PayPal has gotten itself some bad press over crowdfunding, in particular for withholding funds certain companies need to develop their projects. Now, the payments site reveals that it has put changes in place to address those problems.
In a blog post today, Chief Risk Officer Tomer Barel says PayPal has started to engage crowdfunding campaign owners early on so it can understand the campaign goals and help to ensure these campaigns are compliant with its policies, as well as government regulations.
To avoid the regulatory and risk issues — as well as upset customers — that crop up when crowdfunding campaigns don’t reach their final goal, PayPal will determine whether campaigns are strictly fundraising or preselling merchandise. The former is speculatively supporting a new concept that may not make it to market (similar to an investment), while the latter has an expectation that you will get something tangible for your money.
Therefore, if a campaign is fundraising — essentially securing donations from contributors who know they may not get something in return — PayPal will not put limits on the account’s funds.
“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,” Barel says.
This helps PayPal avoid having to refund angry contributors who think they had been “buying” the crowdfunded product in cases when certain projects fail to meet their goals.
Barel says PayPal has been working with “major crowdfunding players,” naming FundRazr. What remains to be done is for PayPal to be on the same page as all the crowdfunding platforms that use it, so it can avoid a repeat of the outrage that descended upon it last year.
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