Paypal and Crowdfunding: don’t do it(garethhayes.net)
garethhayes.net
Paypal and Crowdfunding: don’t do it
http://garethhayes.net/paypal-warning/
13 comments
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.
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.
It's disingenuous to refer to crowdfunding as to "unsecured load".
With a normal transaction, goods or services are provided in exchange for money.
With a crowd funded transaction, a promise of future goods or services are provided in exchange for money. Thats why it's treated differently in the payments industry.
Another way to think of it: If crowdfunding wasn't available to the business, a loan would serve the exact same purpose, wouldn't it? And if the business got loans from multiple providers, wouldn't that be a form of crowd funding? The only difference is that traditional loan providers have to work out their own security with the business, while crowdfunders get security from the chargeback mechanisms of their payment processor.
Do you see any of what I wrote as disingenuous?
With a crowd funded transaction, a promise of future goods or services are provided in exchange for money. Thats why it's treated differently in the payments industry.
Another way to think of it: If crowdfunding wasn't available to the business, a loan would serve the exact same purpose, wouldn't it? And if the business got loans from multiple providers, wouldn't that be a form of crowd funding? The only difference is that traditional loan providers have to work out their own security with the business, while crowdfunders get security from the chargeback mechanisms of their payment processor.
Do you see any of what I wrote as disingenuous?
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 for the complaint being filed.
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 for the complaint being filed.
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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.
Oh, but Paypal has been doing this to a whole lot of people for a very long time. There's plenty of horror stories of this kind.
In fact, he should've known that they are really, really biased against crowdfunding, pre-paying for events and processing lots of payments for non-physical goods.
The reasons technically make sense, but in reality, they should be able to do that without issues - it's not the early 00's, after all.
But it's like Paypal wants to be a "small payments" processor, instead of holding large amounts of money for other people. Maybe there are legal reasons for this...
In fact, he should've known that they are really, really biased against crowdfunding, pre-paying for events and processing lots of payments for non-physical goods.
The reasons technically make sense, but in reality, they should be able to do that without issues - it's not the early 00's, after all.
But it's like Paypal wants to be a "small payments" processor, instead of holding large amounts of money for other people. Maybe there are legal reasons for this...
Agree wholeheartedly that PayPal's issues with crowdfunding are well known.
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...).
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...).
> 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
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
IANAL, but I believe it is not that they are not regulated heavily, it is that bank regulations specifically are much stricter than money transmitter regulations. For example, a money transmitters (as PayPal claims it is) are only supposed to transmit money from person A to person B transparently. However, PayPal routinely will hold funds or refund funds to a buyer without giving the seller notice or fair warning. Under banking regulations there would be more transparency to the seller and these types of incidents would slow or cease to exist is my understanding. If you have a $1000 in your bank account and walk into the bank to withdraw $500 the bank has to honor your request as long as the funds are available. With PayPal it can be a guessing game of whether the funds are available and there is no one there to answer why they are not available when they make the claim. Again, IANAL but that is my general understanding of the difference.
EDITED TO ADD: Also, as I understand it if someone hacks your bank account the bank has insurance and your funds are almost always refunded sometimes the same day. With PayPal if your account is hacked and you have a balance there you risk losing your money with PayPal not refunding any of it. PayPal most likely would tell you it is your fault.
EDITED TO ADD: Also, as I understand it if someone hacks your bank account the bank has insurance and your funds are almost always refunded sometimes the same day. With PayPal if your account is hacked and you have a balance there you risk losing your money with PayPal not refunding any of it. PayPal most likely would tell you it is your fault.
When my money was frozen by 6 months (they didnt tell me duration back then) I rang the Irish Financial Services Ombudsman who resolve issues with banks and various financial services.
When I mentioned Paypal I was basically told they are a private company and they can do whatever the hell they want and I was the bigger eejit for using them (not in those words but more official wording of course...) and they could not help me and to go complain to the Consumer Protection service
I got my money back eventually. I still do not know why my account was closed years later and they refuse to tell me. every time I ring and ask I am told I will receive an email from someone with shitty Indian accent, but of course never happens as they fob me off. They still have my financial information on file which I suspect is actually violating Data Protection laws and rules here, i might make a call to Data Protection Commissioner about this now that I think of it.
