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PayPal nixes Purchase Protection for payments made through crowdfunding platforms

TechCrunch TechCrunch 8/05/2016 Catherine Shu

If you use your PayPal account to support a crowdfunding campaign, you can’t rely on its Purchase Protection plan anymore. The payment platform has announced that after June 25, payments made on crowdfunding platforms will no longer be eligible for the program, which allows users to open disputes for items that don’t arrive or are different from described.

Supporting any crowdfunding campaign comes with a degree with a risk because you have to trust that your money will actually be used for the stated purpose, whether it’s helping someone reach a goal or supporting the development of a new product.

In an emailed statement, PayPal said:

In Australia, Brazil, Canada, Japan, United States and other countries, we have excluded payments made to crowdfunding campaigns from our buyer protection programs. This is consistent with the risks and uncertainties involved in contributing to crowdfunding campaigns, which do not guarantee a return for the investment made in these types of campaigns. We work with our crowdfunding platform partners to encourage fundraisers to communicate the risks involved in investing in their campaign to donors.

According to a report released last year by Kickstarter, one of the biggest crowdfunding platforms, nine percent of successfully funded projects fail to deliver rewards, but 65 percent of backers surveyed said their rewards were delivered on time.

Those stats only apply to Kickstarter, however, and not the many other crowdfunding platforms out there, which each have their own policies.

Back in March 2014, PayPal revised its rules for crowdfunding after some campaigns ran into problems because their funds had been frozen by the platform.

Its new policies separated campaigns into two categories: fundraising or preselling advance orders on merchandise. According to PayPal policy, preselling campaigns may still get their funds held to ensure that customers can get a refund if a pre-ordered product is not delivered as promised. TechCrunch has asked PayPal for clarification on how it will handle these types of problems in the future.

PayPal also added two other kinds of transaction to its updated list of items ineligible for Purchase Protection. They are “anything purchased from or an amount paid to a government agency” and “gambling, gaming and/or any other activity with an entry fee and a prize.”

The U.S. Department of Treasury began accepting PayPal on, which accepts payments to government agencies in February 2015, while the payment platform started allowing U.S. gambling sites to use it again last September after a 12-year ban. Both developments gave PayPal more revenue streams following its spin-off from eBay, and removing them from Purchase Protection mitigates the company’s exposure to risks.

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