PayPal reviews crowdfunding policies

PayPal reviews crowdfunding policies
Seth Tipps

By Seth Tipps

September 16th 2013 at 8:48AM

Online payment service hopes to cut back on unnecessary frozen accounts

PayPal has decided to revisit its policies following several controversial decisions to freeze the accounts of crowdfunding campaigns.

PayPal is used primarily by IndieGoGo, and the industry has witnessed repeated instances of successful game projects being derailed after crowdfunding campaigns were declared fraudulent or otherwise too risky to receive payouts by the company's risk assessment program.

In a company blog post addressing criticism of its policy, PayPal explained why its both excited about the potential of crowdfunding and cautious about its potential to be abused.

“There are unique regulatory and risk aspects inherent to this new way to raise money from supporters around the world,” wrote PayPal's VP of risk management Tomer Barel.

“To name one, we sometimes hear from campaign contributors that they are confused about what exactly their money is going towards, and assume that they’ll get it back if the venture is not successful.”

“Because the model is so new, it is potentially open to abuse,” he continued.

“PayPal has a responsibility to ensure that the system remains secure, in compliance with Government regulations around the world, and that consumers who contribute to these campaigns understand where their money is going.”

The risks inherent in any online transaction are only made worse by these complications, which has led several online transaction systems to avoid crowdfunding altogether.

“We don't believe that's the right approach because, when done right, crowdfunding is a powerful catalyst for innovation,” Barel explained.

“However, it's clear that our existing policies and processes aren’t working quite right for this particular fundraising model.”

The solution hasn't been decided on yet, but in the meantime PayPal will be communicating with several leaders in the crowdfunding space in the hope of finding a solution that “avoids unnecessary account limitations.”

This probably won't eliminate the problem altogether, as Barel points out a solution that pleases everyone won't be easy.

Until PayPal finds a permanent solution, a senior member of the risk management staff will review every campaign before action is taken.

“PayPal's very essence is connecting buyers and sellers,” Barel said.

“The last thing we want to do is get in the way of the innovative new products coming from entrepreneurs raising money via crowdfunding.”