When I mentioned Paypal I was basically told they are a private company and they can do whatever the hell they want and I was the bigger eejit for using them (not in those words but more official wording of course...) and they could not help me and to go complain to the Consumer Protection service
I got my money back eventually. I still do not know why my account was closed years later and they refuse to tell me. every time I ring and ask I am told I will receive an email from someone with shitty Indian accent, but of course never happens as they fob me off. They still have my financial information on file which I suspect is actually violating Data Protection laws and rules here, i might make a call to Data Protection Commissioner about this now that I think of it.
Because most other payment providers (say Stripe) require a credit card, which is, at least in Germany, a not very popular payment option (the prefered payment option there is SEPA direct debit).
I often have the impression that lots of vendors forget that in other countries (say, Germany) not everbody has and is willing to get a credit card and other payment options are prefered. Paypal provides them (in this case SEPA direct debit), while e.g. Stripe does not. So I use Paypal, though I don't like it.
I often have the impression that lots of vendors forget that in other countries (say, Germany) not everbody has and is willing to get a credit card and other payment options are prefered. Paypal provides them (in this case SEPA direct debit), while e.g. Stripe does not. So I use Paypal, though I don't like it.
This, also in the Netherlands. iDeal is the common option here, but usually only offered by Dutch shops. The only other options are PayPal and Bitcoin, so...
Most vendors I talk to aren't even aware that there exist countries where creditcards aren't commonplace.
Most vendors I talk to aren't even aware that there exist countries where creditcards aren't commonplace.
Exactly. If Stripe managed to offer SEPA transfers, or integrate with giropay.de or whatever, I would be happy to use that instead. Credit cards are an inferior technology compared to the electronic bank transfers that are common in Europe since the early 80s.
Can you tell me if SEPA provide some kind of buyer protection? I bought a few parts on eBay and paid with SEPA, but there's no mention of any protection in case the seller is fraudulent, felt a bit uneasy unlike when paying with Paypal :-). Do you just call the bank and tell them to reverse the transaction? Thanks!
For basic SEPA, You can order the bank to reverse the transaction for up to 8 weeks afterwards. There are different kinds of SEPA transfers though, and I think its different between companies.
There are two kinds of SEPA direct debits (Lastschrift):
Only the first one is used when you buy things in the internet (the second one is only important for B2B transactions). It can be reversed without giving any reasons for 8 weeks. If you have not authorized (in other words: it was fraudulent) even for 13 weeks. If you reverse it, though it was legal, it's the vendor that has the problem (and has to collect the money). That's why often only larger vendors will accept SEPA direct debit (small vendors will often insist that you use SEPA credit transfer instead that is a lot less customer-friendly in case of a fraudulent vendor). SEPA credit transfer is in my opinion not suitable for "fast, spontanous" payments, though, for reasons I won't explain here.
- SEPA Core Direct Debit
- SEPA Business to Business Direct DebitOnly the first one is used when you buy things in the internet (the second one is only important for B2B transactions). It can be reversed without giving any reasons for 8 weeks. If you have not authorized (in other words: it was fraudulent) even for 13 weeks. If you reverse it, though it was legal, it's the vendor that has the problem (and has to collect the money). That's why often only larger vendors will accept SEPA direct debit (small vendors will often insist that you use SEPA credit transfer instead that is a lot less customer-friendly in case of a fraudulent vendor). SEPA credit transfer is in my opinion not suitable for "fast, spontanous" payments, though, for reasons I won't explain here.
Generally your bank will handle these issues, yeah. SEPA is more a protocol than a service.
Because their USP hasn't changed in 17 years: PayPal is easy, trusted by buyers, cheap, and will plug in to just about any selling system in the world with minimal effort. You can sign up immediately, and withdraw money you receive immediately. For a couple hundred million people a year, it does the job as good or better than the alternatives. In a lot of countries, there are no comparable alternatives.
