
PayPal Freezes Mailpile Campaign Funds - capgre
http://www.mailpile.is/blog/2013-09-05_PayPal_Freezes_Campaign_Funds.html
======
downandout
I don't know why, in 2013, people are surprised when they use PayPal and wind
up without access to the money for months or years. Paypal apologists will say
that this is relatively rare. Even if that is true, since the criteria they
use to take these actions are often beyond the control of merchants, using
PayPal is an unacceptable risk for any business that doesn't have at least 6
months of working capital.

Always avoid PayPal if you need access to the money. Even if you feel that
your business falls squarely within PayPal's AUP, always have a backup
implementation with an alternative payment provider coded and ready to go (I
recommend using Stripe and skipping PayPal altogether). You don't want to lose
new sales on top of the money PayPal decides to hold indefinitely.

~~~
grandalf
I've seen PayPal nearly put several small businesses out of business.

There are some things that cause PayPal to just freeze an account, and it's
next to impossible to speak to a human or to otherwise get the situation
resolved.

Pretty much the only threat to Stripe's eventual world domination would be
PayPal getting its act together.

~~~
ig1
Most of Paypal's competitors weren't wiped out by Paypal being good, they were
wiped out because they weren't as good as handling risk and fraud as Paypal.
They got wiped out by criminals.

Paypal is risk averse, which means you shouldn't use them for cases where
you're taking a large amount of money up front and not delivering in the near
future (i.e events, crowd-funding), or alternatively get pre-approval from
Paypal.

I've no idea what the current fraud level against Stripe is, but as they
become more mainstream they're going to need to employ more anti-fraud and
anti-risk measures as their exposure increases.

~~~
pc
> _I 've no idea what the current fraud level against Stripe is, but as they
> become more mainstream they're going to need to employ more anti-fraud and
> anti-risk measures as their exposure increases._

I'm one of Stripe's cofounders. For what it's worth -- we already process
billions of dollars a year. (More than PayPal when it was acquired.) There'll
always be _more_ we can do on the fraud/risk side, but we're already operating
at a scale that requires a decent amount of sophistication.

~~~
ig1
(in a previous life I worked in front office investment banking so had to
undergo anti-fraud and anti-money laundering training as well as worked on
general exposure risk issues)

The problem is that fraud/risk (like tech security) is it often involves black
swan events. Everything seems fine right until the point where it's not and
you're on the hook for millions of dollars (Stripe is probably in the position
where you can afford to take a few black swan type events and survive; a lot
of Paypal competitors weren't).

Given that Stripe don't do the "wallet" approach of Paypal and is primarily
focused on API customers I'm guessing your risks in general are lower, but I'd
recommend you be careful about becoming over-complacent.

~~~
pc
> _I 'd recommend you be careful about becoming over-complacent._

Absolutely. Indeed, I'd characterize us as actively paranoid. My point was
merely that we're already operating at a scale that needs pretty good fraud
systems.

(I think we're mostly in strong agreement.)

~~~
brudgers
Does fraud follow the power law?

------
mootothemax
_They just don 't want to, and we cannot help but wonder why._

The risk of complaints, refunds, and chargebacks for non-delivery would be my
guess.

 _" Please provide an itemized budget and your development goal dates for your
project"_

 _This puts us in an incredibly uncomfortable position..._

...of having a roadmap for your product's development. It's really not
unreasonable, and if you don't have even a vague idea right now, that's a big
warning sign.

 _... we do not feel that it 's remotely in their jurisdiction to ask for a
detailed budget of our business_

Which is unfortunate, as PayPal's business boils down to risk management, and
they're asking you to reduce their risk.

~~~
HerraBRE
Note that they had previously stated that they wanted to release the funds as
slowly as possible. Asking us to provide a detailed budget is basically asking
us to justify that and give them a timetable so they can withhold the maximum
amount of cash for the maximum amount of time.

~~~
mootothemax
_Note that they had previously stated that they wanted to release the funds as
slowly as possible. Asking us to provide a detailed budget is basically asking
us to justify that_

None of this contradicts my point about mitigating risk, nor that it's a Very
Good Idea to have even the most basic of development roadmaps.

~~~
HerraBRE
Sure, but we have no reason to give those details to PayPal, and very good
reasons not to.

Edit: Delaying payments by months is not acceptable or reasonable. There are
tax implications (we have to deal with multiple jurisdictions) and opportunity
costs. Also, this very obviously goes against the wishes of our community of
backers - they are supporting a free software development project, not buying
a product.

~~~
mootothemax
_Sure, but we have no reason to give those details to PayPal_

You'll reduce your risk profile, and increase your chances of receiving
payment inside the next year.

 _and very good reasons not to_

Aside from potentially delayed payouts, what are your other good reasons?

Edit, replying to your edit:

 _Our community of backers... are supporting a free software development
project, not buying a product_

Do you know for a fact that all of your backers 100% understand the
difference?

Do you also know for 100% that you will receive no complaints, no refund
requests, and no chargebacks in the event that you don't deliver?

~~~
kalms
I see your point.

PayPal is a business partner in this setup, and they are shouldering a lot of
risk on the developers behalf. I can understand not wanting to share something
as intimate as a business/developement plan, but PayPal is within their
rights, boty legally and morally, to ask for one. If the developers are having
trouble with this, they should find another partner for their venture. (imho)

That said, PayPal can be real douchebags. Too many friends, business partners
and colleagues has been burnt by them in the past. If you're doing something
nonprofit, move elsewhere.

~~~
Xylakant
> but PayPal is within their rights, boty legally and morally

No and no. They're a payment provider, a utility, not a partner. They could
have stated up front that they want a business plan or could have denied
acting as payment provider. They could have demanded the backers to waive
their refund rights. I'd even be on their side if they kept a percentage of
the funds as security.

The backers have a moral right to see a business plan, if any person at all
has one. It's their money and they did not give it to paypal so that paypal
can collect interest on it, they gave it to mailpile and they collectively are
shouldering a much bigger risk than paypal in that transaction.

~~~
jasonlotito
> they collectively are shouldering a much bigger risk than paypal in that
> transaction.

No, they are not. Financially, PayPal is the one shouldering the biggest risk.

Edit: > No and no. They're a payment provider,

They most likely have legal obligations in various jurisdictions and with the
credit card providers to do due diligence. And looking at business plans and
how payments like this will be used is an important part of that. Try getting
the same funding directly from a bank rather than going through a middleman
and see what they ask for.

Every time a PayPal story comes up, I'm always reading at how the people are
innocent and everything is fine, and yet, they are doing something shady.

Here you have an organization that's effectively asking for donations to
support a project, but it's not, from what I can tell, certified as a non-
profit.

So suddenly yes, that does become high risk. Any banker in the world is going
to look at this scenario and know that it's high risk.

