Why Is PayPal Screwing Indians? Short version.

Today I received the following mail from PayPal

As part of our commitment to provide a high level of customer service, we would like to give you a 30-day advance notice on changes to our user agreement for India.

With effect from 1 March 2011, you are required to comply with the requirements set out in the notification of the Reserve Bank of India governing the processing and settlement of export-related receipts facilitated by online payment gateways (“RBI Guidelines”).

In order to comply with the RBI Guidelines, our user agreement in India will be amended for the following services as follows:

  1. Any balance in and all future payments into your PayPal account may not be used to buy goods or services and must be transferred to your bank account in India within 7 days from the receipt of confirmation from the buyer in respect of the goods or services; and
  2. Export-related payments for goods and services into your PayPal account may not exceed US$500 per transaction.

PayPal always conviniently quote RBI for all wrong doings but from a post – Why Is PayPal Screwing Indians? An ex-RBI Employee Tells Me The Facts, I came to know of the reason. Which can be summarized as, any organization which stores others’ money for more than 7 days need to be treated as banks. Also all inflow of cash of more than 500 USD needs to be reported to RBI. Paypal neither wants to follow the bank regulations nor it wants to go into hassle of informing RBI. So, finally all Indian startups end up loosing.

I wonder what is keeping banks like ICICI, Citi or HDFC to start such a service in India? This is a great new open market with practically no competition in India.

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