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Indian Central Bank Tells PayPal to Stop

PayPal Services Interrupted in India

8:07 pm on Feb 10, 2010 (gmt 0)

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From the NYTimes [nytimes.com]:

"Providers of cross-border money transfer service need prior authorization from the Reserve Bank under the Payment and Settlement Systems Act," a spokeswoman for the Reserve Bank of India... said in an e-mailed response to questions. "PayPal does not have our authorization."

On the PayPal side, here is what they had to say:

Anuj Nayar, a spokesman for PayPal, said in an interview that... People and companies in India can still receive "commercial" payments for goods and services, but they are unable to move money from PayPal into their bank...

It may take several months, the company said, to resolve issues over personal payments with Indian regulators, but it hoped that customers would be able to withdraw their funds to Indian banks within days.

Official response over on the PayPal Blog [thepaypalblog.com]:

The regulators recently let PayPal know about revised licensing rules that we are now actively engaged in securing. Personal payments to and from India will be suspended for at least a few months until we fully resolve the questions from the Indian regulators.

Customers should be able to withdraw their funds to a local bank within the next few days. In the meantime, we’re going to restore the money into the PayPal accounts of any customers in India who have initiated a recent withdrawal, so they know that the money is safe in their accounts. Customers will also be reimbursed for any withdrawal fee charges.
10:56 am on Feb 11, 2010 (gmt 0)

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Rules are made to keep people safe and systems fair, it's quite unfair to punish business owners like this without a warning. Did the reserve bank fail to protect the people with their actions or is paypal solely to blame for inaction of some kind? Tough to tell at this point.
12:54 pm on Feb 11, 2010 (gmt 0)

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Indian red tape is horrible for internet entrepreneurs. To make any foreign payments via wire transfer we have to fill out five forms, get a chartered accountant involved and spend at least $35 (apart from bank charges) to send any money abroad. It also takes two days of following up for the whole process. We have to deduct tax in some cases when making foreign exchange payments, remit the amount to the government so the politicians can siphon out money and get richer. We also pay 'reverse service tax'(on the lines of an anti-dumping duty) when we're buying services from abroad. This can't be passed on to the person/company we're buying from and raises the cost of everything by 10%. It is really time consuming. We prepay for as much as a year in some cases to avoid the repeated nuisance.
3:01 pm on Feb 11, 2010 (gmt 0)

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They also recently tightened up their visa policies (coming in and out of the country, not the credit card). The best I could get was a one year business visa back in December. They have done away with the ten year, are very strict about the five year, and apparently didn't want to give me a two year. Also tourist visas now need to spend 60 days out of the country before re-entry. No more flying to Singapore for the weekend and then going back to India.

Both of these seem to be a reaction against the Mumbai attacks and that people are coming into India for tech work and getting paid overseas off the books.
6:23 pm on Feb 11, 2010 (gmt 0)

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We also were caught off guard. Luckily we also have Paypal US account along with Checkout and another payment gateway.

People in financial circles knew that there was regulation issue between Reserve Bank of India and Paypal.

This would affect a lot of small IT business in India.
8:58 am on Feb 13, 2010 (gmt 0)

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They also switched from not allowing withdrawals to a bank account in some countries, to not allowing people in those countries to get any incoming payments at all. This prevents you from spending or withdrawing the money abroad.

They did this with no notice - the first I knew of it was when a $700 refund I was due (outside their system) got returned to the sender. The result is that an year or so later I still have not got the money. (and the person who owes it to me cannot use Moneybookers because he is in the US).

As you are allowed to make payments from those countries the effect of the rules is to make small imports easier than small exports. Very clever.
3:22 am on Feb 21, 2010 (gmt 0)

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This is still not resolved. I still have my monies hanging with Paypal. Strange thing that PP still has not made any official notice of any kind on their Indian site. You just got to trial and error all your way through. I still cant initiate a withdrawal without getting on a call with PP cause I dont if they have resolved the issue yet. Some 'service'!

[edited by: httpwebwitch at 4:00 pm (utc) on Feb 22, 2010]
[edit reason] removed derogatory words [/edit]