~~~
Xylakant
> No, they are not. Financially, PayPal is the one shouldering the biggest
> risk.

Actually not. Let's assume a chargeback rate of 100%. The donated amount was
135 000 USD, the amount PayPal handled was 45 000 USD, so the remaining
backers collectively shoulder about twice as much risk as PayPal.

> They most likely have legal obligations in various jurisdictions and with
> the credit card providers to do due diligence.

They're an official payment provider for IGG. I assume they know what IGG is
by now and the risks associated with that. So they can either

a) choose to forfeit that business because it's too risky. Fair enough.

b) Lay out the conditions early: Hey, we'll take the money and keep it for a
year. But would would IGG then still offer PayPal as payment provider?

c) eat the risk and honor the implied contract.

> Here you have an organization that's effectively asking for donations to
> support a project, but it's not, from what I can tell, certified as a non-
> profit.

Yes, that's what they do. Every backer voluntarily decided to support that
business. I backed kickstarter campaings because the project sounded nice and
I wanted those people to have a chance to finish their project, because I
thought it was a worthy thing to back. I never even touched the finished
goods. A lot of open-source projects ask for donations without being non-
profits, for example nginx do. Point is: everyone can decide under which
conditions he'd like to support a project - certified non-profit or not, but
that's not PayPals business.

> So suddenly yes, that does become high risk.

Sure. Nobody denies that crowdfunding is not inherently risky. But see above.
Either don't participate or live with the risk. But PayPal is trying to eat
the cake and still have it too: They happily took the money and kept the fees,
but will neither refund it to the backers nor cash it out. That's shady in my
opinion.

~~~
jasonlotito
> the amount PayPal handled was 45 000 USD

Which is the only part relevant to this discussion. PayPal's risk is far
greater than 45,000. This depends on how much PayPal is charged for
chargebacks, a rate I cannot know.

> They're an official payment provider for IGG. I assume they know what IGG is
> by now and the risks associated with that.

Yes. Hence the reason for the additional due diligence. Understanding IGG's
operations, it makes complete sense that the would oversee individual projects
going through on IGG, and doing additional due diligence on top of IGG. You
are making a unwarranted assumption that they their diligence stops at IGG.
Having dealt directly with situations like this (essentially acting as an
IPSP, or basically, something akin to IGG), banks are still required to do
their part.

> Point is: everyone can decide under which conditions he'd like to support a
> project - certified non-profit or not, but that's not PayPals business.

Just because you say it's not PayPal's business doesn't make it so. It's very
much their business. The belief that it shouldn't be their business shows a
lack of understanding of the area that PayPal operates.

> Nobody denies that crowdfunding is not inherently risky.

Except no one understands all the risks that are involved. Otherwise, you'd
understand _why_ PayPal should be asking for how the money will be used, the
business plan, etc. These are additional steps that should be taken precisely
because of the risks that exist.

Stopping diligence at IGG would be horribly, horribly wrong.

> Either don't participate or live with the risk.

They are trying to participate. They are being denied.

------
bowlofpetunias
People should start to understand that crowdfunding is _not_ a trivial
business from a legal and regulatory perspective.

Yes, PayPal sucks, but you can run into this crap with any bank or payment
service provider you don't have clear and direct business dealings with, and
who you haven't informed upfront about what you're up to.

Also, it's just plain lazy and irresponsible of IndieGogo to pay out via
PayPal, at least not without big fat warning signs. Of all the options
available, this is pretty much the worst.

It's very naive to think that you can just accept money in exchange for
unverifiable promises and not set off all kinds of alarm bells. Expect frozen
assets to start to happen more and more often with crowdfunding, and not just
at PayPal.

~~~
kalleboo
I'm surprised PayPal still haven't taken a clear stance against crowdfunding
like Amazon Payments have. That's part of the problem - it's really vague as
to what situations PayPal will intervene in.

~~~
dpcx
That's funny, because Amazon Payments is _exactly_ what crowdfunding site
Kickstarter uses[0] to pay out to projects.

[0]:
[http://www.kickstarter.com/help/amazon](http://www.kickstarter.com/help/amazon)

~~~
yebyen
I think that Kickstarter has their shit together, and the risk of a chargeback
from Kickstarter to [project leader] is relatively low, compared to the risk
of a project funded directly through Amazon Payments.

I don't know how indiegogo works, but in the case of Kickstarter, I would
assume that Kickstarter is collecting the payments, arbiter of refunds in the
case a goal is not met, and does not have access to the money in the interim.

Then Kickstarter uses Amazon Payments to disburse the funds to project lead? I
am uneducated and did not contribute to the fund, so I don't really know how
it works. Can you enlighten?

~~~
licnep
Not 100% sure but I think kickstarter uses amazon's deferred payment api.
Basically they get authorizations from the donors to be charged a certain
amount on their credit card, but the amount isn't charged until the
crowdfunding ends successfully. If the goal isn't reached nothing is charged
on credit cards, if it is, the money is sent to kickstarter's amazon payments
account, and from there kickstarter sends it to the project after taking its
cut.

~~~
yebyen
Ah. So, it sounds lower risk for Amazon, but I don't really know how indiegogo
and paypal interoperate, so maybe it's the same exact pattern.

Sounds like a fantastic racket for Kickstarter!

EDIT: I've read more of the comments and it sounds like IndieGoGo has nothing
to do with Paypal. They were separate funding efforts, from the same landing
page. "You can pay by IndieGoGo or Paypal."

I presume the reason I couldn't figure this out from the Mailpile website is
that they stopped mentioning the PayPal option when it was clear that Mailpile
wasn't going to get paid by PayPal in any kind of short order. You can pay
IndieGoGo or you can send Bitcoins.

That's how I'd run my business if I didn't have a product yet. You'd have to
be crazy to use PayPal for that.

