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PayPal Freezes Mailpile Campaign Funds (mailpile.is)
528 points by capgre on Sept 5, 2013 | hide | past | web | favorite | 351 comments



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.


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.


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.


> 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.


(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.


> 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.)


Does fraud follow the power law?


You're right, but then there was no PayPal when PayPal reached their size, so the situation now seems different to me.


Thank you for Stripe ... it freed us from PayPal's chains.


Stripe rocks :)


While fraud was a big deal for PayPal, based on reading The Paypal Wars (http://en.wikipedia.org/wiki/The_PayPal_Wars) network effects, good early customer engagement and the fact that the dotcom bust killed everyone else's funding were also pretty important.

Everyone keeps saying that fraud will be a serious problem for Stripe, but they move a huge amount of money now which is probably comparable to the period when PayPal nearly got destroyed by fraud - which was around the year 2000 when the web was a lot smaller.


And then there's Bitcoin- no fraud, no charge backs.

Payments are final and instant and, best of all, don't require a middle man.


> no fraud

Only for extremely specific and useless definitions of "no fraud."

If I send my bitcoins to someone to buy something, I have no protection if they decide not to deliver.

At which point the Bitcoin enthusiasts will say "but you can use a third party escrow service," which is true, and puts us right back into the same situation we are with PayPal.


But with Bitcoin, if you trust the merchant/recipient you can opt out of using escrow and transfer the money directly to him. With Paypal it's impossible.


This merchant offered Bitcoin. The vast majority of payors chose to use PayPal with its built-in buyer protection instead.


The fact that the vast majority of payors used PayPal rather than Bitcoin certainly has nothing to do with PayPal's buyer protection and everything to do with Bitcoin being obscure and more complex to use.


I rarely use cash when I buy anything in person mainly because of the buyer protection a credit card offers me.

Online it's the same thing. I'd pick credit card or Paypal over bitcoin just like I pick credit cards IRL over cash. It has nothing to do with obscurity.


I can mail money directly to someone if I don't want to deal with a bank or payment processor. FedEx/UPS/USPS are the Internet in this analogy.


Just send a money order or cash through the mail. After all, you trust the recipient, so you don't need all that customer protection stuff that Paypal offers.


I do that all the time. I live in Poland and bought hundreds of things from the Internet. Buyer always pays first, and there are no such things as chargebacks. And yet most people are okay with that. Only US people take chargebacks for granted.


I live in the Czech Republic and by far the most used payment method here is 'cash on delivery' - you send something and the postal service collects the money for you and than just sends you the cheque. It can hardly get simpler and it's safe. I wonder why this solution is apparently so rarely used in western countries.


I can still send someone cash in the post.


The difference is you have the option to offer buyer protection or not offer it with Bitcoin.

With Credit Card companies and their proxies, Stripe, PayPal, etc. there is no option of choosing a buyer protection service provider which meets your needs (unless you consider strict to extremely strict a choice).

Buyer protection isn't always a good thing. Often it is a hindrance to progress. Merchants should be able to chose the level of buyer protection they want to offer.


> At which point the Bitcoin enthusiasts will say "but you can use a third party escrow service," which is true, and puts us right back into the same situation we are with PayPal.

Bitcoin escrow doesn't work that way. Escrow cannot decide by itself to freeze your money. There are three parties in the transaction and you'd need the consensus of at least two of them to move the money. It's either the buyer and seller (in ideal transaction), or the escrow and seller or the escrow and buyer in a situation where transaction is disputed. The bitcoin escrow cannot behave like paypal do in this case.


> If I send my bitcoins to someone to buy something, I have no protection if they decide not to deliver.

To be more precise, you have no protection from the money transmission service. This is no different from cash.


Surely Stripe will eventually face the same issues that made Paypal behave the way it does? I imagine there is a certain logic behind Paypal's "evil".


What should they use - Google Checkout? https://support.google.com/checkout/sell/answer/3080449?hl=e...

For better or worse, Paypal has survived and looks like it's going to go on surviving, that's why people if they only support one method, choose it.


People can get tired of other people telling this, but really, they should use Bitcoin. There are several advantages of this: accountability (you can verify with the block chain that they really received your payment), ease of use (utilizing 3rd parties like Coinbase, BitPay and others you don't really have to know how Bitcoin works to pay with them) and most importantly - irreversibility - once you receive Bitcoin there are no chargebacks.

PS. They accept Bitcoin donations (not in the indiegogo campaign, just independently) and already raised 52.44 BTC which roughly translates to 5244 EUR. Not bad if you ask me for a payment channel that's not actively advertised by them.


> irreversibility - once you receive Bitcoin there are no chargebacks.

Unless I receive the goods before paying, I would never buy anything with Bitcoin online. There’s no buyer or fraud protection whatsoever. I don’t understand how any legitimate merchant would be alright with that. If a merchant would only accept Bitcoin, that would come across just as sketchy as a merchant who wants me to mail him a cashier’s check – never gonna happen.


> Unless I receive the goods before paying, I would never buy anything with Bitcoin online.

Good, then you should be fine donating to Mailpile using Bitcoin. Because it's not a purchase transaction, it's a donation. There is no promise of a product.

By clicking 'Continue', you acknowledge that you understand that you are contributing to a work-in-progress and not making a direct purchase. Perks are managed by the campaigners and cannot be guaranteed by Indiegogo. Your click also acknowledges that you agree to the Indiegogo Terms of Use.


I know that's what all the crowdfunding sites says, but practically speaking, people expect their stuff, and get angry if they don't get it.

I think crowdfunding would be a lot less popular if people actually understand it wasn't just a pre-sale. Because most people are not just donating.


> I think crowdfunding would be a lot less popular if people actually understand it wasn't just a pre-sale. Because most people are not just donating.

Exactly. In a world where caveat emptor doesn't apply for consumer purchases, this is a mild case of fraud. Naturally, PayPal is extremely wary.


Remember that "chargebacks for everyone, no questions asked" is a US and Australia-only thing. In most other places it's not very common (you need to go premium for that), and Bitcoin would be more than welcome to reduce fees, delays, frozen accounts, and other bull.

Fraud is still fraud, so if you get defrauded by someone, all you need is that a judge decides that Bitcoin is money, like it has already happened with that guy in the US who ran a ponzi scheme based on Bitcoin and got caught. So don't worry about that.


> all you need is that a judge decides that Bitcoin is money

And then what, do I need to sue every time someone stiffs me? That would be a colossal waste of time and money, which means in practice that the fraud gets away with it – knowing they might not even have the funds to pay me.

The way it works now is, if I’m not satisfied and the merchant isn’t being reasonable, I can call my credit card company and request a chargeback. No lawyers and courts needed.


I was talking about fraud, which is a lot broader than "I bought something on Amazon and something went wrong". If you fall into a ponzi scheme, a credit card won't save you.

About chargebacks, again, it's a US and Australia-only thing, so yeah, maybe in those places Bitcoin won't look so good, won't be adopted, and they will be left behind.


On the other hand, "chargebacks for everyone if no evidence of goods delivered" is a global thing.

Fraud is very different from chargebacks - if you lose money in fraud, good luck getting it back from the fraudster; proper chargebacks mean you get the money back in any case, even in extreme cases if your bank goes bankrupt during that time.


At least in the US, it's not quite "no questions asked". The last time I requested a chargeback my credit union sent me a form with a list of questions, including asking me to detail how I had attempted to resolve the issue with the merchant, with the dates of when I had phoned them.


Merchants have a reputation to keep. Most people will trust a merchant who has proved themselves trustworthy. Merchants who haven't built trust will be forced to use a trusted escrow service, of which there are many.

There are more than enough options for buyer protection with Bitcoin. The good thing is that they're all optional. Buyer protection is a trade off. Sometimes it is unnecessary. But with card companies and businesses like PayPal, merchants don't get a choice. They're liable for charge-backs for 90days and for having their accounts frozen indefinitely.

MailPile has already received over $6000 in Bitcoins, by the way. It is their only donation received which is currently liquid.

See https://blockchain.info/address/13z55AGS14pSPiPpMqAAFHb576tS...


Out of the half dozen times I've purchased with bitcoins, I was ripped off every single time. I stopped using it.

I'm a supporter of bitcoins and want it to succeed, I just don't trust a lot of the vendors that use it.


