Following a crackdown by India’s bankingregulator in the wake of recent anti-money laundering legislation, PayPal has suspended cross-border and internal personal payments in the country. The digital payments provider has offered consumers little explanation as to the causes or indeed the expected duration of the blackout.
On January 28, and with no prior warning or announcement, US-based PayPal suspended all personal payments and transfers to Indian banks. Users can still make commercial payments, but merchants cannot transfer funds from their PayPal accounts to local Indian banks. Users were given no notification of these changes, with payments being reversed mid-transaction in many cases.
PayPal’s only public comment on this issue was released a week later as a relatively informal statement on the company’s blog, offering little explanation as to the causes of the halt in service. The cryptic explanation stated: “Personal payments to and from India and transfers to local banks in India have been suspended while we work with our business partners and other stakeholders to address questions they have about the service.”
While PayPal remains silent on the underlying reasons for the stoppage, press reports speculate that this is due to recent Indian legislation regarding anti-money laundering initiatives and the fact that PayPal by its very nature cannot authorize the identity of most of its users. The New York Times further claims that, according to the Reserve Bank of India, PayPal is not properly authorized to provide cross-border money transfer services. PayPal has since admitted in a press interview that it may take months to resolve these personal payment issues, but the company is hopeful that users may be able to transfer their funds to Indian banks within days.
The moves are expected to hit smaller-scale technology companies and tech freelancers particularly hard. Inonline forums and message boards, disgruntled Indian users report having essential funds frozen by the company with no ability to transfer these to another bank. As time passes and PayPal provides little further information, anger levels are rising and negative messages are proliferating online. Moreover, due to the companies’ close dealings, the shutdown has also had a negative impact on eBay India.
PayPal’s poor level of public engagement risks turning what should have been an unfortunate (if unavoidable) problem into a potential disaster. Regulatory issues are likely to prove problematic to any transnational payment firm but, nevertheless, PayPal’s reluctance to communicate the underlying issues behind this stoppage is likely to have severe and potentially long-term repercussions within the Indian market and, indeed, further afield. While geographic borders may be hindering its business model due to regulations, online awareness knows no such boundaries and this negative consumer sentiment is likely to spread to other markets.
Furthermore, regardless of PayPal’s lack of communication, this stoppage also serves as a warning to other payment providers. In many cases the underlying payment technology has surpassed the speed of regulatory adaptation, and these problems are likely to recur in the coming years as the online payment market matures internationally and the mobile payment market sees further growth.
With international money laundering a growing concern, challenges such as these will only multiply in the future. These problems are somewhat unavoidable, but payment providers would do well to plan in advance and develop a more effective PR strategy to deal with these issues as they arise.
