Paypal and RBI Issues – Whole Story

Paypal screws Indians again on January 28, 2011 by imposing restrictions on Indian Paypal users because they can't adhere to the guidelines laid down by Reserve Bank of India (RBI). For the sake of a little recap, Paypal stopped personal payment to and from India in Feb '10. They stopped Electronic Funds Transfer for Paypal Indian users in August '10. And yet now they have imposed restrictions on how its Indian users work.

  • Users can't receive more than US$500 as payments for export related goods and services.
    • In effect from March 1, 2011, you can't receive payments for an amount exceeding US$500 per transaction. If you need to receive a bigger amount than US$500, then break it into multiples and do so.
  • Users will have to withdraw the money within 7 days of receiving it.
    • You can't keep your money in Paypal account for more than 7 days. You will have to initiate a withdrawal before 7 days. There is no news on what will happen if you don't, as of now.
  • Users can't use their Paypal funds for making payments through Paypal.
    • You can't use your available Paypal balance in paying for something. Any payments from the account will require a Credit Card attached to it which will be the only funding source. So if you want to use the money you already have in your account, you can't. You will have to withdraw them on a horrible exchange rate (you lose money here) and then pay from your Credit Card which charges you a horrible exchange rate again (you again lose money here).

Link: Paypal Blog Notice

Who is to blame? Paypal or RBI?

I have seen several people, several news portal including reputed newspaper sites of India blaming RBI for their move but the truth is that RBI did the right thing and Paypal is playing their game here. I will explain.

According to Foreign Exchange Management Act, 1999 (FEMA Regulations), a business like Paypal is breaking the FEMA Act by operating like how it has been since its existence in Indian economy. And to keep things right and tight, RBI forced Paypal to abide by the rules or they won't be able to operate here in India.

This helps RBI monitor payments which could be used for illegal activities like terrorism.

The catch here is that RBI didn't force Paypal to put those restrictions on Indian users. Paypal put restrictions on user to make an escape out by limiting itself so that it will still comply with the RBI regulations.

According to RBI, Paypal can't hold users money for more than 7 days as they will need to pay users interest on the money they have in their account. this means Paypal will have to pay interests to users which they are eating up by themselves. For every transaction of above US$500, Paypal will have to report RBI about it. Paypal could have agreed to RBI regulations so that they can still continue like they have been in the past but they want to keep their monopoly and let the users suffer. They can't give away their freedom of working as an independent service and would do anything so as not to work as a Bank with regulations and guidelines laid down by RBI for every bank in India.

So, Paypal is the real culprit here. Blame them, boycott them and look for alternatives.

Thanks to Keith for his post on Techie Buzz for explaining the issue in detail & giving a real insight in the matter.

Ugly Truth

It may seem that this is the death of Paypal in India but certainly it won't die. Here is why:

Lets break down the Paypal Indian users in 3 categories:

  • Small Diet (Users who deal with smaller payments like 40 USD or 50 USD and even less totalling a thousand dollar or much less than that)
  • Medium Diet (Users who deal with good payments like 500 USD or 700 USD totalling a few thousand dollars)
  • Large Diet (Users who deal with large payments totalling of several thousand dollars)

How does Paypal RBI Issue affect Users?

For Small Diet users, they will have less money which they need to withdraw by paying withdrawal fees. Right now they charge ? 50 (INR) for withdrawals less than ? 7000 (INR). They will have to pay this fees again and again for smaller transactions which can account for a large share in their actual profit. 500 USD transaction limit doesn't both them as that's a rare situation for them. Paypal can wave off the fees for withdrawals and then this group of users won't have any problems in operating with Paypal accounts.

For Medium Diet users, they withdrawals would always be more than ? 7000 (INR) so they don't have to pay any withdrawal fees but a 500 USD transaction can bother them to such extent but it can be workaround by breaking the payments into multiples of 500 USD. So this group of users don't have any serious issues with Paypal but they would have to bear somewhat.

For Large Diet users it can only be a problem with breaking down the payment into multiples of 500 USD but since large projects are often done in several phases with payment after each phase, breaking down the payments into multiple is not that of a big issue as what it seems but yes it is annoying.

