In a blog post published yesterday, PayPal Chief Risk Officer Tomer Barel announced a set of changes regarding how PayPal will approach crowdfunding as a payment provider.
Consider this excerpt, emphasis ours…
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.
What PayPal is taking issue with is the level of disclosure, specifically on campaigns that are preselling products. PayPal is requiring more apparent disclosure of the risks of backing a rewards-based crowdfunding campaign if crowdfunding platforms or campaigners plan on using PayPal as a payment provider.
If backers don’t fully understand the risks involved, they do things like file chargebacks when crowdfunders are late to deliver. This is the type of outcome PayPal wants to limit, and the emergent crowdfunding industry can – and should – join them in that effort.
Anyone planning to use PayPal is going to have to meet PayPal’s disclosure requirements. FundRazr is doing this. CEO Daryl Hatton explained in a blog post…
At FundRazr we believe the new PayPal policies help clarify to contributors the risks associated with giving to these types of campaigns. 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. And by requiring that all crowdfunding platforms follow this process, it will help the many new, inexperienced platforms follow industry best practices.