PayPal restrictions to hit parent eBay’s India business hard

The payment restrictions introduced by electronic wallet and online payment gateway PayPal are likely to have a negative fallout on the budding India business of its parent company eBay, an online marketplace.

The gateway on Friday adopted the payment restrictions mandated by the Reserve Bank of India.

eBay, which claims to have an online community of 2.5 million spread across 2,471 locations in India, has since informed users of the restrictions as part of its payment policy in the country.

At stake now is commerce worth about Rs150 crore —- the value of merchandise exported through eBay by Indian sellers in 2010 alone.

The amount is expected to grow going forward.

As per the new restrictions, Indian users will not be able to use PayPal account to pay for goods or services they wish to purchase online.

More importantly, the restrictions mandate that “export-related payments for goods and services into PayPal account may not exceed $500 per transaction.”

The development is seen impacting transaction volumes.

“There may be a sharp dip in transaction volumes, especially inbound transactions, but those will likely change over a period of time when users are more comfortable with using other modes of payment such as credit card or direct bank transfer,” said Asheesh Raina, principal research analyst at the Indian arm of global technology researcher Gartner Inc.

As on date, eBay had about 12,800 registered merchants in India, who consider selling through eBay as either their primary or secondary source of income.

eBay does not disclose India-specific revenues, either for itself or for Paypal, which it acquired in 2002 for $1.5 billion.

Indian merchandise popular among foreign buyers include precious stones and diamonds, jewellery, leather goods, handcrafts, furniture, ethnic wear and herbal products.

Among the top countries that buy goods from India are the US, the UK and Australia.

“The recent RBI guidelines issued on 16 November 2010 governing the processing and settlement of export-related receipts facilitated by all online payment gateways are the first specific set of conditions that govern the operation of international entities such as PayPal,” Dickson Seow, PayPal’s Asia Pacific spokesperson wrote in an emailed response.

“Our discussions with various stakeholders in India are ongoing. We cannot provide further details at this point of time,” Seow added.

Even before PayPal formally announced the payment restrictions, senior executives at parent company eBay told DNA Money the $500 restriction is detrimental to commerce.

“The regulation curtailing the value of transaction —- that is something that we think should be re-looked at because it might curtail business for certain entrepreneurs,” said Ambareesh Jain, head of eBay Inc’s India operations.   

Jean-Francois Van Kerckhove, the company’s vice-president for global corporate strategy, couldn’t agree more. He said $500 is extremely limiting, considering ethnic merchandise such as jewellery or furniture could easily cost more.

Take the case of RG Diamonds, based out of Maharashtra, which has listed a white gold diamond ring for sale with a price tag of $7,899.93 (Rs 3.62 lakh) and another precious stone at Rs8.9 lakh.

Issues relating to PayPal payment restrictions can be a hassle for foreign buyers as Indian entrepreneurs, especially smaller ones that operate through platforms such as eBay, do not always offer a credit card payment facility.

eBay’s Kerckhove believes India is at a critical inflection point in digital commerce, given the significant increase in the number of broadband users seen in the next couple of years. His company is preparing to make the most of that, when it happens.