But users still can't make direct payments

Yes, this will remain as an issue and something which everyone has to bear for now and don't know till when.

But if you still look into details, then most of the transactions are for receiving payments. So this still leaves a large portion of users unaffected by it. To avoid any disagreements, I would like to quote myself as a user who uses Paypal largely for only receiving payments. Buying domains and paying hosting bills, they are something I can bear with extra costs. I agree that it can be a problem for small diet users but medium and large diets don't care about it much. They will blast for a day or two and then get back to work. Like I was shocked when I got the email from Paypal but then I calm myself down and thought it just adds a little cost on my pocket and I can continue my work like how I have been.

So the ugly truth is Paypal won't die in India. They would get a hit by their move but they are not brainless people, they will keep their service running somehow and I am sure I would have partially convinced on this fact if you understood what I tried to explain above.

What should you do?

Business should keep running. Extra costs should not stop worrying you. Try to avoid Paypal (I wish I could say to boycott Paypal) but that's hard since its accepted worldwide but chose alternatives whenever wherever possible.

Accept Paypal when there is no other choice or what is best for your business. Who the hell cares for Paypal? Care for your business and how you can make the most out of it.

If you have any questions, feel free to ask in the comments section and I will be glad to help.

Paypal Indian Users can now resume Electronic Funds Transfer

Earlier we informed you that Paypal has stopped Wireless funds transfer for Indian users and now its time for a good news that they have again resumed their service back for Indian users and they are still refunding 5$ amount for cheque withdrawals till further notice.

This news is a great sign of relief for Indian users whose business transactions rely heavily on Paypal, like me working as a freelancer web developer, Paypal is my transaction hub.

Paypal Indian Users can only withdraw money by cheque from August 1,2010

Today in the morning, I got an email from Paypal stating that they Indian users will now only be able to withdraw money by Cheque from August 1,2010.

Its very disappointing news for Indian Paypal users who used to carry out wireless fund transfer directly to their bank account and now will have to wait for a cheque and will have to deal with the hassles of cheque reaching late, lost cheques, depositing cheques in bank accounts etc.

Anyways, what has to happened, have already happened. The good thing is that the paypal will refund the 5$ charge for issuing a cheque till it is the only option available for withdrawal.

To request a cheque for withdrawal

Step 1: Log into your PayPal account, click on ‘Withdraw’.

Step 2: Click on the 'Request a cheque from PayPal' link. It usually takes 4 to 6 working days to process the cheque, excluding the delivery time.

Step 3: Enter the withdrawal amount and select your mailing address, then click ‘Continue’. Please note that a monthly withdrawal limit of $2,500 USD applies.

Step 4: Click ‘Submit’ to confirm your request.

So, what are you going to do now? Are you going to use Cheque withdrawals or transfer to another service and then carry out a wireless fund transfer?

UPDATE : Paypal has resumed the Wireless Funds Transfer service.

How to Create a PayPal Invoice

The first client that I worked for this morning didn’t knew how to pay a paypal invoice through its Credit card, so I had to give him a link to the tutorial which explain the steps involved with screenshots. While I was creating the invoice, I thought that there may be many people who will be looking for help with creating an invoice too. So this post is to help those freelancers who have never sent a paypal invoice and needs help in creating a PayPal invoice.

Creating an Invoice

  • Login into your PayPal account.
  • Click on the Request money tab. paypal-invoice-1
  • Click on Create an Invoice sub-tab and click on Continue. paypal-invoice-2
  • Enter the Recipient’s email address. paypal-invoice-3
  • Fill in the details of the invoice like Item ID, description, price, shipping and tax if its taxable and click on Continue.
  • paypal-invoice-4
  • You will get to see a preview of the invoice. Check everything to make sure everything is correct. If you need to edit, click on Edit else click on Send Invoice to send the paypal invoice to your client on the recipient’s email address specified earlier.
  • paypal-invoice-5

You will get a confirmation email in your inbox that you have sent a paypal invoice to the client. And when the client has made payment, then you will get a email stating that “You have got funds!”. Then you can login into your account to see the updated balance.

Let me know if you need any clarification on paypal invoice creation. I would be happy to help you out.