PayPal positive about India despite RBI ruling

Detractors announced the beginning of the end for global online payment major PayPal in India after the firm had to make changes to processes for Indian transactions earlier this year, subsequent to a directive from the Reserve Bank of India (RBI) on online payment gateways.

As part of compliance with the RBI guidelines, the online service, which has over 153 million accounts worldwide across 190 markets and operates in 23 currencies, disallowed its Indian customers from keeping money in their PayPal accounts for over a week or to undertake transactions of over $500 starting March 1, 2011.

Despite such unprecedented changes to its user agreement in India, PayPal remains optimistic about its prospects in a country that is seeing a substantial surge in card and internet usage.

India has about 230 million cards in circulation, as of January 2011, compared to approximately 194 million cards during the same time last year. Moreover, the number of claimed internet users (those who have been online at some point) is poised to grow 96 per cent by the end of this calendar year to 29.9 million.

“The e-commerce landscape in India is booming, and more and more Indians are using PayPal as a solution. We see India as the next big market to develop, either from a buyer’s or seller’s perspective,” said Elias Ghanem, the firm’s managing director and general manager for Southeast Asia and India.

Ghanem, speaking to Business Standard on the sidelines of the Cards Asia 2011 conference, explained that the RBI directive was unlikely to have a major impact on PayPal’s India business and that all guidelines were being progressively adhered to.

“You cannot reuse the balance that you have on your PayPal account. It must go back to the bank account in India. Nothing will change here, in the sense that money will end up in your bank account and if you want to become a buyer, you will link your Indian credit card (to the PayPal account) and shop. It’s just a matter of the buyer and seller flows being independent,” he said.

On the $500 limit for transactions, Ghanem said that PayPal’s focus on small and medium enterprises (SMEs) meant that even the reduced limit would suffice for a significant number of its customers.

“I would say that our main business remains for the SMEs, where $500 remains a very large limit for transaction, so for most of our sellers there would be no impact,” he said.

Although Ghanem declined to comment on whether India was among the fastest-growing markets for PayPal, he emphasised that growth was coming from buyers as well as sellers without divulging in any numbers.

“Entrepreneurship is in the blood of Indians. Everyone has a great solution, and they are selling it. And all these Indian entrepreneurs are using PayPal for international shopping. It is growing very well from a seller’s perspective. From a buyer’s perspective, the more the card population grows, the more they can link it to their PayPal account and shop,” he said.

The larger challenge, and opportunity, however, remains with tapping into India’s substantial unbanked population. Only about 59 per cent of India’s adult population has bank accounts.

“The challenge is the end-bank population. A lot of the Indian population does not have a bank account, and even less have a credit card. The minute the banks are able to provide banking to this population and are able to convert the cash into a cashless economy, we will grow even faster. The economy is evolving, and we are grasping the opportunities,” said Ghanem.