Online payments provider PayPal intends to apply for a domestic payment license in India, reports Reuters. A company spokesperson confirmed the development to the agency, saying that the company was applying for a license in China and was looking at an Indian license in the future. The exec also informed that PayPal was planning to open an office in India to enter the market, next year.

PayPal is available in the Indian market for international remittances and payments. However, it is crippled as it does not allow users to receive more than $3000 per transaction, and automatically transfers them to the user’s bank account on a daily basis, due to RBI guidelines on export related remittances. It does not allow users to make payments using their PayPal balance, although they can use a linked credit card or bank account for the same purpose.

PayPal Here: Recently, PayPal launched a mobile based payment solution for small businesses, PayPal Here, which allows users to accept almost any form of payment products including debit and credit cards, checks and PayPal, in United States, Canada, Australia and Hong Kong. The service includes a free app and a fully encrypted thumb-sized card reader, which turns an iPhone, into a payment terminal. They can also send an invoice and set payment terms directly from the app. PayPal charges a flat rate of 2.7% for card swipes and PayPal payments. In addition to the new service, PayPal also updated its mobile app to make use of location services to detect merchants that accept PayPal and make payments with a single tap, eliminating the use of a complicated wallet system. We feel that it would be a killer app if launched in India since it irons out the complexity surrounding mobile payments, but we’re not sure if the regulatory framework in the country would permit it.

P2P Transfer or Closed Wallet? We’re also not sure if PayPal will tie-up with Banks to launch a money transfer service, competing with IMPS, the NPCI’s mobile money transfer platform that covers major Indian banks, and with similar products from companies like ZaakPay, PayMate, Beam and mChek. P2P payment products have not taken off due to lack of awareness or the need for documents.

However, if PayPal launches a consumer product in form of a semi-closed wallet, for merchant payments, it will have to compete with payment products such as Airtel Money, and others including Itz Cash, Done Card, or even Oxigen and Beam. The move makes more sense as the e-commerce segment in India matures and digital downloads gain more acceptance, but the tricky part is that in case of Semi-Closed wallets, users cannot withdraw money. E-commerce companies like Flipkart, and online recharge services like MobiKwik and PayTM* are encouraging users to store money in wallets for making payments.

At the moment, domestic remittance services are mostly offered through banking correspondent tie-ups, since the RBI has enforced strict guidelines and require KYC (know your customer) documentation. Although the central bank had proposed relaxations in the guidelines, and had removed the Rs 50,000 cap on mobile money transfers, the services haven’t really picked up in India.

Disclosure: PayTM is an advertiser with MediaNama