Cryptocurrency platforms are seeing a steady rise in the number of customers despite several risks and regulatory uncertainties. The prospect of earning high returns and the ease of investment is attracting people from across the country — metros to smaller cities. Can someone who invests in crypto also be led to other financial products? Aseem Gujar & Partha Sinha find out…

One of the largest broking outfits in India had taken over a decade to reach 1 crore customer accounts. In comparison, WazirX and CoinDCX, among the biggest crypto exchanges in Ind ia, took just about four years to reach that milestone. CoinSwitch Kuber, another large exchange, claimed to have reached the 1-crore customer accounts mark in just over a year.
Can the populari ty and the ease of crypto investment be used to widen the financial inclusion net, making people aware of traditional products like mutual funds, equity investments, and fixed deposits?

FINTECH FIRST-TIME

An insurance company or a fund house needs men on the ground to reach potential customers. Given the country’s population, it is a difficult task to reach all those who have n ot still benefited from other financial products.

At least 80% of Indians have a bank account in India, according to World Bank data. However, several are inactive or used just to receive government subsidies.
On the other hand, a basic bank account and an internet connection is all that is needed to buy or sell crypto. With the high level of internet and mobile penetration, crypto startups have the potential to attract investors even from the under-banked section of the population.
According to industry players, the trend of new crypto investors being firsttime fintech users could lead to the spread of awareness about formal financial products and services.
Initially, crypto investors were t ypically those who understood the technology and risks involved in virtual currencies. However, the prospect of easy money and the rise in popularity as an alternative investment option over the past two years has led to the entry of several first-timers to the world of financial prod- ucts — traditional or decentralised, which refers to crypto’s distributed ledger or blockchain tech-enabled services.
“A substantial part of crypto users in India are motivated to enter th is space due to the lure of making a quick buck. But once they are inside the crypto ecosystem, a large number of them realise the benefits of a decentralised, blockchain-driven ecosystem fo r the financial sector,” said Jeetesh Tipe, founder & CIO, MintingM, a crypto investment advisory firm.

CRYPTO AS AN ENTRY POINT?

At a Reuters conference in late 2021, Infosys chairman Nandan Nilekani had said that once the young crowd gets into the crypto space after fulfilling the knowyour-customer (KYC) requirem ent, “they (the financial market) have to use that as an entry point to get a lot of young people in the financial markets”.
Tipe of MintingM said that most of his clients are in the 25-35 age bracket. With high adoption of crypto assets in this age group, he said that crypto will lead to better financial literacy and inclusion. Some industry players s aid that being part of the crypto ecosystem itself will lead to financial inclusion. “The whole idea of a decentralised financial (DeFi) system is about a borderless economy in which everyon e can participate and is bound by codes. There is no centralised rule in the system. That’s how the whole idea of financial inclusion within the DeFi system is envisaged. The world is slowly moving towards that,” said Om Malviya, president of blockchain platform Tezos India.
Legal experts said that investing in crypto can act as a first step to enter the crypto economy. “Today se veral lending, investment and other financial products linked to ownership of crypto assets exist and this can certainly be a platform to power goals of financial inclusion and lite racy given the large numbers of crypto users in India. However, ultimately a well-regulated crypto ecosystem trusted by consumers is the only way the crypto economy in India can grow,” said Shilpa Mankar Ahluwalia, partner & head (fintech) at law firm Shardul Amarchand Mangaldas.

MODERN TO TRADITIONAL

However, all may not be smooth sailing for new investors. “Crypto and digital assets (such as NFTs) are anything but traditional. But, as their adoption (or hype by bad actors) grows, so does inqu iry and debate about traditional versus new financial products. In this sense, awareness of all financial products should grow, and the financial services ecosystem should improve over time, but there will be a price to pay; there will be mistakes and rug-pulls. Hopefully, enough will learn from these,” said Vijay Mani, partner, Deloitte India.