What were you buying?

Out of the dozens of times I've purchased with Bitcoins I have never been ripped off.

Buy from reputable companies or use an escrow service.

A homeless guy asked me for my car keys the other day. He said he'd clean the inside of my car and bring me the keys. I didn't give him my keys. Something tells me you would have.


use an escrow service.

Something like PayPal for Bitcoins? Sounds like we're back to square one. What's the point of bitcoin again?


Not exactly. Bitcoin enables multi signature transactions, so power rests not only with the escrow service, but also with the parties involved. There can also be more than one dispute mediator involved, as to maintain a balance.

For the delivery of real world goods you can write small scripts in the tx that monitor tracking numbers, have time locks, and the like as to maintain more control over the flow of money. Bitcoin is trustless, but only to an extent. Just like anything there will be point of failures, but Bitcoin minimizes them to a large extent and brings with it the opportunity to distribute power among many third parties, not just one.

I won't even bother answering you last question though, because I'm sure you realize how ridiculous that sounds in the context of this thread. Namely, if MailPile only accepted Bitcoin this would have never happened.


A script in the transaction cannot check if the the item sent was as described. No matter what, you will need people/courts/judges involved.


So fraud is perfectly OK, in your view, as long as the person defrauded meets a certain minimum standard of deserving stupidity?


Well that escalated quickly.


I will accept goats and chickens before I accept Bitcoin. 99% of people have never even heard of it. I am pretty certain that 100% of my customers have never heard of it. Not worth my time.


Quite hard to accept goats and chickens from people living on another continent. With Bitcoin it's possible, fast and costs pennies. Plus, many Bitcoin supporters are buying from merchants that accept Bitcoin just because of that, so with little cost you get more business. I don't see how this could be a bad thing or not worth your time.


Yeah, you can probably multiply your savings x10 every year by yourself anyway, no need to use a revolutionary currency for that.

http://blockchain.info/charts/market-price?timespan=all&show...


He is talking about using that currency as a way of being paid (= running his business), not for investing neither for speculating.

N.B. maybe I'm wrong but according to this graph: http://bitcoincharts.com/charts/mtgoxUSD#rg360ztgSzm1g10zm2g... http://blockchain.info/charts/market-price Now bitcoin has half the value than in April (and, I known, 10x Jan value). Too volatile to use if your business IMHO.


Like it has been said a gazillion times already, you can get paid in USD if you want to (using Bitcoin behind the scenes). You get the same benefits as a merchant (no chargebacks, easy implementation, ridiculously small fees, countries: All), and without the annoying x10 yearly gains.


That's probably what you should have said in the first post (benefits as a merchant) and not implying he was dumb because it was missing those fabulous gains


Nice, logarithmic scale. Really smooths out those bubbles :)


Bubbles? We are at $120 currently. So the only "bubble" is always the last one. I used logarithmic scale to make the x10 increments more obvious.


Past performance is no guarantee of future results.


What is this, another reddit meme that will be repeated until the end of the internet?

Bitcoin can only go to zero or +inf. Past performance is a way to show what haters are losing every year for denying Bitcoin.


> Past performance is a way to show what haters are losing every year...

... said real estate agents in the early 2000s.

Folks who bought in April at $260 are out more than a hundred bucks per Bitcoin. It's just as easy to lose your shirt as it is to get rich.


Folks who bought in April will be early adopters and will see incredible profits too if they don't panic sell. It's a matter of logic. Like I said, it can go to 0 or +inf.


If it can go to zero, why do you say "will see"? "Might see" is accurate, as is "might see incredible losses".


There is something I don't understand about Bitcoin: right now there is a lot of instability in the exchange rate of Bitcoin and everyday currency like dollars, euros, or pounds, from the graph I checked from here[1].

How can it be a viable alternative, when its value can change by 40% in a month? Gaining or losing value is not important (if it's increasing value, I have to delay exchanging to dollars as much as possible thus withholding funds), but as long as a vast majority of the population is not using it to pay or get paid, it poses a serious problem to its adoption.

The only solutions I can think of are: either it becomes stable, and so everyday people can exchange other currencies in Bitcoin, or people get paid in Bitcoin by employers, so they can spend it whenever they want, but neither of them look like they're going to happen soon.

Am I wrong in my analysis? I'm not an expert in finance so maybe I might have missed something.

[1] http://bitcoincharts.com/charts/mtgoxEUR


Just don't keep BTC. I'm surprised the default method of using bitcoins isn't "I give send USD to my transfer agent, they make a BTC transfer to your transfer agent, and your transfer agent immediately deposits USD in your account", with the entire process occuring with a defined instantaneous exchange rate.


You've lost me. Why would a consumer ever bother with BTC? Especially if both ends of the transaction are paying fees, spreads and paying for an escrow service.

Also, does the merchant set your prices in BTC, and change prices a few times per week as the exchange rate fluctuates? Or are the prices in USD?


Who said anything about an escrow service? One of the whole reasons to use BTC is irreversibility. You can build a crowdfunding site on atomic USD->BTC->USD transfers, precisely because there's no possibility of chargebacks. Crowdfunding is fundamentally a "pay cash in advance for some probability of a return" model, and BTC is the "cash" part that would make that work. Credit cards are very bad at being cash.


Before my transfer agent will send the irreversible transfer of bitcoins, they'll want to receive their USD by some irreversible means.

Why bother with the bitcoin sandwich? Why not transfer between the agents using Western Union or Hawala or whatever?


That's interesting! But isn't there any delay between currency exchange and an exchange fee as well?


Yes, I imagine that, like with Paypal, the sender would be responsible for eating both exchange fees. The delay, on the other hand, would impose price volatility that would likely be equal in both directions--so as long as the transfer-agents formed a network with an agreement that the receiving agent smoothed over both all losses and all gains during transfer, there should be net zero liability (they'd just need some float.)


As derefr said, there are many third party processors who will handle the Bitcoin for you and wire you the cash directly as soon as you receive Bitcoin payment. Or you can do it yourself and sell your BTC as soon as you get them.


It's a new currency that is not artificially stabilized by any government, so it's only natural that it has some wild fluctuations. If you don't like big gains just avoid holding BTC and you'll be fine.


It's not just that Bitcoin is not stabilized by any Government. Bitcoin has no stabilization mechanisms at all, and they cannot be added.


Of course you also have about zero privacy with bitcoin (by design), but who cares about that, right?


Bitcoin is a protocol that gives you as much privacy as you want. You can use one-time addresses both for sending and receiving, which gives you more privacy than using Paypal or credit cards directly.


Just like everything else.


Not really - can USA spy on credit cards issued by Chinese banks? And vice-versa? There is at least some level of privacy. But with BTC every time you make a purchase you can be linked to all your previous and future purchases.


If it's a Visa or MasterCard, yes the US Gov can spy on it.

If it isn't, you can't use it to pay Mailpile- so it's irreverent.


That's only true if one has access to data at every point in the block chain. If at some point coins go to a private person or company that didn't advertise their address anywhere you're lost. There's no way to know who own a Bitcoin address if it's not part of any online service/exchange and was funded by someone else.


>But with BTC every time you make a purchase you can be linked to all your previous and future purchases.

This is simply not true. If i make my first purchuase using address A and my second purchuase using address B, how can they be linked together?


The US surely can spy on Chinese CC transactions that occur in, or where the tx data passes through a friendly locale. There is a decent chance for them to be able to get CC tx data from within China as well.


irreversibility - once you receive Bitcoin there are no chargebacks.

irreversibility is good for the merchant, and bad for the customer.


Bitcoin


Because everyone wants to limit their crowd-funding project to a micro-niche of internet users competent enough to use this internet currency.

Bitcoin has a long way to go before it's as easy to use as Paypal.


>Bitcoin has a long way to go before it's as easy to use as Paypal.

Coinbase (out of Y combinator) is getting there.


Everyone always recommends Stripe as an alternative to PayPal. Sure, it's an alternative to PayPal for accepting credit cards. But it doesn't accept payments from PayPal accounts, which is the only reason most people use PayPal in the first place. I have a business in the SEO sector, and many of my clients are foreign without credit cards. Over 50% of my transactions are from PayPal (the that option is direct credit card through a traditional gateway).


I use PayPal when it's an option simply to avoid giving out my credit card number to every site I purchase from


Yeah.... even my mother knows better than to use PayPal.


