PayPal updates crowdfunding policies to halt fund freezing controversy

PayPal has finally revamped its crowdfunding policies to allow campaigns more flexibility and stop the controversial freezing of funds that has plagued the relationship in the past.

Related: PayPal promises overhaul after accidentally freezing crowdfunding campaigns

Several executives from the eBay-owned payments merchant confirmed to VentureBeat that it is focusing on improving communication with the crowdfunding sector in order to make sure the process becomes a much smoother one. This will come through two main changes, which are:

  1. PayPal is engaging directly with campaign owners “early on” to ensure they comply with PayPal policies and government regulations — and help bring them up to snuff if they don’t.
  2. That early communication also serves as a categorization process, in which PayPal and crowdfunding portals work together to determine if campaigns are primarily pre-selling merchandise or are “strictly fundraising.”

Even with its new guidelines, Tomer Barel, PayPal’s chief risk officer, admitted that crowdfunding campaigns are still risky and that consumers, who are already well informed on this risk, are in fact financial backers.

“We believe if there is transparency, consumers understand it. They’re not really consumers in this case, actually — they’re backers, they’re investors, and they’re not in a position to say, ‘I didn’t get what I was promised’,” Barel added.

PayPal’s historic reluctance to wholeheartedly embrace crowdfunding comes from the fact that it is worried about chargebacks that come from campaigns that fail to reach the pre-defined target. This has led to a number of crowdfunding campaigns having funds frozen by PayPal as it was worried about the new concept being “potentially open to abuse.”

Of the major crowdfunding services, Indiegogo allows backers to pay using PayPal whereas its main competitor, Kickstarter, relies on Amazon Payments to handle payments.

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“PayPal has always been a spot of innovation and on the side of entrepreneurs. Despite the challenges of the [crowdfunding] model, it was always really important for us to find a solution,” Barel concluded.