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Paypal and Crowdfunding: don’t do it

garethhayes.net

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Re: Paypal and Crowdfunding: don’t do it

#11

Post by yc1010 »

lexx wrote: post #2

So many paypal stories like that. Why do people still use it?

The thing about paypal is that when it works its fairly nice service, and people do not understand (or read terms) that it is not THEIR money displayed by digits on screen, but money held by a private company who does everything to not be regulated like a bank would.

So average people then demand merchants accept Paypal and throw a hissy fit when the merchant balks rightly pointing that beside the fees there is a very real risk that merchant would be screwed. And of course really good/big merchants (Amazon etc) have already great deals with banks/credit card networks directly and fraud detection systems in place.

So you endup in a situation where Paypal basically screws small merchants every single time. I had an account frozen before with business nearly going out of business thanks to Paypal, it is unnerving trying to get in contact with support technicians who speak English and are not robots reading from a sheet and having to PROVE THAT YOU ARE NOT GUILTY of whatever paypal thing you are guilty of, and of course they rarely tell you why money is being held ransom.

There are alternatives, here in Europe SEPA (and various either bank transfer methods such as Ideal) which makes Paypal redundant. Prepaid solutions such as paysafecard are good too (but high fees of circa 10%). And of course there is Bitcoin buy I better not talk about that on HN out of fear of being instantly down-voted by people who do not realize that outside the US there are very little payment options online or who do not understand bitcoin (which is strange for a nerd site) as can be seen from various past threads regurgitating same cons (its almost as if there is a coordinated effort one would think...).

Re: Paypal and Crowdfunding: don’t do it

#12

Post by jusben1369 »

Weird he or she blames PayPal much more than Indiegogo. PayPal is the one who carries all the risk (if you aren't legit and people demand their money back after you fled) while IG watches this play out in their front yard over and over again and says nothing. And the reference to a rifle and other sections about physical violence being the only way PayPal will learn are disturbing.

Re: Paypal and Crowdfunding: don’t do it

#14

Post by kijin »

droopyEyelids wrote: post #9

It's not hard to understand. Payment companies aren't going to give you other people's money as a free loan for selling future goods or services. From ticket sales of your first big event to crowd funding. It violates every company's risk model. They have to hand you a huge chunk of money, allow you to cash out, and then wait for the chargebacks to come in months later. This kind of problem is spelled out in the tos.…

The underwriting process is designed for stable businesses with a proven track record. It's not very suitable for today's crowdfunded projects, which is why those projects have to resort to PayPal. Just telling them to go through the good ol' underwriting process doesn't really help.

Re: Paypal and Crowdfunding: don’t do it

#18

Post by droopyEyelids »

kijin wrote: post #14
droopyEyelids wrote: post #9

It's not hard to understand. Payment companies aren't going to give you other people's money as a free loan for selling future goods or services. From ticket sales of your first big event to crowd funding. It violates every company's risk model. They have to hand you a huge chunk of money, allow you to cash out, and then wait for the chargebacks to come in months later. This kind of problem is spelled out in the tos.…

The underwriting process is designed for stable businesses with a proven track record. It's not very suitable for today's crowdfunded projects, which is why those projects have to resort to PayPal. Just telling them to go through the good ol' underwriting process doesn't really help.

Doesn't help who? I say it does help them, because they need to understand no one is going to give them an unsecured loan, no matter what kind of business they're running. Thats the job of venture capital- not the job of your CC processor.

A crowd funding business especially needs to go through underwriting, which will involve proving they have the capital reserves or credit to handle problems that arise. Fostering the expectation that they should try to sneak a loan out of PayPal, or whatever payment company, is unhelpful.

Now, there is fault here in that PayPal's process isn't tight enough to catch them before they start processing. But you will find that fault to some degree with every modern payment provider.

Re: Paypal and Crowdfunding: don’t do it

#19

Post by [deleted] »

aplummer wrote: post #8

Good point to not waste time after your complaint is not handled as you'd like to contact the ombudsman, in Australia they are really aggressive. I've seen 8k phone bills wiped (carrier not noticing the unusual overseas data usage and letting them know), laptops replaced years out of warranty (merchantable quality). Usually just mentioning you are going to escalate it to the ombudsman is enough, they get fined just f…

[deleted]

Re: Paypal and Crowdfunding: don’t do it

#20

Post by dangrossman »

yc1010 wrote: post #11
lexx wrote: post #2

So many paypal stories like that. Why do people still use it?

The thing about paypal is that when it works its fairly nice service, and people do not understand (or read terms) that it is not THEIR money displayed by digits on screen, but money held by a private company who does everything to not be regulated like a bank would. So average people then demand merchants accept Paypal and throw a hissy fit when the merchant balks rightly pointing that beside the fees there is a ver…

> who does everything to not be regulated like a bank would

People say things like this all the time and I don't understand the basis for the claim.

What does PayPal do to not be regulated like a bank? They're perhaps the single most heavily regulated financial company in existence. They operate in more countries [1] than almost any other, and each of those countries regulates them in some way. In some of those countries they are a licensed and regulated bank (including the European Union [2]). In the US, they are overseen by 54 separate governments, including every state and territory, all of which license and regulate money transmitters [3]. They wanted to be a bank in the US to get the FDIC insurance on deposits (they originally believed themselves to be eligible and advertised it as a feature), but a federal agency 13 years ago decided they don't qualify as one.

On the flip side of the same coin, why do you think being regulated like a bank would change how any of these situations play out? Most banks offer merchant account services for accepting credit cards online. Every merchant account agreement I've read has allowed for termination without cause, freezing of funds for up to 180 days without recourse, and establishment of reserve accounts or holds at the bank's whim. These real banks won't hesitate to terminate your account and hold your funds if you try to use them as an unsecured loan against future promises you've made to thousands of people, either -- if you're up-front about the fact that you're taking credit cards for crowdfunding you'd not make it past underwriting and get an account in the first place. No regulator steps in and stops banks when they hold a merchant's funds. PayPal operates no differently because it is, at its heart, a tech stack on top of those very same merchant accounts from actual banks with the same policies and same tolerance for risk.

1: https://www.paypal.com/webapps/mpp/country-worldwide

2: http://tamebay.com/2007/05/paypal-becomes-a-bank-no-longer-u...

3: https://www.paypal.com/webapps/mpp/licenses

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