EDIT2: I guess IndieGoGo does offer the PayPal option. I don't understand
enough about how this is put together to have an informed opinion. If PPUSD
and credit cards are all handled by PayPal, then it would seem that PayPal
does indeed have some risk. Maybe it's actually accepting credit cards that's
crazy. _THOSE_ have some serious anti-fraud guarantees, and there's more to
fraud than simple non-delivery.

------
timrogers
I work at GoCardless.com, a UK-based payments startup (YC S11), and thus I
have a above-average insight into these kinds of issues from my day-to-day
work.

From the point of view of fraud protection and risk management, I can see why
PayPal take this kind of unilateral action. Payments providers are always at
high risk, and since they deal with and indemnify other financial firms
further up the chain, they're the ones taking the risk.

Even when you're charging relatively high fees as PayPal does, one case of
fraud or even something as simple as a project that doesn't materialise (not
that I think that'll happen with Mailpile!) can eat up tonnes of your revenue
and make your business unviable.

As such, GoCardless sometimes has to make decisions that account holders won't
like. However, the difference between us (as well as, I believe, other
providers like Stripe) and PayPal is that we will be (a) reachable and (b)
reasonable.

For me, PayPal's failing is in the lack of customer engagement on these
issues. Every story like this shows PayPal as cagey, unhelpful and unwilling
to have a discussion or reconsider at all. Everyone can, to a degree,
understand why PayPal has to make unpopular decisions to protect itself from
unacceptable risk (as all businesses will have to do in various ways), but
their approach and manner in doing so is what is unacceptable.

------
jusben1369
What strikes me as really disappointing here is that the person has no idea
why PayPal has frozen their account. It's surprising to me that they don't
understand the inherent risks to PayPal from a kickstarter program (how dare
they ask me for my business plan?!). In this post at least it seems like they
just think PayPal doesn't like them and wants to hold their money for a long
time. I guess they should have done more reading up around the financial side
of a kickstarter.

And PayPal is clearly at fault that this person is so confused and upset too.
How hard is it for them to say "In the past, we have seen crowd funding
sites/services that never delivered anything. That resulted in a lot of
unhappy end users going to their credit card companies and initiating a
chargeback which we're on the hook to pay. As you can see, if you took the
money from your account and disappeared we'd be on the hook for that entire
$X. That's why it's important we understand more about what you're up to"

It would be ideal if this happened pre account/money collecting but I don't
know all the details around that (Perhaps this is a long term account used for
"normal" credit card processing who then decided, without informing PayPal, to
run a Kickstarter. Who knows)

~~~
jtbigwoo
>> How hard is it for them to say "In the past, we have seen crowd funding
sites/services that never delivered anything. That resulted in a lot of
unhappy end users going to their credit card companies and initiating a
chargeback which we're on the hook to pay. As you can see, if you took the
money from your account and disappeared we'd be on the hook for that entire
$X. That's why it's important we understand more about what you're up to"

The reason they don't is probably experience. If you're delivering bad news,
don't mess around and don't over-explain. Every extra sentence in your
communication is just a potential complication. Tell the target the problem
simply, including details that directly relate to their conduct, and tell them
how to fix it to your satisfaction. Don't tell them the history of this type
of problem.

You do this because the target is going to be upset about it and they're going
to want to argue. The more you communicate, the more points they have to
argue. In your description, I see at least four more points to argue ("we're
not like those guys that didn't deliver...our users are different...we're
trustworthy people...you're only a percentage of our total funding so your
risk really isn't that great..."). None of those points matter and none of
them are going to change anything.

Paypal has told them what's wrong and given them concrete steps to fix it.
Anything more is just going to drag out the resolution of the problem from
Paypal's perspective.

~~~
jusben1369
The problem with your answer though is that this was the top post on HN for x
hours and damaged an already damaged (and trying to recover) brand. So I would
say the complications of additional details would offset the risk of saying
little and sending a bewildered blogger into the wilderness.

------
patio11
Indulge me in a flight of fancy in which we pretend, for the sake of argument,
that

a) Paypal is run not by Snidely Whiplash clones but b) by smart geeks working
with thin margins in a highly regulated industry where c) customers are at
risk essentially never, d) merchants eat 100% of the risk if they stay in
business, and e) Paypal eats 100% of the risk if the merchant doesn't.

Why is Paypal very skeptical of pre-sales? Because, if the business fails (as
new businesses often do), customers _will_ file chargebacks. Their banks will
hear "Internet merchant did not deliver as promised" and sustain the
chargeback _automatically_. Paypal will lose that argument with the bank,
99.999% of the time, and have to seek restitution from the merchant.

Paypal has to do underwriting -- basically, guessing at probable risks and
likelihood of partial repayment -- for new merchant accounts. What percentage
of sales are at risk of chargeback in a pre-sales business? A Very High
Percentage (TM). What is the probable chance of failure of a new business in
developing a new product? Fairly high. Given product failure, what assets will
be available to Paypal (in the Paypal account or the linked bank account) for
automatic recovery from the failed business? Very Little (TM). What is
Paypal's margin on this business? _A fraction of a percent._

Now we break out the Hadoop cluster and use several billions of dollars of
transactional data to construct a model of what the expected loss is, expected
recovery given loss, and expected margin in event of non-loss is.

 _This puts us in an incredibly uncomfortable position as we do not feel that
it 's remotely in their jurisdiction to ask for a detailed budget of our
business, any more than it is within our right to ask for theirs._

This communication is incredibly useful from Paypal's perspective among
multiple axes:

1) It signals very strongly "We are not only unwilling to comply with the
table stakes of every underwriting process for businesses everywhere, we are
so inexperienced at business as to be unaware that this _is_ table stakes, and
accordingly you should dramatically revise upwards your estimate of our risk
of failure."

2) It provides Paypal a simple, face-saving out for declining this business
without having to say, in so many words, that "You seem, oh, 93% likely to
ship this year. You get an A! This means, however, you are 7% likely to lose
all the money, and we only make .9% margins, so this is going to be a No. We
get that you don't like this. We don't like having to decline hundreds of
dollars of revenue either, but we have the experience of losing _hundreds of
millions_ to fraud and know that some revenue just isn't worth the risk. We
respect that you might not agree with this, but don't feel the need to spend
additional resources paying for our computer programmers, underwriters,
lawyers, and accountants to give you an expensive education in the realities
of e-commerce on our nickel."

