Instead of easing international trade, India just put the skids on one of the most convenient ways to buy and sell items between countries. Yes, The Reserve Bank of India (RBI) has spoken out against using PayPal accounts. Payments to merchants in India from foreigners are being restricted.

Earlier, RBI had questioned whether PayPal payments should be regulated the same as wire transfers of cash. Now, they have officially imposed regulatory restrictions.

The PayPal team wrote on their website that in order to comply with the RBI Guidelines, the company’s user agreement in India will be amended for the following services as follows:

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 export-related payments for goods and services into your PayPal account may not exceed US$500 per transaction.

Reading between the lines, it appears the financial institutions of India said, "Whoa, wait a minute, we want to have that money pass through our portals, how else can an honest banker earn a living?" In fact, Dr K. C. Chakrabarty, deputy governor with RBI said on January 19 at Banknet’s 7th Annual Conference on Payment Systems at Mumbai that "banks would also have to gear-up for competition from non-bank players."


You can’t buy this $912 rosewood buffet in India using PayPal

So, don’t expect to use your PayPal account to buy that unique piece of furniture hard carved from Indian rosewood for your dining room. At $912, you can only put $500 of it through PayPal. So says the Reserve Bank of India. You need to pull out a credit card or use an alternative payment plan. In his address, Chakrabarty said:

Another challenge that has to be highlighted is the growing complexity of payment products and their impact. Many of these operators, who are licensed to operate by regulators of their country of incorporation, solicit customers from across the globe. They do not seek to comply with the legal/regulatory requirements of the countries covered.

However, PayPal stood up and took notice and appears to be ready to cooperate. Possibly because PayPal blogger Anuj Nayar claims that most of the merchant transactions processed through PayPal in India involve less than $500. Another consideration comes to light via a comment at the Times of India:

Everyone wants government to take steps to control black money but nobody likes it when government does it. Granted there are also ‘alternative’ routes but that doesn’t mean we shouldn’t monitor PayPal. Similarly, implementing KYC (know your customer) for all MF accounts will drastically cut the black money in share markets. Again, there are alternatives but that doesn’t mean we shouldn’t plug these loopholes.

World-Check, the industry standard Know Your Customer (KYC) compliance solution, provides an overview of KYC compliance and its origins and outlines the compliance mandate as applicable to banks, accounting firms, lawyers and other regulated financial service providers ? not just in the UK, Europe and the USA, but all around the world. A black money scam was explained in an ABC news special. Regardless of the reason, your money isn’t yours to spend or use wherever and however you choose when it comes to India.