Yes, financial institutions do typically have "questions" they need "answered" before making quarter million dollar loans to anonymous e-mail addresses. There's no reason to put those in scare quotes, and it is very much a loan. PayPal is the company making the credit card charges, and if they end up being part of a scam or simply a poorly managed venture, PayPal is on the hook for all the chargebacks -- the account holder could easily disappear or be insolvent months later when they come in.
All the raised funds are at risk, for PayPal, for the 6-12 month period they can be reversed. Even if donors do so without a valid reason, PayPal gets hit with chargeback fees and needs to maintain a <1% reversal rate company-wide just to do business with Visa and MasterCard. They're willing to let their algorithms evaluate small risks (the typical eBay buyer/seller), but a human steps in to do the underwriting for larger volume accounts, just like at every MSP and bank.
The account got flagged for manual review, answered some questions, and was open to accept payments again within the same day. That's better than most banks I know which will take at least a few business days to approve a merchant account. If you're going to be accepting hundreds of thousands of dollars with PayPal, it might be smart to call them in advance instead of waiting for them to call you.
Doesn't PayPal urge you rather strongly to connect a bank account with your PP account? I regularly advise clients on creating these accounts, and bank account confirmation is typically the next thing they do after account creation. Does this not apply worldwide ... or do some people actually trust PayPal to hold their money?
PayPal may not explain things clearly, however if we imagine we were the risk management team in PayPal, here is the picture:
An account gets a lot of money from different funding sources (credit cards, ACH, etc.), the velocity is high, and most of the sources didn't have prior transaction records with this said account. To the RM team, they cannot tell if this is a legitimate transfer, or a massive transfer of booty by hackers.
Nevermind how famous this startup maybe, if your credit card were stolen, and PayPal shows you an HN article "well, I thought you wanted to donate to this startup X", how impress would you be? On top of that, the chance of CC customers with hefty chargeback is something that no sane business entity can take lightly.
PayPal may suck, but I don't see how a company with similar scale and footprint will do better. Doing differently very likely will mean losing so much money that it has to go out of business, or, have to partner with some foreign company that sells products of questionable quality.
I asked on the reddit thread but got no answer: Doesn't PayPal not allow accepting payment for non-existing goods or services? This would include things like pre-orders and donations. If that's the case, this seems like a legit reason to freeze the account. I might be wrong, but I could have sworn I heard that somewhere.
It's nice to propose Bitcoin as an alternative, but there's no "they didn't make it so you get your money back" system like pledges, is there?
Also, I don't see how they qualify for PayPal donation status as a nonprofit, so the outcome of this was predictable by day 1 and entirely their fault.
There's no reason that the crowdfunding platform couldn't hold the pledged Bitcoin in escrow, which seems like it would be pretty straightforward and transparent.
Even if the legal/security issues are worked out, it will take a lot of convincing to get mainstream users/potential crowdfunding donors on board. People don't trust what they don't understand, and the fact that the value of BTC is so unstable is a giant red flag. Would Joe Shmoe plunk down fiat for X $BTC, with the knowledge that the exchange may fail or the value of his investment may plunge the next day?
"This also points to the urgent need for BTC adoption by both major crowdfunding organizations because PayPal is dangerous."
Yeah, because having exactly zero recourse when the crowdfunded thing turns out to be a scam is totally what people are looking for.
Paypal is can be quite a pain in the ass with fraud prevention etc, but pretending that switching to a system with NO dispute resolution is better is ridiculous.
It's kind of odd that this project is using crowdfunding at all. As far as I can tell, they are just selling software as a service, and the service already exists.
It's freemium, and no doubt like most freemium services, 99%+ of the users will pay nothing for it. They are raising funds to host that free service until it becomes self-sustaining through the optional upgrades.
Paypal used to be the easiest thing to integrate - especially because they would handle the entire backend server workflow, and you just get a ping from their back end when the thing is done. They also have the instant payment button that would accumulate payments and consolidate orders without you even having a backend.
If you're looking for something similar to the payment integration, Stripe is pretty similar in terms of development effort and can even run a form on your (static) web site. You still have to do a bit of processing on your end, but we're talking about a few hours of work tops.
We ran a subscription business for a few months without a real backend or a database (validating that there is a demand) using stripe and JotForm. Jotform is a very simple forms builder and server online that can handle a trivial product selection, collect custom information, execute a payment workflow and send the customer and you an e-mail at the end, optionally showing the customer a confirmation page. Yes, all this is doable by a good programmer in a day or two, but it costs next to nothing on JotForm and allowed us to play with the process until we got it right. Their site can run paypal and stripe (and a few other things) so in case paypal blocks you it's easy to switch to a different provider without customers noticing anything.
Stripe doesn't offer seller or buyer protection - which is another benefit of PayPal. I don't know anyone else who does that.