Let's talk about the difference between Paypal and Indiegogo:

1) You pay Paypal ~3% when their costs are probably approaching ~2%. Indiegogo
would charge ~7% for the same thing. One of the luxuries when selling
something which is five times as lucrative is that you can self-insure against
project failure.

2) Indiegogo believes it has a different business model than Paypal and that
they have a uniquely better understanding of the risks of crowdfunding,
whereas Paypal has had their filters tuned by too many middle Americans
selling Beanie Babies.

3) Paypal has lost hundreds of millions of VC money to fraud and Indiegogo
hasn't. Paypal decisionmakers might at this point give Indiegogo the sort of
look a school psychologist gives a C student with a drug habit who has just
announced that they're taking a semester off to find themselves, man. They
know which way this story is going to turn out, which is in its own special
way as bad as not knowing how the story is going to turn out.

 _Are the risks larger because we are successful?_

Ask a simple question, get a simple answer: yes! Paypal loses more on a
$1,000,000-in-transactions account which goes bad than a $1,000-in-
transactions account which goes bad, clearly. You might wonder "Well are we
more risky than the same aggregate volume spread over N accounts?", in which
case the answer is available to Paypal's Hadoop cluster but plausibly "Yes,
with a p value which would make a statistician weep." Accounts which go
0-to-60 in processed transactions are hugely disproportionately likely to be
outright fraud (Paypal has had many, many, _many_ encounters with carders
smart enough to have invented the suborn-a-botnet and make-a-lot-of-small-
donations attack prior to having seen it on Breaking Bad). Additionally, it is
quite plausible that Paypal could demonstrate that success is a curse to new
businesses and most which blow up proceed to, well, blow up. (Which they
would, of course, not love to disclose publicly.)

This dynamic is not unique to pre-sales or crowdfunding. It also explains
Paypal's active hostility to many other business models, including money
services businesses, third-party payment aggregators, and travel agents. (Most
people don't immediately associate travel agents with having a lot of payment
industry problems, but they do: they make lots of big-ticket sales but have
low working capital, and if a cruise gets canceled or a hotel goes bankrupt or
any of the standard vicissitudes of the industry causes them to eat a bunch of
chargebacks all at once, they go bankrupt and their payment processor is on
the hook for hundreds of thousands or millions of dollars as that bankruptcy
causes cascading failure to deliver promised goods or services.)

~~~
_pius
This is absurd apologism. If Indiegogo projects are fundamentally incompatible
with PayPal's risk profile as you imply, the onus is on PayPal not to accept
money for those projects. Full stop.

Why on Earth should we sympathize with PayPal about internal aspects of their
underwriting at the expense of a small business whose funds they've
practically seized?

~~~
teraflop
As has been pointed out elsewhere, PayPal has an explicit policy about how
they handle presales. Why can't I turn your argument around and say that if
somebody doesn't like that policy, the onus is on them to not use PayPal?

~~~
_pius
I don't grant your premise that crowdfunding constitutes "presales."

Crowdfunding is an inherently speculative activity, a way to invest in a team
with the hopes that they will create a product that you'd like to see in the
world. Trying to fit Indiegogo into a presales model to justify PayPal's
outrageous behavior here is a Procrustean approach that helps no one.

~~~
jessedhillon
That's even worse than engaging in presales! It's practically fucking gambling
the way you describe it, why the fuck would Paypal be _enticed_ by that subtle
shift in framing?

~~~
_pius
Yeah, it's "gambling" the way donating to an artist you like is gambling.

And who's trying to _entice_ them? Again, if doing business with Indiegogo
projects is incompatible with Paypal's risk profile they shouldn't do business
with Indiegogo projects. That seems straightforward.

Bizarre to think we should be sympathizing with, enticing, or otherwise
fellating PayPal in this situation.

~~~
jessedhillon
_Bizarre to think we should be sympathizing with, enticing, or otherwise
fellating PayPal in this situation._

While I understand how easy it is to sympathize with the merchant here, as
none of us will ever be payment processors, the reality is that the sum of
your suggestions or assertions, if explored just as a thought experiment,
quickly lead to a world where nobody can do payment processing without
imposing absurdly high fees. Of course we can all see how unfair it seems to
have all this money promised by seemingly wide-eyed and clear-minded open
source software supporters. But Paypal has millions of clients and has to act
in a way that generalizes across all of them, and which requires the least
amount of trust to be placed in those clients. The only argument that Mailpile
has is "but we're not evil," which is true, but still insufficient.

~~~
likeclockwork
The thing is...

...nothing is being sold.

~~~
llimllib
Which, presumably, would not stop people filing chargebacks if Mailpile fails
to deliver on their promises.

------
eksith
Two things people need to keep in mind when using PayPal.

1) The company functions as an uninsured bank while essentially skipping the
label thereby giving itself a legal loophole to function as it pleases.
However, unlike a bank, you can't get to an actual human being in a timely
manner unless you're dealing with hundreds of thousands of dollars or even
millions. You're simply not important enough and PayPal is big enough that
none of your complaints will really make a dent.

2) PayPal puts a value on risk. Your perception of this risk may be markedly
different from PayPal's, however it is still there and if you trip over that
threshold, you will be shut down with extreme prejudice. Projects like
Mailpile function in a different world than even digital goods of a few years
ago. You're not really donating for a product, but the expectation of a
service which will, hopefully, come to fruition. The risk threshold set by
PayPal is still under the older digital goods model which is an ill fit for
Mailpile to begin with.

Those two aren't the only reasons why no one should use PayPal, but keep in
mind that nothing you do, show or even consider reasonable matters to them as
it's their assessment that ultimately holds sway. You're dealing with a
banking megalith with an equivalent responsiveness.

Do not use PayPal.

------
Uchikoma
Or you could read the terms of the business relationship with PayPal:

    
    
      Am I allowed to presell?
      Yes, you are allowed to presell items as long as you follow these guidelines.
      Off eBay presale requirements
      If you sell items in an online store (not eBay), you must guarantee delivery 
      within 20 days from the date of purchase and make sure that the customer     
      knows they are buying a presale item.
      [...]
      If you are selling goods or services in an online store (not eBay), you may 
      be allowed to presell items but we may hold your money in a reserve 
      account or limit what you can do with your account to reduce the higher risks 
      associated with presale items.
    

Or as the ruder ones of us said in the 90s on Usenet: RTFM.