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.


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.


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.


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.


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?


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.


> 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.


> 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.


> 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.


> 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.


Lay out the conditions early: Hey, we'll take the money and keep it for a year.

patio11 answered this in another comment: https://news.ycombinator.com/item?id=6333932

It's there, it's always been there, people just accepted the T&Cs without reading them.


> Every backer voluntarily decided to support that business

But they can still change their mind and go crying foul to their credit card provider. If there was some way to indicate to the card provider "for this transaction I understand the risks and forfeit my right to a chargeback", this wouldn't be a problem. But as it is now, people can say "oh yeah I'm all for crowdfunding", then when the project fails say "fuck it, I'm getting my money back", and PayPal is shouldering that risk.

> They happily took the money and kept the fees, but will neither refund it to the backers nor cash it out

I'm willing to bet if Mailpile told PayPal, "OK, just refund the backers", they would do it in an instant. If they refunded everyone with no discussion or attempts to resolve anything then people would be even angrier.


"They could have stated up front..." - IIRC their ToS stated up front that you can't accept that money at all (i.e., no pre-sales) - but they didn't catch you in time, so they are holding the funds. It's essentially as an escrow, but better than that - escrow would release funds only AFTER shipment, but they are presumably offering to release part of it before shipment according to the requested business plans. And they have no obligation to catch 100% of violating merchants immediately, it's your responsibility to not request payments breaking the ToS.

"They could have demanded the backers to waive their refund rights." : No, they can't demand that - the refund rights are mandated by law and nothing can waive that, consumers have them no matter what any merchant (like you) or intermediary (like paypal) might want or put in agreements; some chargeback rights apply even if they sign in blood "this is an nonrefundable donation".


I support your position. This is like a bad investor trying to type on your keyboard and criticize your bikeshed's color. Paypal needs to MTOB.


When this happens, does PayPal provide interest on the funds that they withhold?


Mailpile sets off alarm bells for me. The web page seems big on promises, and decent webmail isn't the eaiest thing in the world to make a decent UI for. Never mind that it's all wrapped around some kind of seamless background application.

I'm doubtful that they'll do what they think they can do. Good luck to them, but I'm unsuprised that paypal has witheld funds.


FUD. Every project that's not yet done is a crystal ball of promises until its delivered. IGG and KS have good records so far. And these guys that put their names on this project are highly motivated to deliver.


"Things don't just happen because Prime Ministers are very keen on them! Neville Chamberlain was very keen on peace!"


You're entitled to your opinion. But I've personally met two of three team members. So these or not phantom people, trying to take your money.

Paypal doesn't seem to have any problems taking money for "shady" people and just refusing to pay out. In my mind, that makes Paypal shady - and not the people that use it.


> So these or not phantom people, trying to take your money.

Well Paypal doesn't stay in business on trusting the reputation of one or two people at a time. Trust simply doesn't scale like that. So while I or you personally might not worry about this, Paypal would still have to look at this through their dispassionate business case microscope to evaluate how risky the situation looks.


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.


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.


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


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?


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.


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.


Yeah, and after kickstarter got big Amazon got cold feet and won't let anyone else in http://www.techdirt.com/articles/20120809/09213019977/amazon...


Amazon Payments took a stance against it? When? Kickstarter uses them.


They kicked out unglue.it: "Amazon has decided against “boarding fresh crowdfunding accounts at this time”. "

http://www.techdirt.com/articles/20120809/09213019977/amazon...


About two years ago - Kickstarter is grandfathered in.


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.


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)


>> 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.


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.


That reasoning is akin to a police officer ordering you about without any reference to the relevant laws, or justification, or politeness. Not a way to do business, nor indeed keep the peace.


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.)


And yet this story keeps happening, over and over and over across the years. Remember the $1 million-plus raised for hurricane relief raised after Katrina that PayPal threw down the drain by declaring that they wouldn't release it until long after it mattered?

If PayPal has good reasons not to accept donations and crowdfunding, they shouldn't fucking accept donations or crowdfunding, instead of letting users get in deep enough to get screwed before dropping the hammer. Maybe it's buried in the small print that they don't expect anyone to read. The burden is on them to communicate effectively. They need to either openly refuse to accept those accounts in the first place, or else come up with a separate way of dealing with them that works for all involved. Holding funds in escrow should not be a complicated problem.


> Maybe it's buried in the small print that they don't expect anyone to read.

Maybe you don't expect people to read the fine print, but PayPal clearly does, and frankly if you are going into business then you should be making a point out of always reading the fine print.

> If PayPal has good reasons not to accept donations and crowdfunding, they shouldn't fucking accept donations or crowdfunding, instead of letting users get in deep enough to get screwed before dropping the hammer.

Money is money, so if you are dealing with people who apparently won't consider reading "the fine print" or even doing some trivial due diligence in the FAQ, you can't somehow not accept these use cases.

> Holding funds in escrow should not be a complicated problem.

Correct, it isn't. This is why that's what happened: PayPal doesn't just steal your money and leave, they put various restrictions on your account that mitigate the risks involved in your business.

The most simple thing that they can do, and which tends to be the first recourse (and thereby the one that, if you don't go insane with a public rant you can negotiate down from) is a 180-day hold.

If you call PayPal, however, and demonstrate that you shipped these products, showing some kind of documentation of shipment, PayPal will release your funds immediately. That is an "escrow".


"Maybe you don't expect people to read the fine print, but PayPal clearly does, and frankly if you are going into business then you should be making a point out of always reading the fine print.

Money is money, so if you are dealing with people who apparently won't consider reading "the fine print" or even doing some trivial due diligence in the FAQ, you can't somehow not accept these use cases."

Fine print is an odd problem. In a world of rational actors, yes, obviously everyone should read all the fine print all the time, just like everyone should every word of the manual for every product they buy. The problem is, a typical internet power user is signing up for new services on a weekly basis, and most of them have 20 goddamn pages of fine print of which 19.5 are useless, meaningless gibberish. Corporations train their users to not read fine print, because 99% of the time it's half an hour wasted to learn nothing of value, and then exploit that training to slide shit past the radar. I don't think it's unreasonable to expect a company that cares about its users' welfare to put the really notable bits up front in full-size print.

Just as an example, did you know that, by signing up for a comment account on any Gawker Media site (Lifehacker, Gizmodo, Gawker.com, Deadspin, io9, Kotaku, Jalopnik, Jezebel), you give them explicit blanket permission to sell any positive comment you make about a commercial product for use in that product's advertising? I bet you didn't, and Gawker counts on you not knowing that when you sign up.


I am going to repeat this, as I don't think you caught the key noun: if you are going into business then you should be making a point of always reading the fine print. You don't hear about "power users" running into serious problems with PayPal because "users" are the core of PayPal's risk model. In stark contrast, this failure of a situation is a business attempting to deal with over one hundred thousand dollars via PayPal... I have absolutely no sympathy for them--or any other business--that can't take a few minutes to read "the fine print", doing even basic due diligence into "am I allowed to use this service for this purpose"; reading the contracts you agree to for critical services like payment processing is fundamentally different than reading the terms of service on your Gawker account: you should understand what you are agreeing to in full, and should not be relying on some cribbed cheat sheet of "the big stuff" handed to you by the service (as you argue should be provided, in this and other threads). Business involves lots of agreements, these agreements have to deal with tons of complex contingencies, and if you don't take agreements seriously (and likely it you don't actively enjoy reading them) you simply shouldn't be in business.


So wait. You want Paypal to require everyone who opens a PayPal account to have to write up what it's going to be used for, and wait in a queue before you can receive funds so that they can review it to ensure that it's not something like crowdfunding, and then require that you either never change what you use your PayPal account for, or submit any changes back to them, so that they can re-review it and approve your new use?

As far as I know, PayPal allows anyone to open an account and start using it without any review (I've never received funds with PayPal, only sent funds, but I don't recall any extra hoops that would be necessary to receive them).

Likely what happens is that either certain kinds of activity cause an account to be flagged for a manual review, or someone gets cold feet about the crowdfunding campaign and does a chargeback, so PayPal looks into it to see what you were selling. When they see that you are in violation of their very explicit pre-sale policy: https://www.paypal-businesscenter.com/content/presale-policy... they hold your funds until you are within 20 days of shipping your product.

