In a change that shows the pitfalls of doing business internationally, PayPal recently set a $500 limit on transfers to India and it is now requiring that recipients move their funds to a bank within a week. The change in PayPal policies comes as a result of new guidelines from the Reserve Bank of India.
PayPal amended its user agreement for users in India in order to comply with Reserve Bank of India (RBI) requirements. International shoppers will not be allowed to send payments to Indian merchants of more than $500 per transaction.
Read the news story here: http://www.auctionbytes.com/cab/cab/abn/y11/m01/i31/s04
The new rules go into effect on March 1, 2011, and have been decried as a burden to Indian freelancers by critics. While PayPal is one company that is affected, any other company offering similar services would have the same restrictions, according to reports. Any entity that allows on-demand payments or lets consumers store money for over seven days would need to pay interest and be regulated as a bank.
Read an article from the Times of Assam here: http://www.timesofassam.com/exclusive/paypal%E2%80%99s-new-rules-based-on-rbi-guidelines-blow-on-indian-freelancers
For its part, PayPal put a notice on their blog to give users a warning of the changes to help them prepare. Indian PayPal users will no longer be able to use their accounts to make purchases.
From PayPal’s Blog:
We have received a notification from the Reserve Bank of India (RBI) outlining the new requirements for governing the processing and settlement of export-related receipts facilitated by online payment gateways. In order to comply with the RBI guidelines, our user agreement in India will be amended for the following services with effect from 1 March 2011 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.
Read the full blog entry here: https://www.thepaypalblog.com/
International buyers may find it harder to purchase from Indian merchants and service providers. How this will affect outsourcing of contract work and direct shopping abroad remains to be seen, however it remains a warning that when dealing with multiple countries, the regulatory environment could become a hurdle to doing business and future growth.