[https://www.paypal-businesscenter.com/content/presale-
policy...](https://www.paypal-businesscenter.com/content/presale-policy-and-
reserves)

------
whyleyc
PayPal is fine for a certain class of limited transactions - usually when they
involve selling physical or digital products which actually exist and can be
delivered _today_.

Rightly or wrongly though they have a very[1] long[2] history[3] of freezing
the accounts of projects they deem to be remotely 'risky' to them. By
definition this would seem to include almost any crowdfunded project where an
actual product or service which people are paying for does not yet exist.

Given how well documented this is I can't help but wonder why a company like
IndieGoGo would touch PayPal with a bargepole - their interests seem
diametrically opposed !

IndieGoGo should be protecting their users by disabling PayPal as a payment
option for all projects.

[1] [http://techcrunch.com/2011/12/06/paypal-account-
freeze/](http://techcrunch.com/2011/12/06/paypal-account-freeze/)

[2] [http://www.holdtheline.com/threads/paypal-freezes-funds-
from...](http://www.holdtheline.com/threads/paypal-freezes-funds-from-
skullgirls-crowdfunding-drive.5309/)

[3] [http://www.siliconbeat.com/2013/08/16/paypal-freezes-then-
re...](http://www.siliconbeat.com/2013/08/16/paypal-freezes-then-returns-
money-for-glassup-campaign/)

------
paulgerhardt
Part of the reason we open-sourced Selfstarter was to prevent situations like
this happening to other companies. With Selfstarter and by extension
Crowdtilt's Crowdhoster [1] if you have a problem like this, it would merely
be a setback rather than a crisis.

You manage your relationship with your customers, not someone else. If your
payment processor gives you trouble, have your customers re-auth with a
friendlier provider like Stripe, WePay or Amazon. If nothing else, even having
the option to do so gives you more leverage should you find yourself in this
position.

If you need further convincing about the benefits of self-hosting your
crowdfunding campaign, please see this earlier comment:
[https://news.ycombinator.com/item?id=6261442](https://news.ycombinator.com/item?id=6261442)

[1] [http://www.crowdhoster.com/](http://www.crowdhoster.com/)

------
jamestomasino
Wow, I'm really surprised by the amount of snark on this thread aimed at
mailpile. They are following IndieGoGo's standard process. For PayPal to take
exception with them and single out their funds is ridiculous. If PayPal wants
to start requiring IndieGoGo campaigns to submit business plans, they should
work that out with the site, not an individual campaign, and certainly not
after the whole thing is funded. This is not Mailpile's fault for following
procedure.

~~~
gopher1
Yes, it's odd how everyone is piling onto Mailpile for something that PayPal
doesn't do with other IndieGoGo campaigns. If crowdfunding is so risky, why is
PayPal totally fine with it for every other campaign out there?

Yes they make promises and there's no guarantee they'll deliver. That's the
whole point of crowdfunding, it's like that for every other campaign. Why is
PayPal singling out Mailpile?

------
kalleboo
> _They just don 't want to, and we cannot help but wonder why. _

> _Crowd funding is an adventure._

I don't think PayPal are as enthusiastic in joining you in an "adventure" as
you think. Especially if that adventure includes credit card chargebacks.

~~~
reustle
Sounds like an opportunity to create a crowdfunding site that only accepts
cash in the mail. But then, I'm sure you open up a whole new can of worms.

~~~
kalleboo
The problem there is getting people off their asses to actually do it. One-
click Paypal login has a very low barrier to purchase.

------
crocowhile
You need to get Indiegogo involved and IGG need to take serious measures, such
as threatening to completely disable the paypal option from all their future
projects.

------
nhangen
This is exactly why our company stopped focusing on our Paypal integration and
started focusing on other gateways, such as Stripe and WePay. We had built a
really great Braintree gateway, but they to came out with a policy against
crowdfunding.

As far as I can tell, you can still get through and/or avoid messes like these
by communicating with the gateway up front in order to get permission. Robert
Space Industries did this with Amazon and Paypal before launching. They were
forced to provide much of this documentation, but in the end, it helped them
avoid any major hiccups.

Of course, IndieGoGo should be working with merchants to help them through
this. If they are going to be the intermediary between the crowd and the
company, they should do the same when dealing with payments. Sadly, all of the
major crowdfunding platforms lack in this regard.

If you're thinking about crowdfunding and are nervous about being shut down, I
recommend you run either as donations or pre-orders. In the case of the
latter, you are best not taking funds until the goal is met or you've reached
a certain development milestone.

I do think that this sucks for crowdfunding in general, but perhaps it will
curtail the money grab that has been in place for some time.

And of course, if you want to have as many options as possible, check out
[http://IgnitionDeck.com](http://IgnitionDeck.com). A WordPress install and
you can have your choice of gateways.

Good luck to the Mailpile guys. I recommend providing this information. It
will be good to have in the event that an investor knocks on the door.

------
_ak
...and that is why you don't use PayPal, no matter how loud people scream that
they want to use PayPal.

Seriously, PayPal has screwed over so many individuals, businesses and
projects in the past, the obvious conclusion is that PayPal isn't an option
when you run a small business (esp. IT/software-related) or a crowdfunding
campaign.

------
zamalek
It's not the first time I have heard about them freezing funds - the last time
was a few years back. From what I remember they were worried that the
customers would ask for their money back if the product wasn't completed
(explaining why they want to see a budget). This has nothing to do with fraud.
They are allowed to do whatever they want with your money because they are not
a bank.

It's completely ridiculous because participants in crowd funding are aware of
the risks - they may never see their money's worth (even though that isn't the
case here).

Either way, I would raise a massive stink if they don't buckle - I see you
have a WIRED article, maybe approach them about writing about this encounter
with PayPal. That's some pretty bad publicity right there. You may also be
able to demand interest if they do continue to illegally with-hold the funds
for that long (again, they are not a bank, but that means that this time they
are not protected by those very same laws).

~~~
DanBC
> It's completely ridiculous because participants in crowd funding are aware
> of the risks - they may never see their money's worth (even though that
> isn't the case here).

I wish I could agree, but the angry rants on a few Kickstarter projects show
that many people see it as a "shop for things that haven't been built yet",
rather than "give us some money, and we'll try to build these products, and if
we do manage to build them you'll get one, but we could fail".

