Reserve Bank Of India Restricts PayPal Payments To Merchants To Under $500

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This is sure to cause a backlash among Indian online merchants. Due to restrictions from the Reserve Bank of India, PayPal has amended its user agreement for Indian merchants, imposing a number of restrictions on merchants using PayPal as an online payments mechanism. Now Indian merchants will not be able to accept payments via PayPal that are above $500 per transaction. As stated in PayPal’s blog post announcing the change, “For purchases or payments above this transaction value, you will have to use an alternative payment method.”

The fact that Indian merchants won’t be able to receive payments above $500 per transaction is a big blow to entrepreneurs in the country. As one anonymous developer tells us, “we’re fucked.”

And PayPal is requiring that any payments into merchants’ accounts cannot be used to buy other products has has to be transferred to and Indian bank account with 7 days from the receipt of confirmation from the buyer in respect of the goods or services.

It’s important to note that these restrictions aren’t being imposed by PayPal, but rather by the Reserve Bank Of India. The restrictions will take effect on March 1, 2011.

This isn’t the first time the RBI has imposed restrictions on PayPal. Last year, PayPal had to suspend personal payment transactions from and to India temporarily, when the RBI concluded that PayPal was not in compliance with all relevant regulatory requirements. Shortly afterwards, PayPal removed the ability for Indian merchants to withdraw funds from accounts electronically in compliance with regulatory instructions.

And some think this is the beginning of the end of PayPal in India.

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