The Spoken Word

Whenever I get funds transferred from foreign banks to my bank account, I get a call from my bank asking for the reason why am I getting foreign exchange. I, then have to explain them that I am getting this from my client for whom I did some software development.

Recently, PayPal added a new feature using which I can transfer my PayPal balance directly to my Indian bank account. I thought it was really cool of PayPal to add this feature and this would make both my client’s and my life easier. Therefore, this time I asked my client to send me the money through PayPal. I got the money into my PayPal account and then I used the new feature to get the money into my bank account. After 3-4 days I got the money into my account, but this time I never got a call from my bank. I was wondering why and then decided to find it out.

PayPal recently started its own India development center in Chennai, India. I think it registered itself as PayPal India Pvt Ltd. This gives PayPal an ability to transfer money to any bank account in India in Indian Rupees (INR). It really doesn’t have to get individual PayPal balances (maintained in USD) transferred to corresponding bank accounts.

Here is what I think PayPal does. It gets huge amount of money from U.S. into its India Bank account with lowest exchange rate possible. Whenever a user wants to transfer his PayPal balance to his bank account, PayPal transfers from its own bank account in India to the users bank account. No foriegn exchange hassel and it can be faster.

So the next question would be how does PayPal makes money with all this? It charges users foreign exchange fee even when its actually not transferring users money from U.S. The porblem is this fee is pretty hefty when compared to others. There is almost 10% – 15% difference in the exchange rate between an Indian Bank and PayPal.

Its pretty smart of PayPal to do this. It makes lots of money with this strategy and people in India will definitely use this feature because it makes their lives easy. But I think 10% margin is a huge and I will not use this.