Foreign payment gateways prefer to shut shop rather than follow RBI guidelines

After staying shut for several months, PayPal has decided to follow RBI guidelines for online payment services while Plimus has discontinued the direct purchase option for India-based vendors

Several online payment gateways like PayPal and Plimus, which have facilitated the sale of goods and services by Indian exporters, are choosing to shut their services rather than follow the guidelines by the Reserve Bank of India (RBI). However, this may have left several small services providers like software programmers in lurch, as they are unable to receive any payment for their work or services rendered to overseas customers. In addition, they might have to opt in for costlier options to receive payments from abroad.

The central bank has said in an email to Moneylife, "While Plimus has not given any specific reasons for removing the direct purchase option for purchases from India-based vendors, it is presumed that this is a direct consequence of the card companies imposing restrictions on foreign payment gateway service providers acquiring payment transactions for Indian merchants through foreign acquiring banks, in compliance with the laws of the country as well as their operating guidelines."

"These service providers acquired and settled all card transactions in foreign currency (irrespective of whether the card is issued in India or abroad). Further, the guidelines issued by the Reserve Bank of India on 16 November 2010 on the processing and settlement of export-related receipts facilitated by online payment gateways may also have resulted in many of such services being stopped," the RBI stated.

PayPal, which facilitated sale of goods and services by Indian exporters, also conducted money transfer business without any specific authorisation from the RBI. According to the Payment and Settlement Systems Act, 2007, money transfer is defined as a payment system and therefore requires the permission of the central bank. "This was brought to the notice of PayPal and they were advised to stop their money transfer business. Further, so far they have not applied to RBI for authorisation to do this business," the central bank said in the email.

Although PayPal provided money transfer service to and from India, neither the company nor its account holders paid any tax on the transactions. According to comments posted on in February last year, many Indian account holders ask the payee to make the payment as a 'gift', rather than payment for services, to avoid PayPal fees. One such comment said: "A lot of business must be transacted in India via PayPal-business done with personal transactions. So a money-hungry Indian government is aggravated at some perceived revenue loss (taxes, customs, etc) and (has) put pressure on PayPal to stop the payments either directly or indirectly." (Read: PayPal services to and from India to remain suspended for months )

In January this year, PayPal's spokesperson Dickson Seow, wrote in a blog that beginning 1 March 2011, any balance in and all future payments into the PayPal account of an Indian may not be used to buy goods or services and must be transferred to a bank account in India within seven days. He regretted the inconvenience caused specially to global users, starting 1 March 2011, in their purchases from and payments to Indian merchants valued at over $500 per transaction. "For purchases or payments above this transaction value, you will have to use an alternative payment method," Mr Seow wrote.

The service models of some online payment gateway service providers (OPGSPs) have facilitated not only conclusion of cross-border export transactions from India, but also permitted exporters to retain the export proceeds abroad without repatriation, resulting in violation of provisions of the Foreign Exchange Management Act (FEMA), 1999. For transactions routed through online payment service providers, export proceeds are required to be repatriated within seven days of the receipt of confirmation from the importer. This condition is not applicable for export transactions under FEMA, where the proceeds need to be repatriated immediately once realised. In addition, there were concerns about these service providers holding export proceeds till repatriation. In view of the need to protect exporters and ensure that they do not unwittingly violate the provisions of FEMA, the RBI has restricted the transaction value of exports to $500 and mandated that the proceeds should be placed in a Nostro account of an Indian bank by the service providers.
A Nostro account is that account with a bank in a foreign country, usually in the currency of that country. Banks usually prefer to keep a Nostro account so that they do not have to make a currency conversion (which brings with it a foreign exchange risk) should an account holder make a deposit or a withdrawal in the foreign currency.

The RBI has also asked online payment service providers to open liaison offices in India, with the central bank's approval, within three months from the issue of the guidelines. (The guidelines were issued in November, so the deadline for opening liaison offices has passed.)

Some of the service providers may have found adherence to the RBI guidelines tough and costly and so they have decided to shut services for Indians. With fewer firms remaining in the fray, the user may now have to pay more for services.

(Read more: The payment processing industry-I, ;
The payment processing industry-IIThe payment processing industry-III, )



Rushabh Vasa

6 years ago

This new rule will push back the Indian e-commerce industry..

Freelancer Ant

6 years ago

I hate RBI rules. Whats hell going on here ? 2 hours power cut / day in my place(south india). No good broadband. Maximum speed here 2Mpbs.

i came up in business with all these problems. Now no paypal. I asking RBI Manager - Can you pay me for my breads and clothes everyday ? I decided i am not going to Vote for anybody..... Indians are first enemy for Indians

A small freelancer struggling to earn by working 10 - 15 hrs / day


6 years ago

It seems there is not opportunity for Indian small business start-ups. In this case government can start this online payment gateway service for Indian merchants.