------
amirmc
> _"... unless Mailpile provides PayPal with a detailed budgetary breakdown of
> how we plan to use the donations from our crowd funding campaign they will
> not release the block on my account for 1 year until we have shipped a 1.0
> version of our product."_

I'm a little confused by this. What crowd-sourced funds is PayPal withholding,
as I thought that went via IndieGoGo? ( _answer: IndieGoGo uses PayPal_ )

What on earth does PayPal care about the financial planning of the recipient
of the funds? This doesn't seem like it has anything to do with fraud
detection.

~~~
the_mitsuhiko
> What on earth does PayPal care about the financial planning of the recipient
> of the funds? This doesn't seem like it has anything to do with fraud
> detection.

Because PayPal provides users with the option to ask for refund which can be
very expensive for them. If they deem the risk is too high they won't do
business with you.

~~~
ollysb
It seems a bit late in the day to decide not to do business with you if
they've already taken money on your behalf.

~~~
the_mitsuhiko
No further business. The money they have frozen they are holding in escrow to
help the increased risk of refunds.

------
kvanderd
I am sorry this happened to you. As a consumer I used to love Paypal, buy
anything with one click. After using them as a business owner for online
transactions I absolutely hate them.

I won't go into my situation but the horror stories are endless:

[http://www.ripoffreport.com/reports/directory/paypal-
inc](http://www.ripoffreport.com/reports/directory/paypal-inc)
[http://www.paypalsucks.com/](http://www.paypalsucks.com/)

As a developer I won't use them anymore. I use Stripe now.

------
M4v3R
This is not the first time Paypal did that [1] and it most certainly won't be
the last time. That's one of the reasons Bitcoin was invented. I hope that
events like this will drive its adoption as a safe alternative for crowd
funding and online shopping.

[1]
[http://www.gamesindustry.biz/articles/2013-04-23-skullgirls-...](http://www.gamesindustry.biz/articles/2013-04-23-skullgirls-
funding-held-by-paypal) and probably there's more of this

~~~
pyalot2
Bitcoin ftw. Sure, not everybody can contribute in bitcoin. But on balance,
bitcoin beats paypal by a factor of infinity. Why infinity? Well, with bitcoin
you could at least have some contributions, i.e. > 0\. With paypal you get 0
contributions. (N>1)/0 = infinity.

~~~
tzs
> Sure, not everybody can contribute in bitcoin.

Why would anyone WANT to contribute in Bitcoin? From a contributor point of
view, Bitcoin leaves them massively vulnerable to fraud--it is almost as bad
as mailing an envelope full of cash.

~~~
cliffu
They are crowdfunding a speculative application. That's already mailing
envelopes of cash. Although the users read that they are funding development
and not buying software, Paypal grabbed it all and said they're worried about
fraud.

Bitcoin lets the user assert that they trust the recipient. Or they could
trust a third party escrow recipient. There's no payment processor to restrict
who a crowdfunder wishes to trust.

~~~
the_mitsuhiko
People that crowdfund often do not trust the project. PayPal probably flagged
them because of cancellations.

------
DannyBee
I believe the whole story and comments can be summed up as:

1\. People want paypal to act as a big dumb money pipe from point A to point B

2\. Paypal refuses to act as a big dumb money pipe from point A to point B
when the risk is high that point A may want their money back, and paypal
cannot shift the loss allocation to someone else.

3\. Their risk mitigation strategy in the case of #2, while not atypical of
the industry, upsets a lot of people who are not familiar with this type of
thing occurring, and seems "unfair".

------
ollysb
The problem here is that crowd-funding is a risky business and as things stand
paypal has to shoulder that risk. What we need is a type of transaction where
the payer/crowdfunder assumes the risk, i.e. chargebacks are not allowed.

~~~
emiliobumachar
Textbook Bitcoin.

~~~
justysebitcoin
Yes!

------
andyhmltn
Why do people still use PayPal? Their service is just absolutely insane.

~~~
DoubleMalt
Because indiegogo forces you to do it more ore or less.

Glad I didn't donate yet. If necessary I'll fly over and deliver it in person
;)

~~~
HerraBRE
IndieGoGo actually support direct credit card donations, but a lot of people
asked for PayPal as an option and we relented. So donating via. IGG actually
works just fine - we have obviously disabled the PayPal option.

~~~
appleflaxen
Wait... really? Because when the ubuntu phone campaign happened, I _wanted_ to
buy one, and didn't purely because I couldn't figure out a way to do it
without PayPal.

Did I miss something on the page that would have let me pay without it? Oh
well; too late now I guess.

~~~
gopher1
I was in the same boat as you with respect to the Ubuntu Edge, as it turns out
each campaign can choose which payment services to use. Ubuntu chose to only
enable PayPal.

------
andyhmltn
They will only release the funds when version 1.0 ships? Does PayPal not
understand that it costs money to create products? That's the entire reasoning
behind crowdfunding! 'Well you see this money you said you needed to make
version 1.0 of the product? Well you can have it after you've finished'

~~~
zokier
> That's the entire reasoning behind crowdfunding!

They're not a crowdfunding service, they are a escrow service. The whole point
of escrowing is that the service keeps the money safe until the transaction is
completed (ie the buyer gets what she was buying).

~~~
300bps
I was under the impression that PayPal was a payment service. Party A uses it
to send money to Party B and as long as no laws are broken, PayPal keeps its
nose out of other people's business.

What makes you think PayPal is an escrow service akin to escrow.com?

~~~
tinco
It is an escrow service because it allows the buyer to reverse the
transaction.

~~~
Karunamon
It wouldn't kill paypal to have non-reversible transactions as long as this is
made clear to the user.

~~~
jplewicke
Paypal is just an intermediary between merchants and whatever payment methods
customers use to pay Paypal, such as debit/credit cards and bank transfers.
And guess what? The modern financial system has no irreversible payment
methods. Bank transfers, credit cards, and ACH are all reversible, wherever
you go around the world.

If you haven't heard of it before, the May Scale of Monetary Hardness is a
great way of thinking about this:
[http://stakeventures.com/articles/2012/03/07/the-may-
scale-o...](http://stakeventures.com/articles/2012/03/07/the-may-scale-of-
money-hardness-and-bitcoin) . If you're a payment intermediary, and you're
delivering irreversible assets like gold coins or briefcases full of cash in
exchange for very reversible payment methods like credit cards for personal
checks, you will get horribly, horribly burnt by fraud, because you can
deliver the gold coin and find out weeks later that your credit card was
charged back.
[http://whatilearnedtoday.jameslarisch.com/?action=view&url=b...](http://whatilearnedtoday.jameslarisch.com/?action=view&url=bitcoin-
ebay-profit) is a great example of this with Bitcoin and Paypal respectively.