I use a PayPal merchant account for my very small side-business, selling a specialized gadget that's not very expensive. Over the past 7 years, PayPal has been utterly flawless. I have had zero issues. I monitor web forum chat, and enough people have commented about my product that I would know it if someone had a bad experience, or was reluctant to buy from me, due to PayPal.
This is without discounting any of the horror stories that I've read. In my little niche market, those stories tend to involve the eBay side of PayPal.
Once in a while I research alternatives to PP, and have really not found one that caters to the super-small business.
This is without discounting any of the horror stories that I've read. In my little niche market, those stories tend to involve the eBay side of PayPal.
Once in a while I research alternatives to PP, and have really not found one that caters to the super-small business.
Stripe, Amazon Payments, WePay, & Square come to mind. Paypal is great, until it isn't.
I looked into Stripe recently. Unless I mis-understand the technology, it's an API, and an Application Programming Interface requires Application Programming. In other words, I would need to operate a website, physically or in the cloud, and create the program that generates credit card transactions. I would also have to manage all of the policies that PayPal covers for me, such as dispute resolution.
PayPal gives me access to USPS first class mail shipping, which USPS doesn't even offer via their own website. This saves me money on shipping costs.
Last time I looked, Amazon seemed more complicated, and oriented towards bigger businesses than mine. I don't remember what I concluded about WePay and Square.
Everything is great until it isn't -- kind of a corollary to survivorship bias I guess.
PayPal gives me access to USPS first class mail shipping, which USPS doesn't even offer via their own website. This saves me money on shipping costs.
Last time I looked, Amazon seemed more complicated, and oriented towards bigger businesses than mine. I don't remember what I concluded about WePay and Square.
Everything is great until it isn't -- kind of a corollary to survivorship bias I guess.
None of these are usable as a customer, in a country where creditcards aren't commonplace (eg. the Netherlands, Germany, ...)
"it won't happen to me"
Because it works for most people, most people don't use it for "crowd-funding", and it's way better than any alternative (begining with existing in the first place: alternatives to easily handle worldwide payments and work across most of the world don't exist).
"many"? How many in absolute terms? How many in relative terms compared to the entire active userbase of paypal?
Insufficient data for a meaningful answer.
However, given the preponderance of stories surrounding PayPal's abysmal customer service, I'd be inclined to avoid them just because it seems like you can be SOL really easy and the guy on the other side of the phone can't/won't do anything to help you.
However, given the preponderance of stories surrounding PayPal's abysmal customer service, I'd be inclined to avoid them just because it seems like you can be SOL really easy and the guy on the other side of the phone can't/won't do anything to help you.
These stories depends on whether you are using PayPal as seller or buyer. Usually buyers don't run into these kind of trouble. Also there is dedicated website to share PayPal horror stories. http://letskillpaypal.com/?page_id=40
touch points.
the less people with my CC info the better and so many vendors accept pay pal it becomes a no brainer. for many sites I only need to enter my paypal information and not even register which in itself is usually obnoxious
the less people with my CC info the better and so many vendors accept pay pal it becomes a no brainer. for many sites I only need to enter my paypal information and not even register which in itself is usually obnoxious
Because they are unable or can't be bothered to setup receiving payments in a legitimate fashion. This is one good example.
Yes, doing it properly, with sufficient guarantees for all parties involved, is hard, probably way harder than it should be, but there are good reasons why payments are governed by all kinds of rules and regulations.
Paypal is a shady business that allows other shady businesses to cut corners at a high risk. People take that risk because they are either lazy or have no other options, and this is an example of the former.
Especially since it concerns crowdfunding, and not a straightforward transaction of goods for currency, I find it hard to have any sympathy for the "victim". Being a small business or non-profit org is no excuse for playing fast and loose with other peoples money.
Yes, doing it properly, with sufficient guarantees for all parties involved, is hard, probably way harder than it should be, but there are good reasons why payments are governed by all kinds of rules and regulations.
