Changes in local laws have been blamed by PayPal for their drastic changes to both Puerto Rican and Taiwanese customers. In Puerto Rico, PayPal is halting all personal payments from the country, while in Taiwan it’s all domestic payments that are being stopped.
PayPal clients in Puerto Rico will not be able to send money to friends or relatives, whether they’re in Puerto Rico or abroad, through the services of PayPal or it’s subsidiary Venmo. However, PayPal has clarified that clients will be able to continue using both platforms to pay for goods or services, and to receive commercial payments online through websites and apps.
“Person to person payments will not be available for payments sent from Puerto Rico after October 30th.”
— – Paypal Policy Update
The Caribbean island, located southeast of Florida, is a US territory with a population of over 3.7 million residents and a staggering US$72.2b in outstanding debt. Having been a part of the US Since 1898, the commonwealth shares a common defense, stock market, currency, and even citizenship with the United States.
Puerto Rico exercises a very similar level of control over its internal affairs as does each state in the US, depending on federal guidance from Washington DC.
“Structural problems, economic shocks and weak public finances have yielded a decade of stagnation, outmigration and debt.”
— – Anne O. Krueger, Ranjit Teja and Andrew Wolfe, former members of the International Monetary Fund (IMF)
Currently, Puerto Rico is facing hard times from economic and financial crises including a heavy debt burden and a lack of affordable healthcare. The astounding debt level results primarily from the unsustainable issuance of municipal bonds over the past several years, which were very inexpensive for US investors.
Under current acts of the US Congress, the interest on most bonds issued by the Commonwealth of Puerto Rico, its political subdivisions and its public corporations, are not subject to income taxation on the federal, state and local levels. By comparison, few other US municipal bonds enjoy the benefits of this triple tax exemption in all states.
However, the Puerto Rican government spent the income from most of those municipal bond funds while the country’s economic output has actually been contracting for almost a decade now. GNP data for the fiscal year ending June 2014 suggests that the economy shrank by about 1% in FY2014 and continues to contract at a rate of at least 1% per annum, and likely more in FY2015, according to an eye opening report by Anne O. Krueger, Ranjit Teja and Andrew Wolfe, former IMF economists
Their conclusion was that the commonwealth’s debt cannot be made sustainable without growth. After a decade of stagnation and negative growth, Puerto Rico has been unable to generate enough capital to pay its investors back. Since 2013, there were important measures such as higher taxes, pension reforms, and spending cuts, but Puerto Rico’s problems seem too resilient.
“The island’s ability to meet debt service payments depends in part on the willingness of investors to roll over existing debt. The report of the ex-IMF economists asserted that the island was “now virtually shut off from normal [credit] market access.”
— – Congressional Research Service Report
Public sector debt has risen every year since 2000, reaching over 100 percent of Gross National Product (GNP) by the end of 2014.
Banks have also been reducing their balance sheets since 2005, in response to the hit to their capital from lower asset prices. As a result, commercial bank assets have fallen by 30%.
To combat this downturn in the economic environment, in 2014 Puerto Rico imposed a 2% special charge on all money transfer transactions from Puerto Rico to any entity, person or company abroad, including people in the United States.
“A two percent (2%) charge is hereby established to be collected and paid by every Money Transmitting Business, for every money transmission processed or completed electronically or by check, money order, fax, air transportation, or other means, from the jurisdiction of Puerto Rico, including any of the municipalities thereof, to any foreign entity, person, or business, including the United States jurisdiction.”
— – Government Development Bank of Puerto Rico
The tax must be collected from each eligible money transfer transaction, processed by money service businesses that are duly licensed by the Puerto Rico Commissioner of Financial Institutions. PayPal has apparently chosen to opt out of the market.
In spite of the efforts to stabilize the financial troubles, at the beginning of August this year the Puerto Rican government paid only US$0.63m of US$58m in interest and principal due on bonds issued by the Public Finance Corporation, a subsidiary of the island’s Government Development Bank.
Puerto Rico also recently warned that it may “lack sufficient resources to fund all necessary governmental programs and services as well as meet debt service obligations for the fiscal year 2016.”
In Taiwan, the financial and economic outlook is not nearly as bleak as it is in Puerto Rico. The reasons PayPal has given for Taiwan are a bit more cryptic, stating that they will “be streamlining our services in Taiwan and our system will be enhanced to ensure that domestic commercial payments will not be processed, in compliance with local laws and regulations.”
Although PayPal doesn’t name the exact law or regulation their change is in response to, it may be in response to a law drafted last year, inhibiting the use of such services for financial products.
The ‘third-party payment services act’ was put forward to facilitate Taiwanese domestic payments across the internet. The law was mainly concerned about buying goods online, but left out protection for financial products that it extends to other products, and could be read to mean that payment deposit accounts for purchasing financial management products would not be permitted in Taiwan.
It appears the law went into effect recently and PayPal has halted all domestic commercial payments in response.
“These changes will take effect from September 21, 2015, and you will not be able to use your PayPal account registered in Taiwan to send payments to, or receive payments from, other PayPal accounts registered in Taiwan. Please note that you will still be able to receive payments from international sales and trading, as well as make payments for purchases of goods or services from overseas merchants.”
— – PayPal
The island of only 23 Million people has three bitcoin exchanges and over 35 merchants that accept bitcoin directly listed on Coinmap.org. More impressively, various sources report that there are now as many as 17,000 convenience stores across the island with either Maicoin service or Bitoex Kiosks, that allow you to buy bitcoin with cash instantly, and in some cases for only a 1% fee. With such cheap and easy access to bitcoin for everyone on the island, it would stand to reason that PayPal’s loss could easily become bitcoin’s gain.