Shashi pointed me to this blog post about the Paypal-RBI tiff. I do not like the tone of the article, because it is too accusatory towards Paypal and even if the article is right, the tone is not very conducive to discussion and solution. But it brings out too important pieces of information
- If anyone bring $500 or more in India, it needs to be reported to RBI
- If Paypal holds funds for more than 7 days, it needs to be treated like a bank and has to adhere to strict banking laws in India.
Now the second one is a little tricky. It is for good reasons, but banking laws are rather strict in India and I can see that paypal may be unwilling to get into that territory.
But the first one, as far as I have understood, can be resolved only if paypal is willing to report the transactions to RBI. I think this is what the Indian payment gateways do. What is paypal’s issue there? I wonder if someone will speak up.
The third major problem which has not been clearly discussed there is about payments made through Paypal. I wonder if this problem is related to “reporting” issues or to the “holding the funds” issue. Would be great to reach out to someone who has some insight into this?
Miles to go... 
This is happened with CPAlead too. You cannot retrieve anything more than $500 from there in total, due to this problem.
It’s a joke really.
Having worked a bit on billing and knowing a bit about different countries tax regulations, laws, etc, etc, I probably guess that the Paypal weighed the amount of work and money (including recurring costs because laws getting changed, maintenance etc) that will be required to comply with Indian regulations was probably not worth pursuing at this point in time given their own, perhaps, limited resources (usually manpower, not money) and bigger opportunities that they might be pursuing.
If you are up to it, take a look at Argentina’s tax laws. It will make your head spin.. 🙂
http://www.moneylife.in/article/foreign-payment-gateways-prefer-to-shut-shop-rather-than-follow-rbi-guidelines/14433.html
Another article which tries to explain the issue.
@Apurva – Cost-benefit is that part I am wondering about. Unfortunately we do not have any data from paypal to know how important India is in their scheme of things, but definitely a large number freelancers and small outsourcing companies depended on paypal for their transactions. Was it too small for paypal to at least agree to reporting of the transactions above 500 USD.
From outside, “reporting transactions greater than USD 500” might seem a simple thing to do but I am pretty sure that there would be more regulations and policies that would come into effect when you do that, besides raising a big question about privacy (remember the transaction details will include who sent the money too) for their non-Indian users. I really, really do not think this would have been easy for paypal to comply with.
I am not saying it is simple, but it must be doable. Indian payment gateways do it after all. It probably boils down to how important the market is for them.
And as far as privacy issues of reporting are concerned, I am pretty sure India is not the only country expecting details of foreign remittances, that too above a certain limit. It is difficult to believe that this is a unique situation is cross-border transactions. In most other methods too, you have to disclose a lot. Probably all they need to do is to show the sender a message/warning that xyz information will be reported to RBI in India.
Doable, it is. No doubt but the reality is that it might just be too painful for them to do right now. They might get back to it later. After all, no policy is eternal.
You can get rid of all such issues if you incorporate your company in US. Otherwise, these is no option but to live with it.
Well Ravish – That’s a rather over-reaching and drastic suggestion. If you have to do business in India or from India, simply incorporating in US is not going to be a solution to all problems. It may bring in other complexities.
You are right, Jaya. Even we integrated Paypal with our product and faced similar issues. RBI may be making the right policies for the benefit of people, but these policies are indeed adding to the woes of companies, which need an online payment system.
It is really frustrating. There seems to be no easy online payment solution available to ordinary Indians. It is a major disincentive to the online businesses.