Is PayPal Being Enforced Towards Virtual Death in India?

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PayPal has recently announced the major shift in its policy catering to Indian customers. Going forward from March 1 2011, PayPal users from India won’t be able to route the collected amount for any type of buying efforts.  As per the new guidelines, issued by Reserve bank of India (RBI), every Indian PayPal users will have to withdraw all received money in their PayPal account to their local banks account via cheque or wire transfer within seven days of transaction.

Challenge for Indian Business Owners:

Certainly, PayPal is world’s most trusted and reliable payment collection gateway. PayPal acts as an online virtual bank through which people receive and send money across the globe. For last one year it has become more creditable for all Indian business owners after it has allowed to withdraw the PayPal money to their local bank accounts.

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Many business owners who receive the payment through PayPal accumulate that money in PayPal account and later use it against making payment to buy any goods or services.  This general exercise is the most popular among all business owners across the globe.

As per the new guidelines by RBI, people in India will not be able to use the collected amount through PayPal for any online payment. All collected money will need to be withdrawn only in bank account within seven days. However, for making any payment, all Indian PayPal users will need to use their credit cards for each and every transaction instead of PayPal balance.

That means, all earned money – via PayPal – will be shown in personal account and would be taxable. All business account holders at PayPal are going to have significant impact with the new policy. This will only dent their profit as cut-throat competition kills any possibility of loading this cost on customers.

The other challenge would be to keep one credit card engaged  for any further paypal transactions. No matter how healthy is your PayPal balance, you are forced to make use of your credit card for any online payment through PayPal every time. Unfortunately, if your credit card doesn’t have sufficient balance to clear the required payment, even though you won’t be able to use your PayPal balance for any such emergency transactions.

Penalty for PayPal

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Definitely, this is going to dent the business of PayPal in Indian till certain extent. People in India may find it difficult to deal with PayPal with such business scenario. Rather, there are many such payment gateways in India which allow receiving the money with comparatively less transaction cost and the money will be deposited on every fortnight – or every week – in personal bank account without any additional bank fees.

In a country like India where people still need to grow up for online business and don’t prefer o have high limit credit cards exposure over Internet but are committed to high outgoing payment value every month, surely it’s going to be a daunting task. Till now they are using all online incoming payment trough PayPal to satisfy their outgoing needs. In absence of such arrangement, they may prefer to adopt any other alternate route for their requirements which will lead them away from PayPal.

There are many people who will think to avoid additional bank charges which they have to omit while withdrawing money from their PayPal account to bank account. As all earned money, through PayPal, will come under tax scanner, people will surely try to cut the corners and will stay away from PayPal.

Has RBI got right stone to hit?

The prime objective behind such incompetent policy by RBI is to regularize all incomings and keep track of illegal activities like money laundering and tax evasion. Though, it’s an appreciated move but the implementation methodology may is not correct and will only hurt the cross border online business transactions in India, many analysts feel.

There are many other countries, like U.S. and U.K., where paypal controls major share of global online payment transaction market successfully for many years. Interestingly, they have adopted other comprehensive ways to control irregularities in money transaction unlike India.

As a matter of fact, PayPal already tracks every Indian user’s Pan Card number which can be used by RBI to have complete information over his/her /their transaction details every quarter or year. In such arrangement , typically, RBI can easily throw away policies like above one.

However, apparently, RBI has not put their ‘think tanks’ on work to handle the situation properly and when it’s all set to clip the hands of PayPal in India, it’s difficult to bet on PayPal’s future growth. Especially when E-commerce industry is on boom and India has got a major “say” in E-commerce industry growth for next 3 years, such setback will surely drag the PayPal towards virtual death in India.

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