They have a lot of rules about what you can sell via PayPal, and there's no way they could possibly check what you are going to use funds for before each transaction, as you could start using an account that was used for permitted transactions for ones that aren't permitted at any time. So, they wait until an automated system, a complaint, or a chargeback notifies them that something is amiss, and then hold on to the money until they can resolve the situation.


"So wait. You want Paypal to require everyone who opens a PayPal account to have to write up what it's going to be used for, and wait in a queue before you can receive funds so that they can review it to ensure that it's not something like crowdfunding, and then require that you either never change what you use your PayPal account for, or submit any changes back to them, so that they can re-review it and approve your new use?"

Not at all. I want them to say up front, when you sign up for an account, which apparently-innocuous activities will likely get your funds suspended for long enough to be useless. After that, it's on you if you go ahead with it. They're obviously not communicating clearly enough right now, or this wouldn't keep happening.


Was the link I gave, about not allowing pre-sales for items that won't ship within 20 days, not clear enough?

It's not some little footnote hidden within a wall of legalese. It's a pretty clear statement of what they allow and what they don't.

And why would you think that crowdfunding counts as "apparently-innocuous"? Crowdfunding is an area that is ripe for scamming. You create a glitzy campaign, get lots of backers, keep promising something that never quite gets finished, and then disappear with the money.

Apparently, ever since the Ubuntu Edge crowdfunding campaign failed, there's been a whole bunch of fake knock-off campaigns, of people capitalizing on the interest and trying to trick people into funding things that pretend to be related but really aren't.

Any time you have some kind of "amazing new investment opportunity", there are going to be scammers. And when you get down to it, crowdfunding is just an "amazing new investment opportunity".


Interesting reading: the Paypal Pre-sales Policy

https://www.paypal-businesscenter.com/content/presale-policy...

In particular I like the bullet point under "I’m a legitimate business selling products and services in advance. Why do I have reserves on my account?", which is lengthy, worth a read, and which you'll have to click to expand.


So why do they actually do business with IndieGoGo? I would expect the vast majority of IGG campaigns not to be able to deliver within 20 business days. Since the users of IGG obviously intend to use the money to fund a lengthy process of building a product that sort of invalidates the use-case.


Presumably they've done the kind of review of IndieGoGo's business that they stated they'd like to do of Mailpile and found that IndieGoGo has their risk spread broadly enough (and has a cash buffer large enough) to underwrite the risk of a particular project going down.


As far as I understood the paypal payments came in as part of the IGG campaign, not separate from it. So the Ubuntu Phone campaing would face the same problem. As would face any other IGG campaign. I seriously don't understand the rationale behind that:

a) either Paypal/IGG can afford the risk

or

b) issues like this will crop up again and again and again, leaving frustrated businesses and a bad impression behind, regardless of who's technically to blame.

or c) I'm missing some point here.

The other thing I'm desperately trying to understand is why PayPal claims that the refund risk is high. Almost all benefits given by the IGG campaign are intangible or of neglectable value compared to the funding you give. The first tangible item starts at the 67USD tier (a postcard from iceland [!]). Later items include a T-Shirt for 256 USD and some overpriced USB-sticks. If someone at PP actually read through the descriptions, it would be pretty obvious that any backer was aware of what he's doing.


From the article:

"PayPal's position particularly ridiculous when contrasted with IndieGoGo's policy of transferring all funds to successful campaigns within 15 days of their conclusion. If IndieGoGo can do it, so can PayPal."

This seems to me to imply that the PayPal fundraising was done in parallel to IndieGoGo.


From the IGG campaing update:

"The bad news is, PayPal have frozen our PayPal account. This means roughly $45,000 of the $135,000 we have raised so far are in a state of limbo and we don't know when we will get access to the money"

And the campaign is currently at 137.000 USD. IGG offers PayPal as payment method along with CC payment and from what I've gathered those funds are handled via PayPal. AFAIK the funds at kickstarter are split in a similar fashion depending on the payment provider.


Ok, that seems to indicate otherwise. I'm just confused over how IndieGoGo's 15 day policy applies if the PayPal funds are sent directly to Mailpile.


It's pretty clearly laid out here http://support.indiegogo.com/entries/20501826-when-to-expect...

The gist is: For flexible funding campaigns the amount given via PayPal are transferred directly to the campaigns PP account (minus the fees obviously). For fixed funding campaigns the given amount is transferred after the campaign meets the funding goal. Money given via direct Credit Card payment will be cashed out after the campaign reaches its deadline and should arrive within 15 business days.

Mailpile is a flexible funding campaign, so the first rule applies and funds are directly placed in their PP account.


Because IndieGoGo is a single actor willing to absorb a good deal of the risk itself.


I don't get your point. PayPal works as a payment provider for IGG campaigns. If IGG is willing to absorb the risk, then PayPal, as their payment provider should as well. Or, if PayPal is not willing to follow through and act as payment provider for high-risk crowdfundings, then PayPal should not be payment provider for IGG campaigns. But the middle way, first offering payment through PP and then not cashing out the money just doesn't work in my eyes.


You're presuming IGG and PP have the same risk calculation. IGG might be more willing to take on risk than PP.


Then why does PP work as Payment Provider for IGG if they are so risk-averse?


Because PayPal has enough evidence that they will have resources to pull from IndieGoGo in case things go bad? IGG's risk to PP is much lower than MailPile's.


I'm in full agreement with your demonstration, however, as to the case at hand, it appears to me that it's not really the point : the fact is that it should not be qualified as a "presale" and Paypal here is not a trade intermediary but a postman. If that's not the case, Paypal needs to explain how "crowdfunding", which depending on the viewpoint could be characterized either as a capital investment or as a donation and therefore in any case NOT a commercial transaction, intersects "presale" which definitely is a commercial transaction...


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?


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?


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.


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?


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.


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.


The thing is...

...nothing is being sold.


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


The other thing is, things don't work like that in the real world. If you go to court over this, the judge will check the material evidence (for example, that MailPile's page says they will deliver a beta by Jan2014) and will want to know if that was delivered.


Because there are no legitimate chargebacks if a gamble falls through. The presale risk is gone.


>Crowdfunding is an inherently speculative activity,

Crowdfunding is only popular because it's got a high success rate though. If only 50% of projects succeeded and provided rewards, and 50% took your money and ran, how many supporters do you really think would be left?


Because PayPal's job is simply do deliver money from Party A to Party B. It's not their job to worry about how the money is used, the USPS does not audit the check your Grandma sent for your birthday.

Crowdsourcing is a gift, like a donation to PBS, where you might get a coffee mug, but if PBS decides to to stop showing Downton Abbey, you can't rescind your donation.

If PayPal has a problem with charge backs, they could simply stop taking payments for indiegogo projects (which its indiegogo's job to vet projects, not PayPal's) or put in big fat letters that THIS IS A NON-SALE OF GOODS TRANSACTION AND ABSOLUTELY NO CHARGE BACKS WILL BE ALLOWED FOR MONEY SENT TO THIS ACCOUNT AFTER FUNDS HAVE BEEN PROCESSED before they click the final confirmation button. Which is basically in writing already when you agree to send funds to indiegogo or Kickstarter. Problem solved. If you have a problem with projects not delivering, don't donate, take it up with indiegogo, or take it to small claims court.


Because PayPal's job is simply do deliver money from Party A to Party B.

The problem is that PayPal is not dealing with real money but with credit cards. AFAIK, companies like Western Union don't have such onerous restrictions because they accept cash or as-good-as-cash.

...ABSOLUTELY NO CHARGE BACKS WILL BE ALLOWED...

Credit cards fundamentally allow chargebacks; you can't turn them off. If you want to do business with no chargebacks you cannot accept credit cards either directly or indirectly.


> Credit cards fundamentally allow chargebacks; you can't turn them off. If you want to do business with no chargebacks you cannot accept credit cards either directly or indirectly.

So why is this not a problem for IGG? Since it obviously isn't - they cash out 15 days after funding closes. If the difference is that IGG takes a higher cut, then fair enough, let PayPal take a higher cut.


If the difference is that IGG takes a higher cut, then fair enough, let PayPal take a higher cut.

So you're asking PayPal to create a new level of service. (They probably won't, but their business is up to them.) That's fine, but you[1] should probably do that before using PayPal. And if PayPal doesn't create the new service you want, don't use PayPal.

