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
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If you read the conditions, it looks like they will be checking every single campaign with discutable criteria: or does ths only apply to DYS campaigns (so not for lets’ say a campaign on indiegogo or dutchdesignstarter).
We decided not to use paypal adaptive payments, because of their silly conditions (maximum reward €100). I am curious to find out if there are also changes in that field.
Thank for the info, I will contact paypal again to find out what’s happening
It’s a very natural concern for PayPal, so I can see why they would have the policies in place. I can also understand the frustration that would arise from having funds frozen that you’re counting on. A very tough spot to be in, but it sounds like they’re making headway.
This is great news for our company. It was just last month when we got rejected by paypal for our site and had to change our payment method. PayPal expect my call for request to use PayPal as our payment method.
Paypal is an anachronism in a world where cryptocurrencies exist.
The ‘concern’ that leads them to freeze customers’ funds is simply an excuse to gain interest on other peoples money.
Do they pay interest to their cusomers when they freeze their funds? No!
In other words they are a bunch of chisellers.
I had NO IDEA Paypal could do that, and did. So to hear it’s something they’ll no longer do is great! Of all things to freeze, it shouldn’t be crowdfunding, in my opinion.
Oh that dreaded freeze. Not only will you not be able to transfer your money, but you will also not going to be able to do anything. It’s a good thing that PayPal has now done this. Does this mean that they are finally supporting crowdfunding?
From the sounds of it, Aira, I guess they are supporting it. However it appears to be under the following 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.”
Kinda like a required disclosure of some sort.
PayPal blocked FlashQ going into reality (Posted on MAY 15, 2014)
On MAY 12, 2014, PayPal has limited our account and frozen all the funds we have raised, roughly $62,000, for unspecified reasons (a suspicious withdrawal or deposit). We contacted PayPal (Hong Kong) 3 times via phone and email these days. The feedback was disappointed, with PayPal’s obtuse and unresponsive “automatic” process. We were finally told that PayPal would be keeping the funds frozen until we get the product delivery done. PayPal’s act is ridiculous when contrasted with the crowdfunding business model. When a startup entrepreneur doesn’t have access to startup capital, he / she can’t produce the product.
They still froze your account if you do not provide your SSN, I spoke to them and they told me that they froze accounts without SSN after 150 transactions I also spoke to a supervisor who said the IRS told them to freeze my account. They act as you need them and they are doing a big favor to you for their service. I closed my Paypal account for good.