PayPal was put into another difficult situation when uncompleted campaign funds had investors requesting reimbursements, which had already been withdrawn by the campaign owner; this left contributors at a loss of money and skeptical of the industry.
PayPal has announced in March that that are reforming their crowdfunding policies in order to be more flexible towards crowdfunding projects, while still protecting the end user.
PayPal has been working closely with crowdfunding sites in order to implement policies that benefit all parties involved. In effect, PayPal is now screening pre-selling campaigns in their early stages. This requires campaigns to provide evidence of validity, such that they are a registered organization or legitimate business. This alone will reduce the number of scams as well as PayPal mistakenly freezing accounts, especially those in the not-for-profit category. In the event of an account being frozen, it is done so that “buyers receive the product or service they paid for within the agreed timeline or get a refund if the product isn’t available”.
PayPal has asked crowdfunding platforms to be more transparent by informing investors that there is no guarantee that their funds will be returned if they are financing a pre-selling campaign. In effect, PayPal will not be seen as the "bad-guy," as investors will know the risks they are committing to in a pre-selling campaign.
While PayPal is not the only online payment service to adopt crowdfunding policies, it has significant implications on the entire industry. The reforms have been criticized for being too stringent and bureaucratic, but investors are now better protected and aware of scams. The extra information and proof that companies are required to provide is not stringent enough to turn them away from crowdfunding, unless of course, they are a scam. And because this reform encourages more risk adverse people to join crowdfunding, campaigns could potentially pool more money from a larger crowd.
Crowdfunding is still a very new concept to many industries, and while PayPal is one of the first key industry influencers to reform policies, there is still a long way to go before most of the barriers holding crowdfunding back are eliminated or even reduced. PayPal’s decisions are a positive step forward and we hope to see many more companies adopting more flexible practices.
Crowd Valley is eager to see more developments being pursued of this nature within the online payment sector. Payments companies are crucial influencers in the emerging market of crowdfunding, and we are always open to new partnerships in the field to help companies exploit the rising benefits of crowdfunding. Some of Crowd Vally's existing partnerships include payment companies that are well-established within the crowdfunding sector and we look forward to seeing the ecosystem prosper and handle many different types of asset classes.
Corrado, T. (2014). PayPal Updates Crowdfunding Policies to Help Nonprofits and Entrepreneurs. hubspot.com
Moon, M. (2014). PayPal's new policies are more crowdfunding friendly. engadget.com
Photo Credit: Marc Wathieu https://bit.ly/p/5xnj9d
Jasmien is currently studying a bachelors in Business Studies from Cass Business School in London while interning at Crowd Valley. Originally from Belgium, she grew up in Switzerland, Ethiopia, USA, and Japan.
She is very passionate about the start-ups, entrepreneurship, technology, and travelling; she aspires to one day become an entrepreneur.