[1] By "you" I really mean anyone who's crowdfunding.


> So you're asking PayPal to create a new level of service.

No, I'm just saying that the problem seems not to be a fundamental one. And the point here is that PP does accept payments on behalf of IGG. If I decide to fund a campaign, one of the payment options is PayPal (obviously that can be configured and turned off, since it's off for mailpile atm). The funds donated to mailpile via PayPal were donated via the IGG website. That means to me, that PayPal is well aware that the user is trying to fund a risky endeavour, since by definition all IndieGoGo campaigns are presale and likely to fail.

What I don't get here is: Why does PayPal as Payment Provider for IndieGoGo suddenly cop out and say "My dear, but that's too risky. I'll freeze the funds."


It IS a fundamental one. Most of your comments center on "why it's not a problem for IGG" while failing to understand the risks involved (and the risk mitigation actions taken).


I have checking setup on my PayPal, maybe they should only allow direct confirmed withdrawals then, if VISA or Mastercard is the problem.


ACH also has chargebacks. Also, I think one of the merits of PayPal is its simplicity, so having to track the difference between "chargebackable money" and "real money" in every account would add significant complexity. ("I have plenty of money in my PayPal account, why can't I spend it at this particular merchant?" "Sorry, you have fake money but the merchant wants real money.")


Your argument might be stronger if it didn't rely on labeling ("absurd apologism", which is itself an absurd accusation when you think about what apologism means) and appeals to emotion. The short answer to your question is that you should concern yourself (not sympathize) with their problems when those problems intersect with yours and guide their decisions.


Pretty glib.

Your argument might be stronger if it didn't rely on labeling ...

The argument doesn't rely on labeling, though it does call a spade a spade.

A definition of "apologism" is "a defense or excuse, a speech or written answer made in justification." I'd love to hear why this is an incorrect characterization of the comment.

The short answer to your question is that you should concern yourself (not sympathize) with their problems when those problems intersect with yours and guide their decisions.

If I retain Matasano for work, I shouldn't need to obsess over the details of your cost structure or employee benefits packages; our contract should suffice. Similarly here, Patrick's description of Paypal's theory of underwriting is interesting, but irrelevant. Deflecting blame based on these issues is, indeed, absurd.

If PayPal's risk profile does not support doing business with Indiegogo projects, they should cease doing business with those projects rather than seizing thousands of dollars on spurious grounds. Feel free to debate the merits, if you actually have a difference in opinion.


No. Were you to retain Matasano, you'd discover that our relationship would be governed by a series of contracts. If you were of any significant size, those contracts would be scrutinized on your side by your counsel. If you were a typical client of size, your counsel and management would likely have questions or concerns about those terms, which would then be the subject of negotiation. Our risk tolerance and cost structure would very much matter to those negotiations.

Regarding the label you used: what makes it absurd is the notion that Patrick would be motivated by an urge to justify the actions of a 3rd party business he's barely engaged with. Here it pains me to cite Paul Graham's "Things You Can't Say" on the semiotic significance of deploying labels to make arguments.


Our risk tolerance and cost structure would very much matter to those negotiations.

Sure, those negotiations would happen before significant money or services are exchanged. And, presumably, we wouldn't enter into an agreement unless we were mutually satisfied. But arbitrarily deciding to withhold payment for your services after the fact, pending an audit of your workplace practices, for instance, would probably land me on the wrong end of an adverse action from you. And deservedly so.

Regarding the label you used: what makes it absurd is the notion that Patrick would be motivated by an urge to justify the actions of a 3rd party business he's barely engaged with.

I didn't (and wouldn't) claim that. I do however think that his well-reasoned, but irrelevant argument for why Paypal feels justified in holding $42,000 of Mailpile's money does indeed serve as apologism in the thread, motivations aside. If you think I'm arguing that Patrick is some shill for PayPal, you're barking up the wrong tree.

Here it pains me to cite Paul Graham's "Things You Can't Say" on the semiotic significance of deploying labels to make arguments.

And it's painful to watch. The argument hardly relies on this supposed labeling and I'd be surprised if you actually believe that. At this point you've already done more labeling, imputing of motives, and purely rhetorical arguing than you seem to think I have.


I don't understand what the difference is between Paypal's handling of payments and remittance of funds, which are governed by its contracts, and the terms and conditions of the work we do, which are also under contracts.


You're describing negotiations that happen before significant money and services have been exchanged; this PayPal "negotiation" occurs after. This turns out to be a rather large difference. Indeed, it's the difference between a contract negotiation and a hostage negotiation.


For the better of part a decade, Paypal has published a "Terms of Service" which you are required to agree to before you can use the service. Business users are required to agree to the TOS again. They regularly email customers regarding changes to the terms of service, and these terms of service are always publicly accessible.

If someone chooses not to read the TOS, that's on them and it is their failure as a business operator. If they wanted to renegotiate the standard terms of the TOS, they should have approached Paypal before agreeing to the TOS or before launching their business activities.

It's not a hostage negotiation--there's no requirement that you start using, or continue to use Paypal.


No, Patrick just got finished explaining how people who do pre-order business with Paypal could have reasonably been expected to know what Paypal was going to do.


If Indiegogo projects are fundamentally incompatible with PayPal's risk profile as you imply,

He didn't imply this, he laid out a very eloquent case for it.

...the onus is on PayPal not to accept money for those projects. Full stop.

No, please don't stop with a naked assertion completely unsupported by any other statements you've made. Please describe for me how a business operating in one of the most regulated industries in our country, whose disclosures are voluminous and thorough, and whose business model is turnkey merchant accounts, has this obligation.


> for the sake of argument

> This is absurd apologism.

I agree that what happens to Mailpile is A Bad Thing, but the reasoning as to why it makes financial (not moral) sense for PayPal to withhold the money is solid. There are other ways to send money across the world, maybe the lesson for crowdfunders is to switch to one that is more instant and less reversible, or at least offer them as alternatives.


> 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?

Cynical answer: because PayPal co-founder Elon Musk is the next Steve Jobs, and cult worship doesn't listen to reason.

(I told you it was cynical.)


Whoa there. Paypal loses nothing to fraud. Just like all the other middlemen, Visa, MC, etc., they shift their losses onto the merchants.

The way this works out is that Mailpile files an answer to Paypal's RFI, Paypal reviews it and says something like "There's a 90 day hold on funds deposited to your account until you can demonstrate that you aren't high risk", Mailpile complies and everyone walks away happy.

(Background: I'm a Paypal merchant and we're processing close to $30m/year through them. Over the years I've paid Paypal hundreds of thousands, if not millions of dollars, in chargeback fees, fraud fees, Visa fines, etc.)


I think we're in substantial agreement as to Paypal desiring to shift losses due to fraud or non-performance onto the merchants. Since they desire to do this, they will not accede to Mailpile's desired world, where Mailpile gets 100% of the money on day 1 and then Paypal can seek recovery on day 120 or 365 if a chargeback comes in. Many HNers wish we lived in Mailpile's desired world 100% of the time regardless of merchant risk profile, but we don't, which was the general thrust of my comment.

In terms of predicting Paypal's disposition on this particular case, I think it's a little trickier than a 90 day rolling reserve, because the product doesn't exist and shipping is binary rather than mapping to the rolling window of binary events like a physical goods business. If they were selling trendy iPhone cases and had bitten off more orders than they could presently chew, then an X% rolling reserve for Y days would likely be sufficient to insulate against the risk of some orders not shipping. Software businesses can fail on day 91 in an explosive a fashion as they can on day 1, and it appears from the report of Paypal's communication that Paypal is aware of this and is disinclined to do a fractional rolling reserve absent shipping. One would assume that if they ship this business goes to fairly low-risk instantaneously [+] and a reserve is probably unnecessary at that point.

Ultimately that's up to Paypal rather than either of our guesses.

[+ Well, it would be low-risk with respect to new orders instantaneously after shipping. It might not be low-risk with respect to pre-orders for a while yet, as customers could suffer from buyer's remorse, be dissatisfied with the product as shipped, not remember the transaction, or engage in friendly fraud, at rates substantially higher than transactions with lower delay between purchase and delivery.]


yeah, I totally agree. My only nit was your claim that Paypal bears risk. Its true that their model comes with risk and they've built their business model in a way that they shift it to third parties as extensively and quickly as possible. Its a sore point with me in how Paypa, Visa, etc. operate. The merchant is rarely right.


