RBI regulation Limits PayPal Service in India

PCQ Bureau
New Update

PayPal, the eBay arm which allows online payments and money transfers, is putting in place two key user agreement changes in India which cap each payment for buying goods and services from merchants in the country.


This is in keeping with new Reserve Bank of India regulations. Because of certain other changes in rules, the processing of orders may also become longer and result in delivery delays. With effect from March 1, Indian merchants will be subject to a new set of RBI notified rules governing the processing and settlement of export-related receipts through online payment gateways, PayPal officials said. PayPal did not specify exactly when it received the notification.

A PayPal official explained that all users in India must comply with the new rules. 'The majority of our users in India are SME merchants and will still be able to sell their products and services overseas within the $500 limit on each transaction. Users in India who want to buy products and services from abroad can use their credit card-linked PayPal accounts for cross-border online shopping,' he said.

It was not clear if or how the new regulations will affect resident Indians who buy good and services from merchants in this country. Presumably, such intra-border buying can still be done against credit card payments to PayPal.


Dickson Seow of corporate communications at PayPal, said that by informing users 30 days in advance, PayPal was giving them an opportunity to adjust to the new payment process to minimise any disruption in the purchase of goods and services within India.

Two key elements of the user agreement in India have been changed. First, for outbound goods and services from India-based merchants, according to PayPal, payments into the users' PayPal account should not exceed $500 per transaction.

This means that from March 1 India-based merchants from whom buyers abroad purchase goods and services will not be able to receive payments of more than $500 per transaction. For higher payments alternative channels will have to be used.


Second, India-based merchants will not be able to use their existing balance in their PayPal accounts to buy anything directly with the money. They must first transfer the money to a bank account in India within seven days from the receipt of confirmation of order and payment from the buyer. In other words, they cannot use the money immediately as working capital.

RBI could not be reached for comment but industry observers say the government is worried that intermediaries like PayPal can be used by exporters for violating foreign exchange and income tax rules.


'By making it near compulsory for exporters to transfer payments to accounts in Indian banks within the specified time-limit, RBI may be wanting to better supervise money flows into India,' said a senior banker. Instead, customers in India can use their bank-issued credit cards to make payments.

In 2009 PayPal was believed to have nearly 1,80,000 active accounts in India, but this may have fallen since. Analysts say the new regulations will surely be a blow to freelancers, online vendors, auction sites and other people using the net for offering or buying outsourced jobs.

The changes are the latest in a series of impediments before PayPal in India. PayPal began blocking personal payments to and from India in January last year after RBI raised questions if these payments should be regulated like wire transfers of cash. The ability to withdraw funds from a PayPal account in India, which was also suspended, was restored in July.