
Paypal and Crowdfunding: don’t do it - paramk
http://garethhayes.net/paypal-warning/
======
droopyEyelids
It's not hard to understand.

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.

~~~
kijin
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.

~~~
droopyEyelids
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.

~~~
glogla
It's disingenuous to refer to crowdfunding as to "unsecured load".

~~~
droopyEyelids
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?

------
aplummer
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.

------
jusben1369
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.

~~~
jotm
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...

~~~
jusben1369
Agree wholeheartedly that PayPal's issues with crowdfunding are well known.

------
lexx
So many paypal stories like that. Why do people still use it?

~~~
wolfgke
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.

~~~
jotm
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!

~~~
MrBuddyCasino
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.

~~~
wolfgke
There are two kinds of SEPA direct debits (Lastschrift):

    
    
      - SEPA Core Direct Debit
      - SEPA Business to Business Direct Debit

(source: [https://de.wikipedia.org/wiki/Lastschrift#Arten_der_SEPA-
Las...](https://de.wikipedia.org/wiki/Lastschrift#Arten_der_SEPA-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.

------
shalmanese
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.

~~~
joepie91_
> 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?

------
pvaldes
Remember me this:

"Scottish Ruby Conference 2008-2011..."

[http://conferencesburnedbypaypal.tumblr.com/](http://conferencesburnedbypaypal.tumblr.com/)

------
crsmithdev
Shouldn't this just be 'Paypal: don't do it'?

------
rdlecler1
Poor PayPal customer service was the reason I stopped using eBay.

------
kw71
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.

------
copsarebastards
Paypal: don't do it

------
junto
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.

------
mangeletti
I don't mean to sound like a pitchfork-wielding maniac, but
[http://letskillpaypal.com](http://letskillpaypal.com) for the win. I bet they
were shaking in their shoes at the prospect of something like this going
seriously viral.

------
kentf
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.

~~~
nhangen
Do you work for Tilt?

~~~
smeyer
Either that or this is quite the coincidence:
[https://clarity.fm/kentf](https://clarity.fm/kentf)

~~~
nhangen
Buzzword bingo