6 years ago

Thanks, valid article, well researched. Additional points - payment gateways are not the only options for laundering money or evading taxes. The money transfer business as well as the business of "pre-loaded plastic" seems to work equally well.

In this case, the RBI seems to have applied selective vision - leaving out the likes of Western Union and ITZ Cash and others springing up every other day!!

Life insurance business nose-dives in crucial month of January

January, February and March are crucial months for the life insurance industry. The new business premium collection for January was 20% lower than December 2010 for individual single premium policies, while it was 10% lower for individual non-single premium policies

January, February and March are crucial months for the life insurance industry. It is surprising to note that new business premium (NBP) for January was 20% lower than the NBP of December 2010 for individual single premium policies. NBP for January was 10% lower than the NBP of December last year for individual non-single premium policies.

Insurance companies are coming out with new traditional plans due to business shifting away from ULIPs (Unit-linked Insurance Plans). However, this does not explain why NBP has dropped substantially. Even the behemoth Life Insurance Corporation (LIC) of India was not spared.

Insurer -

According to GV Nageswara Rao, managing director and chief executive officer, IDBI Federal Life Insurance, "The mix of ULIP to traditional policies is currently 60:40, earlier it was 80:20. The ticket size of traditional policies is smaller when compared to current ULIPs and that also leads to lower premium collection. January sales were disappointing, but we are optimistic about the balance of this fiscal year. March is the biggest month for insurance companies."

Dr P Nandagopal, managing director and chief executive officer, IndiaFirst Life Insurance, told Moneylife, "The tax pitch for selling insurance products is no longer completely applicable. Today, people are buying insurance spread over all months. There are more sales in JFM because lot of part-time agents work rigorously in these months. Our company has no agents till now and relies solely on bancassurance of Bank of Baroda and Andhra Bank."

He added, "There has been a slowdown in business after Insurance Regulatory and Development Authority (IRDA) regulations and insurers filing for new products. The industry may be coming out of traditional plans, but we are not giving any preference for traditional plans over ULIPs due to commissions. We have kept the same level of commission. Another reason for the slowdown is that the pension market has dwindled. We are waiting for new regulations for pension ULIP products. A 4.5% guaranteed pension ULIP is not in the best interest of the customer too."

It is possible that customers do not see any major benefits from the new IRDA guidelines on ULIPs post 1 September 2010. Moneylife had earlier written how the charges have increased for ULIPs instead of decreasing over the period of five or more years. (See: 'The New Old ULIPs' ).

According to the information Moneylife collected while talking with industry personnel, insurance companies that grew inorganically during the lucrative days of ULIPs closed down many branches and downsized a number of agents. Life insurance companies are on a cost-cutting spree.

Again, the agents who got into the ULIP selling business for securing high first year commissions have moved on to other careers.

The instant gratification of hefty commission in the first year is no longer present as the commissions are spread over the years and depend on renewal of policies. Insurance in India is sold and not bought. Insurance companies now lack good sales agents.

Here is an email text we recently received from a disgruntled insurance company agent (name withheld) who disclosed names of a couple of insurance companies: Please note, these comments do not apply for all insurance companies.

"Life Insurance companies are on an expense-management drive, I would like to share with you something which companies have done in the last six months to cut expenses.

- Closed down branch offices (so-called non performing branches to the tune of 10%).
- Removed the security staff in the existing branches after 8:00pm.
- Removed all the vending machines serving tea & coffee in all the branch offices. The head office has all the facilities.
- Done away with hand soap in the toilets of branch offices.
- Done away with bus facility to pick up & drop employees.

Employees are resigning due to loss of morale, employees spend more time in the office than their home and such steps are having a negative impact on their performance. Insurance business is tough, but January, February and March are our peak selling season and they are nowhere near their targets. The irrational exuberance which existed has vanished. It's an irony how will companies who are not sensitive to their employees would be sensitive to their customers."



Madhusudan Thakkar

6 years ago

State of Life Insurance Industry in India-Read and PONDER


6 years ago


I request you note a very important fact.the life insurance industry is not allowing to sell products of more than one life insurance company and also force the agents to collect at least 1,00,000 rupees of premium and / or 12 lives in a financial / calender year.
most of the agents, as per economic times report about 43 % fail to achive this target as many are working part time and hence thrown out of business and the insurance company under the execuse of not achiving the target eats away the rightful commission on the policies which they have sold till the date of suspension / termination of their agency.

also competition commission of india should take up the matter with IRDA , and direct them to allow the agents to sell all products of all insurance companies then only miselling will stop otherwise to collect the one lakh premium amount , one must sell ulip's and traditional plans,as term insurance policies are very difficult to sell in india and even if one sells 24 term policies for it is difficult to reach the one lakh premium amount as indians generally do not buy term plan , even if they buy , they buy for not more than 25 lakh due to mental blocks.

i am suspended from a very reputed life insurance company as i could not gather one lakh premium due to this reason as the term plan premium for even 30 lakhs sum assured does not come to 5000/-.





