Normal service at PayPal
By Sandhya

Tens of thousands of Indians, many of whom are software developers, technical writers and website experts, use American site PayPal to get paid in India.  It had worked well till the beginning of February, 2010.

By early February, 2010, it was clear that PayPal had stopped personal payments and local bank transfers in India without giving any due notice to recipients in India.  Also without explanation, PayPal starting reverting some payments to senders.  Only towards the end of Feb, 2010, that PayPal resumed normal activity in India. (Full story below)

But it seems that PayPal still has not worked out all its issues with the Indian Government.  On July 27, 2010, PayPal sent an email to all its Indian users saying electronic transfer of funds to their bank accounts would stop on Aug 1 till further notice. But Indians could pay $5 to avail the Cheque service.

On July 31, Papal blogged about offering both choices to its Indian users.

“
We’ve received good news – India users can perform electronic withdrawals right now as you did before.

We apologize for the inconvenience this has caused you over the past few days. While we have received your appreciation for the advance notice and the refund of the cheque processing fee, we have also heard loud and clear that you highly value the ease-of-use of our electronic withdrawal service. We want you to know that our customers are our No. 1 priority and we are working non-stop to improve our service to you.

We sincerely thank you for your patience and continued support as we are committed to delivering a world-class service to you in India. To thank you for your loyalty, we will still provide the US$5 processing fee refund for any cheque withdrawals made from July 29 until further notice.
“

(Techgoss had published the following on July 28, 2010)

PayPal: Receive by cheque
By Sandhya

Tens of thousands of Indians, many of whom are software developers, technical writers and website experts, use American site PayPal to get paid in India.  It had worked well till the beginning of February, 2010.

By early February, 2010, it was clear that PayPal had stopped personal payments and local bank transfers in India without giving any due notice to recipients in India.  Also without explanation, PayPal starting reverting some payments to senders.  Only towards the end of Feb, 2010, that PayPal resumed normal activity in India. (Full story below)

But it seems that PayPal still has not worked out all its issues with the Indian Government.  On July 27, 2010, PayPal sent the following email to all its Indian users

“
In accordance with regulatory instructions, we would like to notify you about a change in our withdrawal functionality in India starting on August 1, 2010. At present you can request for either an electronic or cheque withdrawal of funds from your PayPal account if you are an India user. From July 29, 2010 onwards, you will only be able to request for a cheque withdrawal of funds from your PayPal account. While we are working hard to restore the electronic withdrawal service, in the meantime, we are bringing this matter to your attention so that you can plan your future withdrawal activities accordingly.
“

It would cost $5 for every cheque withdrawal from your PayPal account.

(Techgoss had published the following on Feb 27, 2010)

PayPal payments update
By Sandhya

Tens of thousands of Indians, many of whom are software developers, technical writers and website experts, use American site PayPal to get paid in India.  It had worked well till the beginning of February, 2010.

By early February, 2010, it was clear that PayPal had stopped personal payments and local bank transfers in India without giving any due notice to recipients in India.  Also without explanation, PayPal starting reverting some payments to senders. 

By Feb 10, PayPal finally explained its action.  A financial company needs registration with the Reserve Bank of India to offer money transfer services.  And PayPal did not have the requisite permissions.

PayPal has resolved some issues with the Indian Government.  But it is still unable to pay individuals and small businesses which constituted its largest clientele in India. From March 3 onwards, it will only be able to provide bank withdrawal services to exporters registered with the Indian Government. The PayPal blog has this update

“
Resuming local bank withdrawals to India

Hi. It is Farhad Irani again with a progress update. We have been diligently working with the RBI and our business partners to resume Indian bank withdrawals for the thousands of Indian businesses who use PayPal to sell their goods or services in the global marketplace.

I’m pleased to tell you that the RBI has now allowed us to resume bank withdrawals for settlements for exports of goods and services. We are currently making changes to comply with Indian regulations for settlements for exports of goods and services, and we anticipate that as of Wednesday, March 3rd, we will be able to resume the bank withdrawal service. As part of the changes, you will be required to fill out a new field entitled ‘Export Code’ when you request a withdrawal. This information is required under the current laws of India in order to identify the nature of cross-border merchant transactions. On Monday, March 1st, we will be back in touch with specific instructions on how you can move your money into your bank account. I will be posting another blog then.

I’d like to thank the RBI for working with us to get this addressed. We know this is an inconvenience to you and we appreciate your patience.

Moving forward, the RBI has told us that PayPal needs specific approvals to allow personal inward remittances to India, which we currently do not have. Until we get these approvals, personal payments into India will remain suspended. However, if you are an exporter, you will continue to be able to use the PayPal service for payments of goods and services. In fact, with the changes we are making to our system, PayPal is now set to be a more powerful engine for exporters in India. With purpose codes for export transactions and FIRCs (Foreign Inward Remittance Certificates), you should now be able to get the export related benefits you seek.
 “

(Techgoss had published the following on Feb 19, 2010)

PayPal solution in India
By Rajesh Singh

One of the biggest blows to the Indian micro outsourcing industry in 2010 was when PayPal mysteriously stopped all personal payments to Indians.  It took PayPal a few days to acknowledge the fact that Reserve Bank of India (RBI) had directed it to stop operations as it was not a registered financial organization.  A company needs to be registered with Reserve Bank of India before it can offer money transfer services inside the country and also deal directly with Indian banks.

By Feb 10, PayPal was making public the exact reasons on why it suddenly stopped personal payments and was reversing many financial transactions.

The world’s largest online shopping mall eBay owns PayPal.

But it seems that eBay is doing all it can to keep and built its goodwill much of which was lost in India after the PayPal fiasco. Their starting point was the Indian eBay sellers who sell internationally but had their withdrawals to Indian banks blocked. These were goods and so the transaction was not reversed, but depositing the payment to Indian bank accounts is blocked. To help resolve this inconvenience to their clients, eBay is taking the IFSC / SWIFT code from these Paypal users and doing a Manual Wire transfer. Note these are eBay sellers with a PayPal account, not normal PayPal users who received money from family, friends and payment for small contracts.  Many Indian computer programmers, technical writers, animation experts and SEO marketers were receiving their payments via PayPal even though it did not have RBI clearance.

This also explains why only personal payments have been blocked but not for goods. Because goods are generally for eBay sales which are documented and tracked via eBay.in. But personal payments aren't tracked.  The RBI felt that this was leading to substantial tax evasion. An eBay seller from India who has been in business for 6 years told me that this was triggered by gems and jewellery dealers using PayPal personal payments to receive money thereby avoiding paying tax to the Indian Government.

While personal payments will take time to get resolved (and might require Indian users to provide documents like PAN Number), the withdrawal to Indian bank accounts should be available sooner.

PayPal India was in process of launching its services in India challenging the No.1 position of CCavenue. This entire issue certainly puts a question mark on PayPal's readiness to enter India as a full fledged payment gateway. Webmasters have been swearing on twitter to give up PayPal and the road towards smooth India operation looks tough for PayPal.