Companies

Why PayPal’s decision to call it quits in India doesn’t come as a surprise

Our Bureau Mumbai | Updated on February 06, 2021

The UPI-based business model was not in sync with the firm’s ambitions, say experts

PayPal’s decision to shut down domestic payment operations in India at a time when digital transactions are hitting new records every month may come as a surprise but it was just a matter of time.

While PayPal did not give the reasons for existing the booming Indian market, experts who have been tracking the company in India say that the existing business model based on UPI, and regulations around it was not in sync with the American company’s ambitions.

Troubles with RBI

The company, which has been offering cross-border payments in India for over a decade, had launched its domestic operations in India in 2017. But its troubles with RBI had begun in 2011 when the company was forced to suspend personal payments to and from India and transfers to local banks in India. This came after the RBI asked the company to comply with Foreign Exchange Management Act, 1999. PayPal remained in the cross-border transaction business for several years after that until 2016 when the company appointed Anupam Pahuja as the country head for India. Pahuja’s mandate was to expand PayPal’s operations in India. In 2017, the company took a bunch of Indian journalists to its headquarters in San Jose, California, where the company showcased its services in the US market, indicating that some of the services could make their way to India.

In an interview with BusinessLine, PayPal’s President and CEO Dan Schulman said that after giving merchants the opportunity to grow their businesses by connecting with customers outside of India, PayPal wants to give Indian merchants an opportunity to grow domestically, as well. There were also reports about the company acquiring a stake in Indian payment company but that it never fructified. In 2019, Pahuja identified travel sector as one of the key areas for the company in India. “It is high up on the priority list. We are dominant in most of our core, developed markets, thus, we started looking at other markets. We saw a layer of growth that India provides. Our expectation is to be one of the top three players in India in the travel segment in the coming year or so,” Pahuja had said then. Then the Covid pandemic happened and the travel industry came to a standstill.

Legal battle

Meanwhile, Delhi High Court issued a notice over a petition filed by Abhijit Mishra alleging that the global payments major had violated Section 4(1) of the Payment and Settlement Systems Act, 2007. Amid this legal battle, other global players including Google launched payment services in India and cornered a large share.

In the middle of 2020, Paypal realised that it will have to link up with UPI if it wants to offer a meaningful service in India. “If it had a choice PayPal would have wanted to roll out payment services on its own. It wasn’t comfortable with the UPI model. This is one of the reasons why it delayed the launch even as other players got into the market quickly,” said an executive who worked with PayPal earlier.

Final nail

Just when it was planning to roll out its UPI platform, the National Payments Corporation of India (NPCI) came up with a new set of rules in November 2020 that imposes a cap on the share of Unified Payment Interface transactions that a single payment application can process. NPCI said that third-party applications providing payments services via UPI can process a maximum of 30 per cent of the transaction volumes starting Jan. 1, 2021. This seems to have been the final nail in PayPal’s plans for India.

“From 1 April 2021, we will focus all our attention on enabling more international sales for Indian businesses, and shift focus away from our domestic products in India,” PayPal said in a statement without giving a reason for its decision.

Published on February 05, 2021

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