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Paypal clarifies crowdfunding terms

Paypal clarifies crowdfunding terms

Mon 17 Mar 2014 8:37am GMT / 4:37am EDT / 1:37am PDT
Development

"There is a distinction between crowdfunding and preselling"

Online payments company Paypal is working with crowdfunding sites to minimise the problems posed by campaigns that don't deliver.

"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," said Tomer Barel, chief risk officer, in the company blog.

"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."

He also pointed out Paypal was the first company of its kind to specifically change its policy to address the complications of crowdfunding.

It's a wise move for a company that has been at the centre of a number of crowdfunding related dramas, withholding Skullgirls funding and freezing Goldhawk Interactive's account.

"At FundRazr we believe the new PayPal policies help clarify to contributors the risks associated with giving to these types of campaigns, commented crowdfunding platform FundRazr's Bob Mulholland.

"It tackles the fundamental problem that contributors need to understand that a project may not be successful and that, if that happens contributors won't receive their product. By ensuring that the contributor is required to acknowledge this risk as part of the payment process, there is a higher probability that they will make a better decision about their participation in the project and will have better expectations of what may happen."

5 Comments

Doug McFarlane
Co-Owner

39 36 0.9
Hey paypal - I'll simplify your business model even further:
If Entity A wants to transfer money to Entity B - Just Do It. (or is that already trademarked?) Why exactly to you feel you need to step in here, or any other time?

Edited 2 times. Last edit by Doug McFarlane on 17th March 2014 5:11pm

Posted:5 months ago

#1

Matthew Eakins
Technical Lead

48 14 0.3
@Doug Because when party B doesn't deliver party A can try to dispute the transaction. PayPal is just getting all their ducks in a row so the user is the one risking their money and they don't try to leave PayPal holding the bag.

Posted:5 months ago

#2

Tim Carter
Designer - Writer - Producer

562 311 0.6
Yes, Doug...

The potential for fraud from crowdfunding is gigantic... Soon people will be coming out of the woodwork, making up bogus claims that they can do X... And guess what?: if you lost your money giving it to them, understand that you have no recourse.

If this is not understood, then crowdfunding will be destroyed. It will sink into a miasma of legalese in which only the lawyers win... As everyone who wants to launch a crowdfunding campaign will need to file a legal prospectus, costing thousands of dollars, the same way they've had to in the stock market since 1929 or so.

Posted:5 months ago

#3

Andrew Goodchild
Studying development

1,241 400 0.3
And also because PayPal have complicated regulations that vary by territory that they have to adhere to.

Posted:5 months ago

#4
Right at the beginning of crowd funding I remember hearing and I think commenting here that offering people merchandise or copies of the product might actually constitute another contract which then does have to be legally honoured, which is separate to just simply backing the product. I'm actually surprised PayPay hasn't taken this step before now.

Posted:5 months ago

#5

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