Remittances – Regulator query leads to PayPal suspending payments to and from India

PayPal said a ban on personal transactions to and from India will continue for "at least a few months" while the online payment service tries to resolve a problem with local regulators.

"We temporarily suspended these services to respond to enquiries from the Indian regulators, specifically questions on whether personal payments constitute remittances into India," PayPal said.

The company is working with regulators and bank processing companies to resolve the problem as soon as possible, it said. But "personal payments to and from India will be suspended for at least a few months until we fully resolve the questions from the Indian regulators."

"We realize that this is causing considerable inconvenience to our customers and I want to reassure you that this is a top priority for the leadership at PayPal," the company said.

PayPal notified users on Saturday that personal payments to and from India had been suspended, as well as transfers to local banks. Customers can still make commercial payments to India, but merchants can't withdraw funds in rupees to local banks, the company said.

On Tuesday it said customers should be able to withdraw funds to a local bank within a few days. But for now it can do nothing to facilitate personal transactions.

The problems may have been triggered by a marketing push that promotes PayPal as a way to send money abroad. The campaign - which reads "As low as $1.50 to send $300 to countries like India" - may have caught the attention of Indian regulators, the source said.

Some Indians use PayPal to receive payments for services in the country such as software development. The suspension of payments appeared to catch many by surprise and has generated more than 150 pages of comments in an online discussion thread.

Some expressed frustration that PayPal had apparently suspended payments without warning, and said they learned only from buyers that payments from overseas had been returned.

PayPal processed more than US$4 billion of payments in the Asia Pacific region in 2008, a PayPal spokesman said. Its largest market in that region was Australia. The company processed $60 billion in payments worldwide in 2008.