regulations as it supports the country's digital strategy, has allowed Infosys to build a blockchain business as it waits for new use cases.
That includes distributed ledger apps for health care, education, financial inclusion and security, which would all support local payment models that fall under Bank of India guidance and are under development. The United Payments Interface, India's faster payments system, has also been helpful. UPI and other government initiatives — such as tax incentives to discourage cash usage — are pressuring banks to upgrade to support faster payments, giving Infosys a revenue stream since about 80% of India's digital transactions pass through Finacle.
"UPI has been a benefit, and is something that should be a model for other markets," Maiya said.
Cryptocurrency regulation is not the only dramatic move the Indian government has made. India removed about 80% of the country's cash from circulation in 2016 and has issued rules mandating local data storage for payment providers that make it more expensive for PayPal, Mastercard, Visa and other foreign companies to process payments in India.
These rules would appear to hinder foreign investment, but non-Indian companies have continued to flood the market with capital.
Mastercard is in the midst of a $2 billion, multiyear investment in India that includes partnerships with local fintechs, while Visa has published specifications to support a government-backed contactless transport card that can be used for multimodal transit payments.
Google recently added security tools for Google Pay in India; and this year has expanded use cases such as ticketing. And Amazon launched its P2P Amazon Pay app in India in April.
While the country's crypto ban would leave out very specific initiatives, such as Facebook's project Libra, it doesn't necessarily leave out Facebook, which plans to make India the first market for its WhatsApp in-app payment service this year.
This crowding of the market also boosts overall digital use, and creates the more frequent smaller transactions that are the hallmark of a market that's building a digital payments base, Maiya said.
Facebook's user base in India is larger than its user bases in other countries, making it worth the investment despite any regulatory hurdles, said Eric Grover, a principal at Intrepid Ventures, adding that while there are regulatory hurdles in India, it's still a more open market than China, another huge market that more heavily restricts foreign investment.
"Investing in electronic payments in India is attractive, indeed compelling … and if the regulators took a lighter touch it would be more attractive," Grover said.