Page last updated at 18:02 GMT, Thursday, 11 February 2010

PayPal halts some India payments

Paypal is the world's leading online payment service

Indian users of online money transfer service PayPal face a long wait after the firm abruptly suspended personal payments because of regulatory issues.

Last month's move followed questions from the Reserve Bank of India (RBI) about whether PayPal complies with laws on cross-border money transfers.

Neither PayPal, which is based in the US, nor the RBI was able to say when the issue might be resolved.

The affair has left many Indian users of PayPal frustrated.

'Fast-growing market'

PayPal says in its blog that its personal payment service for India would be suspended "for at least a few months".

The company could not give figures for the size of its business in India, which is believed to be relatively small. However, PayPal spokesman Anuj Nayar told the BBC that India was a "fast-growing market".

The problem is over the Payment and Settlement Systems Act, which came into effect in India in August 2008.

The RBI says that under this act, any money transfer scheme has to be authorised by the Indian authorities, which PayPal is not.

The RBI would not give details of its discussions with PayPal, but says it has sent the company some questions to respond to. Government sources in India have said they believe PayPal was aware of the implications the change of legislation would have for its business.

The stumbling block is whether PayPal personal payments - as opposed to commercial transactions - amount to cash remittances. PayPal says it only operates online and it is up to users to get money from their PayPal account to a bank account to encash it.

Some Indian PayPal users are small businesses for whom the system is a quick and effective way to transfer funds.

Angry posts on social networking sites have complained about money being lost because of transaction fees, and of not being able to transfer funds to local banks once the PayPal service was suspended.

PayPal has pledged to sort out these problems and some PayPal users seemed to blame Indian bureaucracy as much as anything else. "Always wonder why regulators in India are keen on blocking stuff," commented one Twitter user.

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