Update on PayPal and Crowdfunding

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Pay Pal | Tomer Barel, Chief Risk Officer | March 13, 2014

Pay Pal addresses crowdfunding challengesFollowing my post in September, I wanted to update everyone on the changes that we have put in place to address the problems around PayPal limiting the accounts of a few people who were using crowdfunding sites to support their ideas.

First, let me take a step back and explain the core of the issue. Crowdfunding is fundamentally different from regular ecommerce. There is a distinction between crowdfunding and “preselling”. In crowdfunding, the process involves speculatively supporting a new concept that may, despite the best of intentions, not make it to market. In “preselling” there is an expectation that you will get something tangible for your money…even if it takes months for delivery.

Many crowdfunding sites allow their campaign owners to pull money out before they have reached the final goal in order to begin creating and funding the concept, a process that often begins even while the crowdfunding process using PayPal is continuing. If it is not made clear that there is no guarantee of product delivery, this can cause regulatory and risk issues (and upset customers) when the final goal isn’t reached.

Related:  Crowdfunding Policies Risk or Reward?

Here are some of the key changes we have made to help make sure this doesn’t happen:

PayPal has started to engage crowdfunding campaign owners early on to clearly understand their campaign goals and help them ensure their campaigns are compliant with our policies and government regulations.

Together with the crowdfunding sites, we identify if campaigns are strictly fundraising or preselling merchandise. We enable their campaigns without interrupting payments under the condition that the campaign owner is explicit and transparent to their contributors that there is no guarantee of delivery regarding the rewards being offered upon contribution.

You can read more about the changes here.

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