It's not even about educating the user about irreversible transactions -- it's
just that there's no way for Paypal to offer them unless customers fund their
Paypal purchases by dropping off briefcases of cash and gold bullion at their
local Paypal branch.

~~~
Karunamon
Paypal already has a policy for dealing with users who reverse transactions
out from under them. Unfortunately for the users, that policy is known as
"scorched earth". We're talking account suspensions and referrals to
collection agencies.

It would certainly be a lot less skeevy if it was done for a service-oriented
reason (i.e. one way transactions) instead of the "because fuck you" reason
that they appear to use currently.

------
gesman
Paypal is unavoidable - there are just too much more money that can be made
using Paypal because so many people use paypal and have positive balances at
paypal and considering "paypal money" as "cheap money" \- which makes them
easier to spend to buy or to donate.

Paypal is good when used for what it is good for - as a vessel to receive (and
send) money easily. But no one ever said that Paypal is a great bank to keep
money at.

There are simple rules of the game to avoid disasters like that:

The rules of using Paypal: transfer paypal balance to your bank account as
soon as it reaches $500 or more. Once funds are transferred - transfer them to
parallel bank account to keep them completely out of Paypal reach (as Paypal
has full access to bank account connected to paypal account).

That's it.

Piling up cash at Paypal's account never been wise.

------
GeorgeOrr
Paypal doesn't understand that it isn't their money. Every contributor to
Mailpile has just had their funds stolen by what was supposed to be a
middleman.

~~~
paul_f
Actually it is their money. Paypal is taking all of the risk in the
transaction. If Mailpile fails to deliver, Paypal is on the hook. I see no
problem with what they did, maybe this should have been communicated better.

------
transfire
There is very simple solution to all this!!!!!!

PayPal should have an "AT YOUR OWN RISK" payment option. Pre-sale vendors
would be required by the terms of use to use this payment option instead of
the normal one unless they first get a pre-sale waiver from PayPal. PayPal can
charge an application fee for that process.

All done.

~~~
smackfu
The problem is that chargebacks and disputes are happening at the level above
Paypal (at the banks), and Paypal is just the merchant. And there is no way
for merchants to make a sale and say "no chargebacks."

------
devinmontgomery
Anyone considering using PayPal as a seller should read Jessica Livingston's
"Founders at Work" interview with Max Levchin. PayPal is an anti-fraud company
that occasionally processes payments.

It's appealing to customers and established merchants with slow, predictable
growth and short lead times, but not for pre-orders. And I don't see them
changing this - it's in their DNA.

Kickstarter with Amazon Payments, in contrast and for better or worse, is the
most pre-order friendly system imaginable. Tens of thousands to millions of
dollars transferred in days with virtually no questions asked. The 14-day
holding period they mention is only for first time projects.

------
mcintyre1994
I have to worry about how crowd-funding is going to continue to break records
and change businesses when there's such a huge communication issue. If there
is a risk of charge-backs for an undelivered product, which there clearly is
based on Paypal's reaction, then people are clearly viewing them as pre-
orders. That's obviously what it has become, but for crowd-funding to really
be reasonable for companies like Paypal, failed projects have to leave backers
out of pocket and nobody else.

If crowd-funding is synonymous with pre-ordering a not yet available produce,
I can't say I blame Paypal for wanting to keep out.

------
gregd
Could it be that we've all missed the point entirely? Maybe, just maybe,
Paypal was under duress from the Feds to cancel their Paypal account because
they're afraid of what Mailpile would have accomplished?

------
8ig8
I assume this is to protect against chargebacks. If Mailpile were to empty
their PayPal account and then buyers start requesting refunds for non-delivery
of the described product, PayPal would be left holding the bag.

~~~
nwh
Well not exactly.

Recently I sold a bunch of hardware on eBay. Took photos of it being packaged,
photos of it at the post office, added express shipping and a tracking number.
The tracking number says delivered, so I withdrew the funds back to my bank
account. Next thing I know, PayPal debited my account for the full amount
because the buyer filed a non-delivered complaint.

End story is, PayPal doesn't leave themselves with no options for recourse.

(I'm still fighting that one)

~~~
8ig8
In Mailpile's case, there must be a higher risk that their linked account
doesn't have $100,000 for PayPal to back out.

The same could be said for your situation, but I'm assuming the liability is
lower due to the amount.

Edit: That's not quite right since $100,000 represents a collective amount,
not individual buyers demanding a refund.

~~~
nwh
I certainly didn't have $250 in that account, which of course added a $50
overdraft fee. One would assume that they didn't spend all their money at
once, so paypal would be able to suck back at least some of it.

------
marijn
I feel kind of bad about the fact that they initially didn't enable paypal
donations, but enabled them a few hours after I suggested they do. I might be
responsible.

My own smaller (16k) indiegogo campaign went completely over paypal without a
hitch [1]. Probably the fact that my paypal account has been seeing relatively
large transaction volumes for years also helped prevent the alarm algorithm
from triggering on it.

[1]: [http://www.indiegogo.com/projects/tern-intelligent-
javascrip...](http://www.indiegogo.com/projects/tern-intelligent-javascript-
editing)

------
happywolf
There is another angle to this: PayPal needs to make sure this money actually
goes to a legitimate business, instead of some trick of money laundering. From
PayPal's perspective, it has a hard time to differentiate this without details
on what you claim you are going to do.

If you have concern about PayPal knowing your plan and thus cause impact to
your business plan, my thought will be if your business plan is so flimsy and
fragile, how much confidence you are having? Same goes to if you have concerns
of other people knowing and thus pilfering your ideas.

------
dpweb
It's a complex question. Easy for Mailpile if they want to go to war about it.
Start a new direct campaign somewhere else and tell their previous givers to
request a charge-back.

PP acting in its role in indemnifying buyers here, which is understandable,
but it really isn't appropriate for them to pass judgement on MP business
plans.

Free market will sort this out anyway. IGG or givers will go to another
platform if PP is seen as unreasonable. Few are going to go thru the trouble
of a campaign if PP is constantly holding back the funds.

