PayPal, an eBay company, has suspended personal payments to and from India and transfers to local banks in the country.
Customers can still make commercial payments to India, but merchants cannot withdraw funds in rupees at local Indian banks, it added.
The services have been suspended while the company works with its "business partners and other stakeholders to address questions they have about the service," according to PayPal's blog. PayPal did not say what questions have been raised.
PayPal said it is trying to resolve the situation as quickly as possible and that it was sorry for the inconvenience that it may cause its customers in India and around the world. A number of bloggers and Web sites have reported that the company has reversed and returned payments to senders.
PayPal executives in the region were not available for comment on specific reasons why the service was discontinued.
The move by PayPal may be linked to new Indian government rules aimed at preventing money laundering, according to an analyst who spoke on condition of anonymity. Last November, the Indian government introduced rules requiring financial institutions and other intermediaries to verify the identity of clients carrying out international money transfers.
PayPal's user agreement says it does not guarantee any user's identity because user verification on the Internet is difficult. PayPal does reserve the right to validate customers' identities, including asking for documents.
PayPal is used in India by many to receive payment for services such as software development and freelance writing.