February 2010 has been one of the worst months for thousands of Indian based freelancers who work with clients outside India and largely depend on PayPal to bring back their hard earned money home. It all started during the last week of January 2010 with the failure of the bank withdrawal from the PayPal account. This problem actually came into limelight only during the first week of February 2010 when thousands of Indian PayPal account holders complained of not being able to transfer their money from PayPal to their banks. In fact, in many cases the money went ‘missing’ for a certain period of time. While the PayPal account showed that “withdrawal to bank” has been completed, yet there were no deposits in the bank. And the customer care of Indian banks was unable to answer this query, which was by then was asked by thousands of sufferers.

And the said issue just did not stop with bank withdrawal. Payment already made in the PayPal account as ‘personal’ payment was reversed back to the sender. As a result of it, lots of legitimate owners of the money who actually provided some kind of service or goods were deprived of their remuneration. Only a handful of buyers showed generosity to resend the money under ‘goods’ or ‘service’ mode or through other payment processors.  However, I agree to the fact that many PayPal users select ‘personal’ payment modes just to save the commission and fees of PayPal even when the said payment is either for goods or services. This kind of attitude is wrong, unethical and even illegal according to the terms and conditions of PayPal. However, it is almost impossible for PayPal to identify the actual nature of each and every transactions.

By this time, thousands of Indian PayPal users became restless as huge amount of money started to pile up in their PayPal account while leaving them almost cashless in practical sense.  People had to suffer a lot due to this sudden irresponsible situation created by PayPal. During this two week ordeal, none of the PayPal users were officially notified about the cause of this sudden stoppage of bank withdrawal to India.

Finally on 6th February, 2010, the first official announcement was made on the PayPal Blog. Anuj from the Communication Team of PayPal said in his blog, “I’m writing to let you know that 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.” It brought some amount of relief to all those tensed Indian PayPal users who were eagerly waiting to withdraw their money to their banks. In this said blog post, no cause of delay or stoppage of bank withdrawal was given. Apart from saying -”We’re trying to resolve the situation as quickly as possible“, PayPal didn’t offer any other way to find out any time frame within which this dispute might get settled.

Rumours and anticipations of various types flooded different websites, blogs and forums. What came out as the strongest as well as most believable factor causing this disruption of bank withdrawal for the Indian users is probably a dispute between the authorities of PayPal and Reserve Bank of India (RBI). 3 days later, Anuj again came up with an updated blog post which somewhat explained the situation to the thousands of Indian PayPal users. By this time, PayPal started reversing the bank withdrawal to the PayPal account. The initial refund was done after charging the withdrawal refund charges and conversion fees. However, the loss suffered by the PayPal users due to this sudden reversal of bank withdrawal was compensated by PayPal within 3 to 4 working days after the actual money was reversed to the PayPal account.

The actual issue started sometime back between Reserve Bank of India and PayPal when in spite of affording reasonable opportunity by RBI to PayPal, PayPal has failed to file necessary legal documents related to their transactions/ business activities within the prescribed time period and thus RBI has stopped the activity of bank withdrawal to Indian banks by PayPal.

During this period very few and lucky PayPal Indian users were able to withdraw money through cheque (which is a very time consuming procedure, as well as uncertain as the cheques are sent by ordinary air mail) and visa credit card. Even other agents like Xoom and Moneybookers took this opportunity to benefit for the dire situation of PayPal.

The 2010 Valentines’ Day turned out to be some kind of lucky day for Indian freelancers/ traders waiting eagerly to transfer their money from PayPal account to their banks when Farhad Irani, Lead of PayPal Asia Pacific’s open letter came into play. Irani’s assurance,” I’d like to let everyone know that I’m personally committed to working closely and tirelessly with the Reserve Bank of India to get a fast resolution to this issue, so that we can continue to help the thousands of Indian businesses who use PayPal to sell their goods or services in the global marketplace.”  brought relief to some extent in this context.

Mr. Farhad Irani reappeared with a good news after making Indian users eagerly waiting for twelve long days. In his blog update, he said, “I’m pleased to tell you that the RBI has now allowed us to resume bank withdrawals for settlements for exports of goods and services. We are currently making changes to comply with Indian regulations for settlements for exports of goods and services, and we anticipate that as of Wednesday, March 3rd, we will be able to resume the bank withdrawal service.”

Certain changes in the methods of PayPal transactions were made. PayPal India has completely barred personal payments to and from Indian PayPal account. It means you can’t even receive donation from others too. And you can’t pay those $1 prizes to random forum posters too. However, this step was encouraging both from economic point of view as well as from the angle of security measures of India. PayPal further introduced purpose codes and gave proper instructions on how to continue with bank withdrawal. According to this new PayPal “Purpose Code”, a person withdrawing money to his Indian bank account has to disclose his source of earning. There are few pre-determined sections and a user is supposed to select one of these purpose codes. Farhad Irani further stated, “We expect to resume the service on March 3rd” to all those who were eagerly waiting to withdraw their money.

Finally after a month of PayPal fiasco, an official announcement was made on behalf of PayPal declaring the resumption of bank withdrawals in India. Though some account has been limited and asked for further verification, still the overall condition of PayPal has improved overnight. Bank withdrawal facility has been enabled now and people can withdraw their funds. Since, just a day has passed; reports of actual funds being deposited in Indian banks have not come up. It will take another 2/3 working days to figure out the actual scenario.

In spite of this PayPal-RBI issue getting settled, yet it raises certain questions in the minds of thousands of Indian freelancers and online traders who have spent numerous sleepless nights during the last month. A company as big as PayPal has not handled the issue very carefully and professionally. Without any prior notification, how can PayPal stop bank withdrawal facility which has caused immense financial as well as mental harassment to thousands of Indian PayPal users. PayPal made their first official announcement regarding this issue almost after 12 days of initiation of this issue – what took them so long? The amount in PayPal account which were reversed to the buyers, lead to a huge amount of financial loss for the seller/ service provider as very few buyers showed the courtesy to re-pay the amount. And is anybody ready to calculate the amount of total interest that PayPal has generated by holding the money of Indian PayPal users for a month.

But the sadder part is that, no matter how much we sulk, still we are going to use PayPal again as it is one of the most easiest as well as economical (thinks so) ways to get our hard earned money to India. PayPal will be again in good business unless and until we have a proper competitor in the same field. However, a bit of credibility has been definitely lost due to the month long PayPal fiasco.

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