------
mosselman
So we keep reading this kind of thing on Paypal. Are there any viable
alternatives for consumers? As a company you could use Stripe or Paymill (for
Europe), but as a consumer the only alternative is to pull out a credit card
when I buy games on Steam. I don't want to do this, I want a login for a
payment provider that is coupled to my bank account. I don't want to walk
around with my credit card as it is too unsafe (something that Americans
probably don't understand).

------
crucini
> ... freedom to maintain your vision unbeholden to shareholders and 3rd
> parties.

Aye, there's the rub. Many of us want that freedom, but it's rare. Powerful
people are generally quite beholden to third parties.

The president of the US can't do whatever he wants; neither can the CEO of
Google.

In order to make our dreams real, we must communicate them in common language
to stakeholders, a process which may flatten them and drain their magic.

------
nakedrobot2
Sorry, Indiegogo - I will _never_ use you for a crowdfunding campaign after
seeing what Paypal does!

I'll use Kickstarter, who uses Amazon Payments.

------
Uchikoma

      Paypal: If you presale we might freeze your account
      Merchant does presale
      Paypal freezes account
      Merchant: Why you did that?

~~~
kalleboo
It's pretty ridiculous that IndieGogo allow PayPal for their campaigns when
it's pretty much against the PayPal ToS.

------
stevoski
And...another group of people new to running a business find that the business
side of things can be challenging and time-consuming.

------
newobj
How many horror stories do you have to hear until you don't use paypal and
don't use anything that uses paypal?

------
andrechile
seems like paypal CEO David Marcus is looking in to it.

Whenever there is a high profile case like this that gets a lot of public
attention he seems to get involved
[https://twitter.com/davidmarcus/status/375621484175060993](https://twitter.com/davidmarcus/status/375621484175060993)

------
matznerd
Avoid Paypal as often as you can, simple as that. I am forced to use them for
certain transactions, but anytime I can avoid them I do. I hate that they
force me to verify my account, they force you to use Paypal credit (if you
have it) instead of a CC, etc. I really don't like their one-sided policies...

~~~
TazeTSchnitzel
>Force you to use Paypal credit (if you have it) instead of a CC

What's so bad about that?

~~~
matznerd
Sometimes I receive payment for one task and I need to pay for a service or
product with another credit card. Say I have $1500 paypal credit from one of
my businesses, and want to pay a $500 charge from a certain credit card. I am
not able to do that without first withdrawing the money. It's beyond annoying,
just let me pay with the funding source I want.

------
dcuthbertson
I wonder if Elon Musk cares at all that a service he created, one that made
him incredibly wealthy, is so willfully abusive and corrupt. How about Pierre
Omidyar or John Donahue?

PayPal really needs to be investigated by federal governments, and put under
strict oversight, regulations and controls.

------
vermontdevil
Apparently PayPal has reached out and unfroze the funds.

[http://arstechnica.com/business/2013/09/paypal-
freezes-45000...](http://arstechnica.com/business/2013/09/paypal-
freezes-45000-of-mailpiles-crowdfunded-dollars/)

------
rip747
this doesn't surprise me in the least.

reading the comments, this thread is turning into a paypal bashing which it
shouldn't. what happened is not paypal's fault or some insider attempt at
stopping the project from happening as some laughable comments have suggested.

paypal's top priority is to their customers, not the merchant. if you look at
this from their perspective this is the right move as what would happen if the
project just took the money and never delivered?

asking them for a detailed list of `itemized budget and your development goal
dates for your project` is something that any smart investor would ask for and
they should have had this done already so i don't see why this is cause for
concern.

------
duked
It's funny at the same time paypal still let extorsion websites use its
services:
[https://news.ycombinator.com/item?id=6328480](https://news.ycombinator.com/item?id=6328480)

------
triplesec
Paypal is well-known for this kind of behaviour. Search relevant terms through
HN and various tech conferences have had issues with freezing and no warning
and zero accountability and customer service.

------
johnx123-up
Can anybody explain... if using turnkey crowdfunding scripts like Agriya will
help here? My previous company used Agriya and didn't face any issues from
paypal. So just checking..

~~~
wmf
No, nothing will help. If PayPal discovers that you are doing crowdfunding
they will freeze your money forever. Some people got away with it because
PayPal didn't notice them, but you can't predict that PayPal will not notice
you in the future.

------
magoon
Some things never change - even when a new executive promises.

------
adamnemecek
I've always wondered why this policy is in place. Is it just to screw people
over or is there some legitimate use? Are they trying to prevent money
laundering?

~~~
danbmil99
I think they do have to contend with legitimate fraud, and their automated
systems simply can't deal with a true FOSS project where the people donating
know precisely what they're getting into, and the developers are obviously not
some gang from Nigeria

------
jgalt212
It's amazing to me how revered the PayPal mafia is and continues to be despite
all the detestation that continues to be heaped up PayPay, the company.

------
devx
I see that nothing has changed, even with the new CEO that promised us Paypal
would have more reasonable policies in the future.

------
joshdance
Don't use PayPal for pre-orders.

------
GoldfishCRM
Hmm.. This does not sound good. Hope it will resolve it self. Maybe a founder
to founder call is in place.

------
dcc1
That's Shitpal for you

------
hardwaresofton
Shoulda taken bitcoins.

------
zodman
son of bitches!

------
contextual
As I read this post, I felt a brief rush of anxiety wondering if I backed this
project. I hoped not. These guys come off as rather flippant with other
people's money.

------
zokier
SURPRISE!

------
ycombinatorcom
Mailpile is about encrypted email that NSA may not be able to access. Mailpile
also referred to Edward Snowden in their indiegogo campaign. Mailpile also
accepts bitcoin payments. Do you need anymore reasons to why this happened ???

~~~
Kiro
Get real.

~~~
sudomal
It's not without precedent to see payment systems leaned on to disable their
clients. This is a shiny new webmail client with a focus on encryption, but
these shady groups probably aren't attacking projects this early in their
life... probably.

~~~
DennisP
True, and given the amount of economic and legal pressure the government has
proven itself willing to apply to preserve its surveillance capabilities, I'm
not sure why people think it's out of the question in this case. We haven't
seen it yet for early-stage projects, but this one's gotten a fair amount of
press and donations.

It may seem more likely that PayPal froze the account due to discomfort with
crowdfunding, but the question then is how many other campaigns have they done
this with. Since Indiegogo still uses them, it seems the answer must be "not
many."