They bear risk if the merchant has just registered a new account, and that's the only PayPal transaction for the foreseeable future. How should they go recovering the chargebacks if your company has already filed bankruptcy?

If you transact $30M/yr, it's a totally different situation. When PayPal shifts the chargebacks/fines on you, they KNOW that at any given time you will be processing enough money through them that they can seize part of it in case you are not paying the fines.


I have been gob-smacked by how, as a buyer, Ebay[1] took my side so readily in a dispute. It seemed they were ready to believe anything I said. I would hate to be on the other side of that.

[1] I know Ebay isn't exactly the same as PayPal, but one owns the other.


And due to such policies they now have a ton of fraudulent buyers.


I think you misread what patio11 wrote. As he correctly points out, "Paypal eats 100% of the risk if the merchant doesn't [stay in business]"

New companies fail before getting a product out the door all the time. It's a very real risk.


Am I missing something here? Things like IndieGoGo and KickStarter are inherently risky, but not for the payment processor, for the one doing the backing. If you back a project and it goes belly up or for whatever reason fails to deliver or under-delivers that is not "failure to provide service", that was the risk you took when you decided to back them. That money is gone, the horse has left the barn, you have no right to request a chargeback in that case. That's part of the reason why trying to weed out fraudulent campaigns is such an important thing for both IndieGoGo and Kickstarter, once the money has been paid out, unless you can pretty concretely show that the campaign was a deliberate fraud, you're out that money.

Unless your CC was stolen and used to back something without your knowledge I see no reason at all why a chargeback against a campaign should ever be granted (or maybe if the campaign is proven to be a fraud, but in that case I'd expect IndieGoGo or Kickstarter to eat that cost).


That's an interesting position, but do any credit card companies agree with it?


I don't know. I honestly don't really know how the chargeback system functions. I mean, what's to stop me from ordering for instance some hugely expensive item from say Amazon, waiting for it to show up, and then filing a chargeback on it? Does it make a difference if I go through say Paypal to do it? Is there anything stopping anyone from filing a fraudulent chargeback (which is essentially what a chargeback against a Kickstarter or IndieGoGo campaign would be)?


My experience has been that credit card companies act as an arbiter. They give the merchant an opportunity to respond to a chargeback... but they also charge you a fee just for handling it (or maybe the fee comes from the processor... I'm not sure). Too many chargebacks can also put you in a higher risk category which means higher fees for everything.

If you challenge a refund request, PayPal will ask you for additional information and then (at their discretion) fight the chargeback with the credit card company on your behalf. In my experience, this process is huge pain, but it usually works out OK.


Nope, Paypal only eats the risk if they release funds. They rarely release funds on high risk accounts, at least not without retaining a rolling deposit.


That's what we like to call "the point"


And that's... exactly what's going on here, and what everyone is bitching so loudly about.


I'm not saying "don't bitch about paypal", I'm saying "paypal doesn't carry a lot of risk in the first place".


> I'm saying "paypal doesn't carry a lot of risk in the first place".

They do in the first place, which is why as an immediate second step, they protect themselves against that risk by keeping money in an escrow.


If Paypal are so concerned about presales, then in my opinion they should get out of the market. Or force their customer base to get some sort of insurance. You know, do their risk management before they let the vendor take payments?

It amazes me that their marker for freezing money is for how many sales the company does. Because you wouldn't want to accept money from a successful business now!


> You know, do their risk management before they let the vendor take payments?

They have a very clear policy on presales and you would expect that people that do presales through PayPal read those damn policies. They are even written in an FAQ and not legalese.


Their policy is fundamentally incompatible with IndieGoGo's model. So why do they accept payments for IGG campaigns in the first place?

You can't have it both ways.


Not all of IGG's campaigns are for pre-sales of non-existent products. IGG also handles campaigns for charities and art projects (Indeed, when I went to the IGG website, the 8 projects displayed were for charitable programs.)

Thus, Paypal can have it both ways.


This is an open sourced project. All the code is available. It's a stretch to call it "presales", because you can use it immediately.

They are radically transparent:

* https://github.com/pagekite/Mailpile - source code

* https://github.com/pagekite/Mailpile/issues - issues

They have a running feature list with each status.


I wonder how much of Paypal's margin it would eat to just require a phone call with everyone who signs up for a Business account, asking precisely what kind of business they'll be doing (with the real possibility of denying their request.)


For some of their business products, you do actually have to get pre-approval. For example, I filled out approximately ~10 questions (about a page worth of text, about business model, business history, shipping/refund policies, anticipate monthly revenue, etc) to get Appointment Reminder the payments gateway to charge credit cards offsite. I got asked to call in with some elaboration. It went something like:

"So this business hasn't actually sold any software yet?"

"That's correct, we're anticipating opening to the public next week."

"And you charge people monthly for the software? That's after they actually get the software, right?" [+]

"Yes. The software is already written and we are capable of fulfilling immediately, we just haven't opened to the public yet."

"That's great Mr. McKenzie. You're going to be approved, and will get an email when the account is ready."

(We use Stripe these days for AR and substantially all of our other CC payments. Stripe asked very similar questions prior to provisioning the account, but didn't require a phone call or elaboration.)

[+ If you ever get asked a question phrased this way by someone not in the software industry you should probably not respond by saying "Hmm, technically they don't 'get' anything, well OK technically they GET lots of things, but the software is actually physically only on our servers and provided to them on a software as a service model, which means..." When people not in the software industry talk about downloading Gmail just smile and nod -- you don't understand their job, either.]


If you ever get asked a question phrased this way by someone not in the software industry you should probably not respond by saying "Hmm, technically they don't 'get' anything, well OK technically they GET lots of things, but the software is actually physically only on our servers and provided to them on a software as a service model, which means..." When people not in the software industry talk about downloading Gmail just smile and nod -- you don't understand their job, either

Ummm, maybe. I understand that you are paraphrasing and the actual conversation was probably more definitive, but the question as you phrased it may have actually been, "So if you go out of business the people will still actually have what they bought, right? We're not going to get a lot of angry customers wanting charge-backs...."


I've done two accounts with Braintree now, and both times have had very similar conversations with people there. They were fairly painless, but they did want all the documentation that you mentioned as well as assurances that we were not pre-selling anything.

Sounds like those are fairly typical unwritten rules for all payment processors. Which makes sense to me.


You are glossing over one important point: PayPal has a financial stake in keeping money within their network for as long as possible.

For every month they keep $X within their network instead of releasing to the rightful owners, they have effectively seized whatever could have been earned by investing $X for that month. For smaller amounts (individuals, small campaigns like ours), this is negligible, but in aggregate, when you consider how much money PayPal is sitting on, this is a decidedly nontrivial sum. They have a strong incentive to routinely and as a matter of course withhold funds from legitimate businesses just because they can. This is what we are up against.

Their talk about risk could very well be a smokescreen to justify the above behavior. This is not at all implausible, if they were only concerned about risk they could withhold fractional amounts for reasonable periods of time, on a rolling schedule. This is how less predatory payment processors I have dealt with handle this problem.

We understand and accept that they may want to hold onto our funds for a reasonable amount of time to mitigate their risk. We don't expect them to release all the funds immediately.

However we consider their threats to hold ALL THE MONEY for a FULL YEAR to be entirely unreasonable and not in good faith. In the face of such unreasonable demands we balked and sought help from both the community (public outrage) and our legal counsel, the Software Freedom Law Foundation in New York.


I totally understand that this inconveniences you a lot. Be that as it may, your conspiracy theory has no basis in fact whatsoever. Paypal will, in fact, not make large amounts of money on transaction float -- they're already probably losing money on your account by talking to you too darn much. Interest rates are presently something like 15 basis points ($150 per year on $100k). Even if we count their underwriter as free, if you've spent an hour on the phone total, they're already in the red. They'd like nothing better than for you to be riskless and for them to be able to release all your funds tomorrow and for you to sell another $100,000 every day this year. (It also isn't clear to me that Paypal can licitly get any float on your money, due to banking regs, but that is deeply technical and not the kind of technical that I'm good at.)

