The Official message from PayPal to all its users said this:

“In accordance with regulatory instructions, we would like to notify you about a change in our withdrawal functionality in India starting on August 1, 2010. At present you can request for either an electronic or cheque withdrawal of funds from your PayPal account if you are an India user.

From July 29, 2010 onwards, you will only be able to request for a cheque withdrawal of funds from your PayPal account.

While we are working hard to restore the electronic withdrawal service, in the meantime, we are bringing this matter to your attention so that you can plan your future withdrawal activities accordingly.”

But, good news is that something has been resolved, and PayPal has restarted the essential electronic withdrawal services. The PayPal Official announcement has little or no justification for the aforementioned moves. It simple apologizes for the inconvenience.

Dickson Seow from the PayPal’s Corporate Communications team wrote:

“We’ve received good news – India users can perform electronic withdrawals right now as you did before.

We want you to know that our customers are our #1 priority and we are working non-stop to improve our service to you.”

However, the earlier announced $5 refund involved in cheque withdrawals will be continued for Indian users.

I wonder what has forced PayPal to bring these latest changes. The exact reason for these latest switching is still unknown. It may be that due to some objections from Indian regulators which have forced PayPal to stop electronic withdrawals in India.

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Apparently on March 1st will get the needful instructions from Indian regulatory bodies and most probably from March 3rd 2010 Paypal India users can withdraw their money to their Indian bank accounts. However as part of the changes Paypal will ask to fill out a new field entitled ‘Export Code’ whenever you request a withdrawal to your bank accounts, which will identify the nature of cross-border merchant transactions to Indian banks.

Also, Paypal reports that after making all these changes into their system, PayPal will set to be more powerful engine for exporters in India. With purpose codes for export transactions and FIRCs (Foreign Inward Remittance Certificates), one will also get the export related benefits.

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“We’re working with the regulators and our bank processing partners in India to get this resolved as quickly as we can. 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 Indian regulators such as RBI (Reserve Bank of India) has recently revised licensing rules in India for online money transfers. Thus online money transfer has been suspended with online applications such as Paypal until they fully resolve the issues with regulatory bodies in India.

The main updates over  Paypal services situation in India are;

1. 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.
2. Customers should be able to withdraw their funds to a local bank within the next few days.
3. Restoration of money into the PayPal accounts of any customers in India who have initiated a recent withdrawal, so the money is safe in their accounts.
4. For payment for a purchase of goods or services, one should contact the sender and request to resend the payment.

Although this is temporarily suspension of Paypal money transfers to and from India, but the impact over the Indian consumers are high as most of the freelancers in India that constitutes major portion of outsourced work to India has been affected.

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