If you have reason to send money by Paypal to anyone in India – or if you are someone in India needing to receive money via Paypal – well, you may be out of luck, unless you can legitimately claim that the funds sent by Paypal are not for personal use, but, rather, are a business transaction for the purchase of goods. That is because Paypal has suspended all personal payments to India, and has even taken the radical step of reversing some personal Paypal payments to people in India that were already paid (leaving the hapless recipient with a negative balance), all at the demand of the Indian government, over concern that funds earmarked as ‘personal’ may actually be money being sent home by Indian citizens working overseas (known as a “remittance”).
Many are saying that this has extended to payments sent to India that are designated for “services” as well, with the only payments going through unscathed being those earmarked as for “goods” purchased.
The situation began late last month, when the banking regulatory agency in India let Paypal know about concerns that they had that money coming into India via Paypal – particularly as “personal” payments – were likely to be remittances. A note posted on the Paypal blog when this all blew up explains that “We’re working with the regulators and our bank processing partners in India to get this resolved as quickly as we can. We realize that this is causing considerable inconvenience to our customers and I want to reassure you that this is a top priority for the leadership at PayPal… 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.”
So, why does the government of India care about ex-patriots sending money back home? Why would they want to stop that influx of money?
They don’t actually want the money to stop.
The bottom line is that this is all about red tape. It turns out that in 2008 India updated their financial code such that a license is required specifically for “cross-border money transfers” (such as transferring money between family members), and providers of such services (as Paypal is now being seen) must apply for and receive a special license, which Paypal does not have.
“Providers of cross-border money transfer service need prior authorization from the Reserve Bank under the Payment and Settlement Systems Act. PayPal does not have our authorization,” explained a spokesperson for the Reserve Bank of India.
According to sources, Paypal does not consider itself a cross-border money transfer service because all of their transactions are completed online – the recipient in India still has to transfer their funds to a local bank before they can withdraw them. While this is the kind of hair-splitting for which we lawyers are famous (and, make no mistake, it often works and Paypal’s view here is not actually unreasonable), that doesn’t help the dozens of thousands of people on both sides of the transactions who now cannot initiate or receive money transfers to India.
So, despite their purported views, Paypal is doing everything within their power to comply with Indian authorities, but there is no word on just how long the process of getting licensed as a provider of cross-border money transfer services will take, and until Paypal is properly licensed in India, they will have to keep “personal” payments to India suspended.
In the meantime, in the newest update to the situation on the Paypal blog, Farhad Irani, from Paypal’s Asia Pacific business office, offered that “As the leader of PayPal’s business in the region and as a fellow Indian, I want you to know that we are sparing no effort in ensuring that the present day inconvenience in not being able to process the bank withdrawal functionality in India for sellers is quickly and completely addressed. This is the single most important item for me and my management team. My sincere apologies for the inconvenience you must be facing,” and adding that “We were hoping that our merchant customers would be able to start withdrawing their funds at their local bank by today, but it looks like this will still take some more time.”
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