The showdown between online money transfer and India continues. About two weeks ago, PayPal suddenly stopped transfer of money to individuals using India Banks. After PayPal's suspending of transfer to Indian banks, PayPal wrote in their blog that they are suspending the services to respond to enquiries from the Indian regulators.

Now, India's monetary regulating authority, Reserve Bank of India, has made an official statement. Alpana Killawala, spokeswoman of the Reserve Bank of India (RBI) said:

PayPal needs authorization to operate a cross-border money transfer service, under the country's Payment and Settlement Systems Act.

The Payment and Settlement Systems Act was passed in 2007 and says that no person other than the RBI can commence or operate a payment system, except with an authorization issued by the RBI. The Act came into effect from August 2008 and existing payment systems were given six months to get authorization from the RBI.

While other money transfer services like Western Union have complied with the Act and have already got authorization from the RBI, PayPal choosed to ignore the Act for about 18 months till the RBI finally took action.