UPDATE: A PayPal spokesperson says the company has reached out to the game publisher to resolve the issue. She explains that as a global payments company, PayPal needs to ensure compliance with laws and regulations — which can be frustrating in some cases, but it has already been making changes to adapt to the unique needs of crowdfunding campaigns.

PayPal is reportedly refusing to hand over all of the funds that a Japanese indie game publisher raised on Indiegogo earlier this year.

Nyu Media, which is working with a development partner on a 2D fighting game called Yatagarasu Attack on Cataclysm, has been told it won’t receive the full amount until after the game is released.

In a post on its Indiegogo site (spotted by VG 24/7), Nyu Media founder Sean King says that PayPal sent an email noting it has “reserved” the funding and will release “up to 50 percent of the funds” before Yatagarasu is rolled out. The rest of the funds will only be released after PayPal gets hold of verified copies of paid invoices. King says PayPal has provided no option to discuss further, and only asked Nyu Media to contact it closer to the release date at the beginning of next year.

The crowdfunding campaign lasted from June 27 – August 11 this year, and the Yatagarasu team exceeded its $68,000 goal to raise a total of $118,243.

King is obviously upset with PayPal and says in the post:

We appreciate irony as much as the next person, but PayPal refusing to provide funds legitimately raised to complete a game until after the game is released isn’t just beyond ridiculous – it potentially derails the game development. To add insult to injury, not only do Nyu Media and the Yatagarasu developer team have rock solid track records, but we’ve already provided PayPal with documents providing the bona fides of Nyu Media, the developer, and the campaign.

Nyu Media and the Yatagarasu development team will be pressing its case with PayPal UK’s customer service — which is presumably where its PayPal account is based. In the worst case scenario, King says they may end up refunding PayPal donations and arrange for contributions via other methods.

Here is PayPal’s comment in full:

We have reached out to Nyu Media and the issue has been resolved.

We want to reiterate that supporting these campaigns is an exciting new part of our business. We are working closely with industry-leaders like IndieGoGo and adapting our processes and policies to better serve the innovative companies that are relying on PayPal and crowd funding campaigns to grow their businesses.

We never want to get in the way of innovation, but as a global payments company we must ensure the payments flowing through our system around the world are in compliance with laws and regulations. We understand that the way in which we are complying to these rules can be frustrating in some cases and we’ve made significant changes in North America to adapt to the unique needs of crowd funding campaigns.

We are currently working to roll these improvements out around the world.

Headline image via Thinkstock