But that isn't the world we live in. In the one we do, pre-sales is an incredibly high-risk business model.

f they were only concerned about risk they could withhold fractional amounts for reasonable periods of time, on a rolling schedule

As I mentioned in a separate comment, while rolling fractional reserves do insure against risk in some business models, they don't do a great job of insuring for the risk of software not getting written or not meeting expectations. Assuming you have a multi-month development timeline, every risk your business is exposed to at N-1 days (your team members or your families falling ill, the project being technically beyond the capabilities, the money running out and you guys needing to delay shipping while mixing in freelancing to stay afloat, etc etc) is still a risk at N+1 days, unless you have shipped on day N.

You're totally within your rights as a businessman to try to fight this in the court of public opinion or attempt to convince Paypal's legal department or a court of competent jurisdiction that they're in breach. I sympathize with you because I sympathize with people who are making things, but I think that Paypal has a better understanding of the risks involved in your enterprise than you do (and, unfortunately for the both of you, their upside being sharply less than your upside means they will tend to have more of a hair trigger with regards to that risk than you will).


Oh, I am sure PayPal are doing what they believe to be in their best interests. However, I think you overestimate their competence. The people we spoke with on the phone didn't even know what Open Source software is, let alone have an understanding of the risks involved. They were just following procedure.


I'd say that's because they're the people who talked to you on the phone, and a major part of their job is to be a liason to walk businesses through their rules. You should look at them as someone who can inquire within the organization on your behalf, rather than someone to challenge the competency of.

Such people can be pretty handy. Yes, I know, it's frustrating that they don't understand a lot about your business, but again, their job is communication, so it probably just means they don't have experience with talking to projects like yours. Why not educate them so the next project down the line has an easier time?

Finally, the people who actually set those policies are very likely experienced and I'm going to guess are also pretty competent. If you are reasonable and have a positive attitude with the people you speak with on the phone, you might get to talk directly with such a person. I personally think that would have probably been the easiest way to resolve this matter.


But so what? You knew what sort of firm they were before you started this project, and while they may have their heads under a rock it's not really their responsibility to understand every business model out there, or to explain all the many ways that people have tried to scam them. To be honest, I think you ought to have had a chat with your legal counsel before setting the ball rolling; given that Paypal has a reputation for being inflexible with merchants, you could have been better prepared in terms of either your business structure or finding out what documentation they'd want to release your funds.


What does the license of the software have to do with the risks involved? What is the special case that they didn't understand that makes your project a smaller risk? What are the exact mechanisms in place that will prevent the project from failing miserably in any of the myriad ways software projects routinely fail after most of the money is spend and trigger a non-trivial number of chargebacks?


That for example this is not a software project where people for receiving the software. For example the perk for the $4096 backer tier is

"In addition to the previous perks you and your logo will be the most prominently featured in our credits. You also get a custom feature / design theme per your specs (see the FAQ for some fine print). In addition, if you fly to Iceland we'll meet with you to discuss the implementation and then take you on a road trip through the Icelandic countryside, taste fermented shark and our traditional alcohol Brennivín, whilst we talking tech, politics and security."

That's a pretty expensive chat to have, even if it includes the flight. Yet, two backers were willing to pay that price. All other tiers have a similar relationship between price and value provided. This cannot be explained in a rational business relationship - a solid gulp of idealism is included here. That influences the risk of chargebacks - backers paid to see this project worked on, not to receive their individual copy of the software.


That last paragraph is I think they key people aren't getting about IndieGoGo and Kickstater. You aren't paying for goods or services when you fund something on those sites, you're essentially donating towards the development of something, and gambling that in the future you'll receive something. The expectation is that the company/people you back will make a good faith effort to provide what they've said they will, but there's no guarantee you'll ever actually receive anything.


I don't know a lot about finance, I also don't believe in conspiracy theories, but how is it that I can open a savings account with my local bank and easily earn 1.5% interest but you're saying PayPal can't do better than 0.15%?


What bank are you using, are you in the USA? The best rates I know of right now are Ally Bank at .84%. My local bank pays .01%


No, in the UK. I may have been exaggerating a little, but without searching at all, my current bank, Halifax, offer 1.3% http://www.halifax.co.uk/savings/accounts/easy-access/online...

I'm curious about what I'm missing, I'm sure I have some misunderstanding here.

EDIT: that's a 12 month rate! I suppose I'm just a victim of misleading advertising.


Not only is it a 12-month rate, but it's also only on balances of under £50,000. The extra interest is a bounded cost the bank is willing to pay for customer acquisition knowing the average value of a new customer in terms of fees and other revenue generated. A business that wants to earn some interest on millions of pounds without agreeing to switch revenue-generating services to that bank as well is not going to get the same offer.


In addition to customer acquisition and introductory rates and so on, also be aware that interest rates differ by currency. I can get significantly more interest in CAD (1.35% - 1.9% in Canadian banks, up to 3% with some limited accounts) than in USD (in either Canadian or U.S. banks). AUD has different rates still and so would GBP.


If it is such a problem for PayPal then they should get out of the business.


That argument goes both ways, no?


At the core of your very well crafted considerations and arguments lies one critical flaw; Paypal's risks or issues are none of our problems and the burden for which should not be rolled over and down the chain of responsibility or power. Unfortunately, it is a systemic problem in the American business culture and society as a whole that responsibility and consequences are constantly passed down to to the point where responsibility and power intersect, leaving the powerless holding the consequences of the powerful.

I, nor anyone else that pays Paypal cares, nor should have to care what their particular drama-issues are when conducting business with them. The time is rife for a system that is not as corrupt, abusive, incompetent, and dishonest as Paypal. How many more stories of someone's funds being frozen, i.e., stolen for a year do we have to hear where companies and individuals will start shying away from doing business with Paypal. Paypal is about as much of a pal as a backstabbing, draining, sabotaging, untrustworthy piece of shit as a company can be, why are people still working with them.

Paypal needs to suffer the same demise that MySpace did when they became a harbor for pedophiles and the scum of the earth .... with blinking flair all over their screen.


Paypal's risks or issues are none of our problems and the burden for which should not be rolled over and down the chain of responsibility or power.

But they don't owe you a payment service. You could just go the bank and get a regular merchant account. Yes, they're a pain in the ass to deal with, but stop being such a drama queen.


Pretty much. I refuse to use Paypal for anything unless I absolutely have no choice in the matter. I'd be really happy if they'd just do the world a favor and go out of business so someone less shifty could take over. I would rather they deny someone an account than wait until that account has racked up a huge pile of money before suddenly deciding it's too risky to be doing business with the company that money legally belongs to, and that they need to just hang on to all of someone else money just in case they go out of business... say from some shifty company stealing all their money right when they need it most. There's something of a self fulfilling prophecy here, Paypal decides a company is at risk of going out of business even though they're pulling in lots of money so Paypal decides to freeze a substantial portion of the companies assets. How many companies do you think can survive having most of their assets frozen for an unknown number of months? Not many I'd bet, so at a guess I'd say Paypal probably has a near 100% success rate at predicting companies going bust after they've frozen their accounts.


> Paypal's risks or issues are none of our problems and the burden for which should not be rolled over and down the chain of responsibility or power.

PayPal is taking precisely that position - that Mailpile's potential problems and burdens should not become PayPal's.


"Paypal's risks or issues are none of our problems"

While that obtains for any business which does not do business with Paypal, the converse obtains for any business which does to exactly the degree that those risks or issues are expressed in the structure of the agreement with Paypal.


It seems that PayPal is just a wrong tool for the job.

I'm happy to use PayPal to pay couple hundred dollars when buying an item from a mass merchant. This is what PayPal is intended for.

If I sold a hugely expensive one-time unique product (which a crowd-funded effort essentially is), I'd probably consider something different.


Excellent answer.

In the case of mass merchants where the risk profile of their business model is low (i.e they are not crowd funding or pre sales receivers of funds from end users), the paypal model works well for everyone. Risk is equally distributed between paypal and the merchant (since their risk of going bankrupt is less and not binary) and the end consumer continues to enjoy 0% risk.