In Reply to MANISH D HATHI 6 years ago

It 'll be of great help if Esteemed Moneylife editor brings a cover story on FINAL ADDITIONAL BONUS being offered by LIC ; what LIC is doing is simply stating year after year FAB has been increased by 4% to 24% etc but never lists the actual value in table which it usually does ones in 5 yrs; what help a policyholder 'll be getting with this incomplete details?

Madhusudan Thakkar

In Reply to MANISH D HATHI 6 years ago

Manish has a very valid point.Since new ULIP rules came into existence the recruitment of new agents has also drastically reduced.On an average 25% of agents are terminated every year as they are unable to fulfill minimum business criteria.Now with new rules this figure will increase.Every year there used to be healthy new recruitment ratio,but after Sept.'2010 this profession is not attracting fresh blood also.On the one hand Life Insurance companies are allowed to sell policies on ONLINE platform bypassing distribution channels.WHY THIS RULE OF TIED AGENCY?.The only way to save Life Insurance sector is to allow agent to sell policies of ANY COMPANY.Why good system of mutual fund cannot be adopted here?. Due to new rules of IRDA small agents will become endangered species.Are these new guidelines of persistency only for agents or for Banks also?and what action will IRDA take against Life Insurance companies on persistency of policies sold directly by them on ONLINE platform? Over to Sucheta Ji and Debashish Ji for their comments.

Madhusudan Thakkar

6 years ago

Agents of Life Insurance companies are slowly and surely are on verge of extinction thanks to mess created by IRDA.People sitting in air conditioned offices don't understand the harsh reality of selling this difficult,very difficult,extremely difficult but ALWAYS DIFFICULT product.The new guidelines on so called persistency will also reduce strength of agents.Time will come when Sales Managers will have to do role of agents.

SC asks CBI to probe restoration of 2G licence to S-Tel

S-Tel's application was cancelled earlier on grounds of threat to national security. The apex court also asked the agency to investigate the antecedents of the UAE-based Etisalat against which the home ministry had expressed reservations earlier

New Delhi: The Supreme Court today ordered the Central Bureau of Investigation (CBI) to probe the restoration of second generation (2G) spectrum licence to Chennai-based telecom operator S-Tel after its cancellation earlier on grounds of threat to national security, reports PTI.

The apex court also asked the agency to investigate the antecedents of the UAE-based Etisalat against which the home ministry had expressed reservations earlier to the Department of Telecommunication (DoT) and the Union finance ministry regarding the foreign direct investment made by it in the telecom sector.

A bench of justices GS Singhvi and AG Ganguly asked the CBI to apprise it of their findings on 15th March.

Senior advocate KK Venugopal, appearing for the CBI, however, said as the issues concerning the two firms did not directly relate to the 2G spectrum allocation, the agency may take some more time to complete the probe.

Attorney general Goolam E Vahanvati, meanwhile, explained to the bench about the telecom policy adopted since 1994 and said the spectrum was allocated on the basis of the policy decision which does not envisage its allocation by auction.

He further said the licences cannot be cancelled only on the ground that the policy of auction was not followed. He said if there was any fault or gaps in implementation of the policy, it is for the court to take a view.

Justice Vahanvati said that a joint parliamentary committee and the Public Accounts Committee (PAC), too, were looking into the issue of the spectrum allocation and were also examining the Comptroller and Auditor General (CAG) report on it.

The attorney general said the matter was also being probed by the CBI on the direction of the apex court, which is also monitoring the investigation.

The Supreme Court had detected yesterday the cancellation and subsequent restoration of 2G spectrum licence to S-Tel, while examining a relevant government file on the matter.

The file was placed before the bench on its direction after it was alleged by the petitioners, Centre for Public Interest Litigation (CPIL) that the Centre had adopted "arm- twisting" policy against the company for challenging DoT's policy in 2G spectrum allocation in the court.

"File placed by the additional solicitor general (ASG) says something more. It tells about a new dimension which is all together different," the court had remarked yesterday, while asking additional solicitor general Indira Jaising to bring the file on 3rd March as well during the hearing on a PIL by the CPIL for probe into the 2G spectrum allocation during former telecom minister A Raja's tenure.


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