PayPal puts India on hold

The numerous and inhibiting regulations issued by the Reserve Bank of India has made the service gradually withdraw from the country
Written by Rajiv Rao, Contributing Writer

Any company that had its biggest development centre worldwide headquartered in a country that also happens to house 1.3 billion prospective customers would consider it a foregone conclusion that the two scenarios could neatly coalesce into one gigantic opportunity. Instead, the company has decided to hold back any further plans, after having withdrawn from the country in phases.

The outfit in question is PayPal, one of the world's largest and most famous online payment systems owned by eBay. The main reason for PayPal's reticence is because of regulations mandated by the ultimate governing body that presides over financial matters in India, the Reserve Bank of India, which looks at PayPal as a quasi financial body. 

PayPal's service allows anyone with an account to hold cash in it indefinitely and this is something that the Reserve Bank doesn't like at all. Essentially, being able to receive payments for services from abroad would also allow Indians to simply hold cash in their accounts and pay for goods and services online, thereby allowing them to evade income taxes entirely. 

So what the RBI decided to do was to revamp their allowance for PayPal users, from several thousand dollars at a time, to a paltry US$500 per transaction starting March 1st of last year. If that wasn't bad enough, all account holders would have to transfer their cash to an Indian bank account within seven days, effectively closing off the undeclared income loophole. (The service would auto-transfer the cash if it languished in there for over that period.) In other words, Paypal, from functioning as a wallet, has become a mere payment gateway in the country. 


To make things worse, perhaps even absurd, was another rule that to make payments using PayPal you would have to transfer it first to the service using your credit card.

However, in a boost to Indian merchants, the RBI in July last year allowed registered merchants to receive US$10,000 per transaction, bumping it up from the earlier limit of US$3,000 (of course these merchants would have, by then, furnished all relevant details such as PAN numbers and local bank details).

But all of the other stipulations, such as the 7-day rule remained in place. So it's no surprise that the service decided, gradually, to simply pull out rather than offer something half-baked to the Indian public.

So while PayPal expanded its service to 10 other countries this month, bringing its tally to 203, it remains absent from one of the fastest growing and largest e-commerce markets in the world. "It's on the plans, but (I) can't give you a definite answer to announce that this is the timeline or strategy at this point," Sam Hamilton, vice- president of data technology at PayPal, said in the Mint article. (Of course, the service is still a boon to the thousands of Indian businesses who either currently use the service or desire to do so in order to undertake transactions with a global network of 148 million Paypal customers.)

Some would say that in a country prone to fraud and income tax evasion, the RBI is simply doing what it needs to in order to ensure that it—and foreign players—don’t facilitate law-breaking.

On the other hand, one wonders whether a more elegant solution isn't available so that the evolution of different kinds of payment systems, which the country desperately needs, is not stymied. 

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