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PayPal Will No Longer Protect Your Crowdfunding “Purchases”

paypal_2014_logo_detailI’ve been saying for a bit now that without some major changes, either within the companies themselves or through regulations by the government, crowdfunding like Kickstarter or IndieGoGo, will hit a wall due to lack of trust. I wrote an apology in 2012 for what I felt was my responsibility for recommended projects that didn’t come through or were delayed to a point of irritation. And since then this site has handled crowdfunding projects much differently when we do promote them.

To protect themselves, some smart consumers had been using PayPal and its Purchase Protection to hedge their bets in a way in case a project does go bust. As of June 25th, that protection is going away as PayPal will be updating their user agreement to exclude crowdfunding. So if a campaign goes bust or doesn’t deliver as promised you can’t dispute the charge to get your money back.

Kickstarter claims that 9% of its projects fail to deliver. With 105,369 projects funded and $2,365,680,654 raised, that failure is in the tens of millions, potentially in the hundreds of millions.

According to The Verge, Kickstarter payments were already not protected, so this mostly impact Indiegogo. Kickstarter has shirked all responsibility when it comes to this issue, and doesn’t permit people to request chargebacks.

PayPal has cited “risks and uncertainties” of crowdfunding as to their reasoning:

In Australia, Brazil, Canada, Japan, United States and certain other countries, we have excluded payments made to crowdfunding campaigns from our buyer protection programs. This is consistent with the risks and uncertainties involved in contributing to crowdfunding campaigns, which do not guarantee a return for the investment made in these types of campaigns. We work with our crowdfunding platform partners to encourage fundraisers to communicate the risks involved in investing in their campaign to donors.

To me, that’s a vote of lack of confidence by a major player when it comes to payments. With that much money and no one taking responsibility, is it only time before the industry becomes heavily regulated? Time will tell.