If you’re new to crowdfunding you may not be aware of a danger all too common in the process.
Online payment giant PayPal has been known to freeze the accounts for some crowdfunding projects. A freeze on your money could have disastrous results for your business or new project.
That’s what happened to Lab Zero CEO Peter Batholow last year. He tried to access some of the $700,000 his crowdfunding project had raised. With his account frozen though, he was unable to even get the money to pay his employees on time, Venture Beat reports.
PayPal’s Chief Risk Officer, Tomer Barel, explained his company’s previous policy this week in a blog post:
“In crowdfunding, the process involves speculatively supporting a new concept that may, despite the best of intentions, not make it to market. 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.”
The problem, it seems, has to do with PayPal’s concerns over chargebacks. That’s when customers reverse a payment through PayPal alleging they did not get the product or service they paid for, Venture Beat reports.
But Barel says that as PayPal continues to partner with crowdfunding sites and consumers become more familiar with the risk of backing a project, a change is needed. PayPal’s website now clearly states that it supports donation and reward-based crowdfunding projects.
Now, if you’re running a crowdfunding campaign and expect to access your money through PayPal, the company will contact you early in the process. It will ensure that you’re familiar with the expectations and guidelines PayPal has for crowdfunders. It will also offer a “flexible, safer, and more secure payment option.”
“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.”
PayPal Photo via Shutterstock