Paypal is a shady business that allows other shady businesses to cut corners at a high risk. People take that risk because they are either lazy or have no other options, and this is an example of the former.
Especially since it concerns crowdfunding, and not a straightforward transaction of goods for currency, I find it hard to have any sympathy for the "victim". Being a small business or non-profit org is no excuse for playing fast and loose with other peoples money.
Paypal is absolutely not freezing accounts to earn interest, that's absurd.
Paypal, and other money transmitters have a business model that earns them ~1% profit for a non-fraudulent transaction and -100% profit for a fraudulent transaction. That's just the nature of the game when you're in payments. That means paypal cares ~100x more about preventing fraud than keeping you happy.
Paypal, and other money transmitters have a business model that earns them ~1% profit for a non-fraudulent transaction and -100% profit for a fraudulent transaction. That's just the nature of the game when you're in payments. That means paypal cares ~100x more about preventing fraud than keeping you happy.
> Paypal is absolutely not freezing accounts to earn interest, that's absurd.
Then why else are they doing it, on cases where no investigation is pending (not for fraud or otherwise), and they have already decided to terminate your account?
Then why else are they doing it, on cases where no investigation is pending (not for fraud or otherwise), and they have already decided to terminate your account?
Remember me this:
"Scottish Ruby Conference 2008-2011..."
http://conferencesburnedbypaypal.tumblr.com/
"Scottish Ruby Conference 2008-2011..."
http://conferencesburnedbypaypal.tumblr.com/
Shouldn't this just be 'Paypal: don't do it'?
Poor PayPal customer service was the reason I stopped using eBay.
I wish I knew what documents PayPal demanded.
I wish I didn't have to enable JavaScript to see anything other than an empty white browser.
I wish I didn't have to enable JavaScript to see anything other than an empty white browser.
Paypal: don't do it
Much of these problems can be avoided when you treat PayPal as a conduit and not as a bank. It isn't a bank. Don't trust it to hold your money.
Treat it like a dodgey money exchanger on a back street in Lima and you are much less likely to get burned.
Treat it like a dodgey money exchanger on a back street in Lima and you are much less likely to get burned.
I don't mean to sound like a pitchfork-wielding maniac, but http://letskillpaypal.com for the win. I bet they were shaking in their shoes at the prospect of something like this going seriously viral.
Everyone on HN should be crowdfunding with www.tilt.com (YC 12).
Use Reward Code: HN10 and get $10 towards any tilt and 0 credit card processing fees.
It fills me with confidence when even a company has obviously never read its TOS and it's riddled with hilarious glitches like this:
"Tilt is not liable or responsible for:
1. Any Campaign not attaining a goal amount, no matter the reason. 1. In the event the Campaign Tilts, any refunds, including without limitation, for Contributions or Perks. 1. Any errors or omissions in the Destination Account.
2. The failure of the Payment Processor or Campaign Admin to pay Contributions to the Beneficiary. 1. Checks that are incorrectly processed, lost, or stolen.
3. Your Member Content."
That's a lot if firsts!
"Tilt is not liable or responsible for:
1. Any Campaign not attaining a goal amount, no matter the reason. 1. In the event the Campaign Tilts, any refunds, including without limitation, for Contributions or Perks. 1. Any errors or omissions in the Destination Account.
2. The failure of the Payment Processor or Campaign Admin to pay Contributions to the Beneficiary. 1. Checks that are incorrectly processed, lost, or stolen.
3. Your Member Content."
That's a lot if firsts!
The article was regarding an Australian, and Tilt is US only.
Do you work for Tilt?
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.
What is the solution? Work with a company that will actually look into your financials and underwrite you. Braintree will do this. Your bank will do this. Authorize or whatever ancient CC processor will. Well, either they'll do it or tell you to move on before you've started processing with them. I think Stripe might have the same sort of instant approval, delayed rejection problem possible as paypal does here.
Don't try and use PayPal to avoid the underwriting process or prepare to have your heart broken.