But in a crowd funding (or any VC) model, the end consumer is 'donating' / 'contributing' to a project because they a) they love the product/concept b) they trust the project team c) they are feeling generous d) willing to take a gamble e) all of the above. And inherently, the reason they are participating indicates that 'they are willing to take some or all of the risk' . The problem here is that the current paypal model is unable to take advantage of their 'willingness/promise of sharing the risk', and hence not having/needing to be so draconian towards such crowd funding to cover their own behind. Probably there is no such model currently anywhere.

It is quite possible that these end customers who were willing to bet/gamble, in the end when a crowd funded project fails, having realized that they don't have to take the risk after-all, are probably more than willing to take advantage of the system (bank chargebacks) to recover their contributions. But what if there were a model where we hold them to their willingness to "bet/gamble/take the risk" decision and only be a completely/mostly passive middlemen entity that only facilitates the transaction , like an eschrow account model (but where the funds go the intended beneficiary right away , if that is what the donaters want ).

Can paypal not build such a model where they can legally get confirmation/indemnification from end consumers/contributors to be willing to accept the risk completely/mostly upon themselves (or deal directly with merchant and indemnify paypal) if the project goes kaput? Or is the banking chargeback model so deeply ingrained, complex and inflexible that it cannot be molded in any way to achieve this purpose?

What if there were a banking/credit card concept of "funds that are not eligible for chargeback per customer's decision", and only such funds are used to pay to crowdfunding campaigns etc?


What if there were a banking/credit card concept of "funds that are not eligible for chargeback per customer's decision"

AFAIK that's called Western Union, Bitcoin, or gold (ok, I'm kidding about gold). Dwolla tried to do this but gave up.


Interesting idea. Maybe you could fund your paypal account with cash?


The issue with PayPal is not that they take steps to insulate themselves from fraud and chargebacks.

The issue is that their process for doing so is unilateral and -- as is well-documented -- offers essentially no options for resolution unless you are lucky enough to be able to bring significant media pressure to bear on them.

That is a problem. Unfortunately, I think the only solution is to encourage people to basically sue PayPal at the drop of a hat. PayPal has the most abysmal processes in the world because those processes are cheap; if those processes become expensive (because people run to a courtroom every time PayPal freezes so much as ten cents), then and only then will PayPal change the processes.


But conversely, the processes are abysmal* because Paypal is cheap. If you want to be given first-class treatment and have your hand held every step of the way, then I'm sure there are plenty of firms that would be willing to do that...in exchange for 10-15% commissions.

* I think they're annoying but not abysmal. 90% of the tantrums I see on HN about Paypal involve a lack of preparation on the part of the counterparty.


> ... encourage people to basically sue PayPal at the drop of a hat.

I haven't looked at the PayPal ToS/EULA/whatever in quite a long while, but I imagine that you must agree not to do exactly that in order to use the PayPal service.


So include arguments against whatever clause in the ToS in your filing. Even if it takes their lawyer five minutes to write a response to that, five minutes of a corporate lawyer is usually more expensive than a full day of a CSR's time, which achieves the goal.


In sensible jurisdictions you can't sign away your rights like that, although you may pre-agree to binding arbitration or a particular jurisdiction.

However, I've not heard of someone successfully suing paypal, even in the small claims court :(


It's not just presales. When any kind of fraud alert is triggered, PayPal freezes the account. There is no way to get a human being on the phone to understand why the account was frozen, when it will be unfrozen, etc. Even if it's obvious to any reasonable human that no fraud occurred.


In point of fact, in this instance they've had four phone calls and a talk with a supervisor. To add another anecdote, when my Paypal account was frozen (a client paid me on Paypal during an apartment move, which looked like "Somebody just tried to move 3 months of typical revenue through a novel IP address IN JAPAN!"), it took less than a minute on the phone to resolve.

I think people's perceptions of Paypal's fraud department are like people's perceptions of Microsoft's security: dominated by a poor record from a decade ago. Both businesses have gotten religion on this topic in the interim.


I keep reading complaints about not being able to get someone on the phone, but the only two times I've had issues I've had someone on the phone in minutes and it was dealt with right away.

We do a fairly large volume through PayPal, so perhaps they have better service for larger accounts?


When our account was frozen, PayPal called us.


Masterful explanation. Only thing I'd add is that a sole proprietor business account from a venture obviously involving three people also reeks - it might be a lot easier if Mailpile had been configured as a regular or non-profit corporation, even if that meant paying fees to a state entity to register it.


and of course, paypal only discovers all that risk when there is a lot of money on the hook? And their only action is to make a move that's hugely profitable to them ? Because now customers are charged (they won't pay by another mean) and the company is dry.


>And their only action is to make a move that's hugely profitable to them ?

Not sure why you think PayPal is going to just take the money and screw over the customers. Much more likely they will refund all the payments.


Their policy is to freeze the funds for a long time (they talk about 1 year in the blog post) then to actually go through.


One thing wrong with this answer:

Paypal has shitty customer service.

All of this might be true, but the shitty customer service means that they are instantly wrong.


This entirely misses the point. Merchants do not and should not care about PayPal's plight. They care that customers paid them while a third party is preventing them from accessing those funds. They care that they can't pay their employees and/or suppliers, or in this case, that they can't use any of the money raised as intended. Merchants can and should gravitate toward providers that do not have a reputation for this kind of thing.


These are good points all, I basically agree. However, if one understood the culture of Open Source and crowdfunding, it would be relatively easy to see that Mailpile is a pretty low risk for outright disappearance and chargebacks. Also, a project like MP has serious PR risk for Paypal being such dicks.

I suspect someone in-the-know at Paypal made this argument, and to their credit they backed down quickly in the face of potential Twitter disaster.


These are all excellent reasons to have a review process and refuse to do business with certain customers. Nothing in there justifies the theft of a risky account's existing earnings.

PayPal's habit when shutting down an account is not just to stop doing business, but to keep all the money earned by the merchant and never speak to them again.


What credit card company allows a chargeback after more than 180 days? The only one I can find that does that in any circumstance is Master Card, and they only do that for "interruption of service" on prorated services.


Amex for one starts the 180 day countdown at the day of delivery or expected delivery, so you can get them to reverse a transaction literally years after the fact if necessary -- pre-ordering Duke Nukem Forever in 2005 would still be chargebackable into 2013. They're also well-known for bending over backward for cardholders, particularly very valuable cardholders. (They require merchants to retain all records for 24 months. You can probably get them to reverse transactions after that, too, though it's an open question whether they'd eat it or have the merchant eat it at that point. For high-value customers they can be quite accommodating indeed.)

There are also fun edge cases with foreign banks, corporate/government cards, etc etc. Paypal says they (very rarely) get chargebacks 540 days out.


With crowdfunding the date of delivery is the date the campaign completes, not the date the rewards, if any, are shipped/published/whatever. At worst given the typical 30 day campaign that means they don't need to worry about chargebacks more than 220 days out. That's still nearly a year, but honestly I think once a campaign funds they shouldn't even process chargebacks against it unless the original backing can be shown to be fraudulent (I.E. stolen CC).


It seems that way to me too. Funding a campaign isn't buying a product (and that we have coming to treat it as such is a Problem). The question, I suppose, is whether the credit card company will see it that way.

Years ago, when I was working on a shareware app for the Mac (long before the App Store), I released the beta as donationware, and gave users the incentive of a free license for version 1.0 if they donated a certain amount (which increased with each update). It was very small scale, but it allowed me to bring in some income while I was working on the project, and gave me an incentive to get it done. But it was an incentive for a donation, and that donation could be any amount. It wasn't a preorder, and it would have been silly to treat it as such.

It actually hadn't occurred to me until just now that what I was doing was crowdfunding before it was called "crowdfunding".


In addition to all the other arguments here, I have a problem with your assertion that Paypal is run by smart geeks. a) I think its a common knowledge that it is actually run by business pointy heads b) their API and dev environment are so horrendously bad and hostile to developers its not even funny. And its been like this for years. If it was really run by geeks, getting the API and dev process in order would be high on priorities list.


> Indulge me in a flight of fancy [...]

This is the same Paypal that fucked Wikileaks over. I don't think they should get the benefit of the doubt.


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.


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...


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/

[2] http://www.holdtheline.com/threads/paypal-freezes-funds-from...

[3] http://www.siliconbeat.com/2013/08/16/paypal-freezes-then-re...


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

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


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.


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?


> 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.


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.


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


Physically processing that would be too expensive. The crowdfunding site would have to take a massive percetage/flat fee.


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