[+] [-] dangrossman|11 years ago|reply
All the raised funds are at risk, for PayPal, for the 6-12 month period they can be reversed. Even if donors do so without a valid reason, PayPal gets hit with chargeback fees and needs to maintain a <1% reversal rate company-wide just to do business with Visa and MasterCard. They're willing to let their algorithms evaluate small risks (the typical eBay buyer/seller), but a human steps in to do the underwriting for larger volume accounts, just like at every MSP and bank.
The account got flagged for manual review, answered some questions, and was open to accept payments again within the same day. That's better than most banks I know which will take at least a few business days to approve a merchant account. If you're going to be accepting hundreds of thousands of dollars with PayPal, it might be smart to call them in advance instead of waiting for them to call you.
[+] [-] josefresco|11 years ago|reply
Doesn't PayPal urge you rather strongly to connect a bank account with your PP account? I regularly advise clients on creating these accounts, and bank account confirmation is typically the next thing they do after account creation. Does this not apply worldwide ... or do some people actually trust PayPal to hold their money?
[+] [-] danielweber|11 years ago|reply
[+] [-] higherpurpose|11 years ago|reply
[+] [-] happywolf|11 years ago|reply
An account gets a lot of money from different funding sources (credit cards, ACH, etc.), the velocity is high, and most of the sources didn't have prior transaction records with this said account. To the RM team, they cannot tell if this is a legitimate transfer, or a massive transfer of booty by hackers.
Nevermind how famous this startup maybe, if your credit card were stolen, and PayPal shows you an HN article "well, I thought you wanted to donate to this startup X", how impress would you be? On top of that, the chance of CC customers with hefty chargeback is something that no sane business entity can take lightly.
PayPal may suck, but I don't see how a company with similar scale and footprint will do better. Doing differently very likely will mean losing so much money that it has to go out of business, or, have to partner with some foreign company that sells products of questionable quality.
[+] [-] skizm|11 years ago|reply
[+] [-] timeuser|11 years ago|reply
https://developer.paypal.com/docs/classic/lifecycle/crowdfun...
[+] [-] m3rc|11 years ago|reply
[+] [-] HNaTTY|11 years ago|reply
[+] [-] rockdoe|11 years ago|reply
Also, I don't see how they qualify for PayPal donation status as a nonprofit, so the outcome of this was predictable by day 1 and entirely their fault.
[+] [-] tinkerrr|11 years ago|reply
[+] [-] couchand|11 years ago|reply
[+] [-] smackfu|11 years ago|reply
[+] [-] ossreality|11 years ago|reply
[deleted]
[+] [-] ilamont|11 years ago|reply
Bitcoin has its own issues -- see "Bitcoin crowdfunding sites find funding difficult" (http://www.coindesk.com/bitcoin-crowdfunding-sites-find-fund...).
Even if the legal/security issues are worked out, it will take a lot of convincing to get mainstream users/potential crowdfunding donors on board. People don't trust what they don't understand, and the fact that the value of BTC is so unstable is a giant red flag. Would Joe Shmoe plunk down fiat for X $BTC, with the knowledge that the exchange may fail or the value of his investment may plunge the next day?
[+] [-] DennisP|11 years ago|reply
[+] [-] al2o3cr|11 years ago|reply
Yeah, because having exactly zero recourse when the crowdfunded thing turns out to be a scam is totally what people are looking for.
Paypal is can be quite a pain in the ass with fraud prevention etc, but pretending that switching to a system with NO dispute resolution is better is ridiculous.
[+] [-] giancarlostoro|11 years ago|reply
[+] [-] smackfu|11 years ago|reply
[+] [-] dangrossman|11 years ago|reply
[+] [-] paulschreiber|11 years ago|reply
[+] [-] tzar|11 years ago|reply
[+] [-] st22|11 years ago|reply
[+] [-] adzicg|11 years ago|reply
If you're looking for something similar to the payment integration, Stripe is pretty similar in terms of development effort and can even run a form on your (static) web site. You still have to do a bit of processing on your end, but we're talking about a few hours of work tops.
We ran a subscription business for a few months without a real backend or a database (validating that there is a demand) using stripe and JotForm. Jotform is a very simple forms builder and server online that can handle a trivial product selection, collect custom information, execute a payment workflow and send the customer and you an e-mail at the end, optionally showing the customer a confirmation page. Yes, all this is doable by a good programmer in a day or two, but it costs next to nothing on JotForm and allowed us to play with the process until we got it right. Their site can run paypal and stripe (and a few other things) so in case paypal blocks you it's easy to switch to a different provider without customers noticing anything.
Stripe doesn't offer seller or buyer protection - which is another benefit of PayPal. I don't know anyone else who does that.
[+] [-] conradk|11 years ago|reply
Otherwise, their is Braintree, Stripe, and more similar services.
EDIT: Seems like Braintree is owned by Paypal. So not really an alternative.
[+] [-] unknown|11 years ago|reply
[deleted]
[+] [-] joeblau|11 years ago|reply
[+] [-] RamDave|11 years ago|reply
[+] [-] spacefight|11 years ago|reply