Crowdfunding's Secret Enemy Is PayPal

This stuff should really be the responsibility of sites like Kickstarter or Indiegogo to sort out. If they're offering Paypal as an option that kind of implies that they've arranged something with them, which turns out not to be the case. And really, that means they're failing at pretty much the only thing they're supposed to do.

Seems like a good opportunity for a crowd-funding site with a guaranteed payment system to step in.

Another fantastic article, Patrick. I've had my own (much, much smaller) problems with Paypal over the years, and they're by far the worst company I've ever had to deal with in terms of customer service. Their disgusting fees only add to the misery. I avoid them whenever I can these days, although sadly that's just not possible with eBay.

As an individual (and as a studio head) who used PayPal, yeah. Fuck them.

It really sucks because when offering a product to customers, PayPal is a super attractive option. Who doesn't have a PayPal account? But yeah, they're absolutely horrific.

I bought a four-pack of Borderlands back in the day and had my three other friends chip in to my PayPal. I bought the game on Steam, but PayPal thought my purchase was fraudulent. They proceeded to take their money back from Valve, and thus Valve has no other option as per their policies than to close my account (and with that ~$2k in games).

So yeah, CRAAAAAZY

Great read, makes me happy that I've never used pay pal before.

It's almost like they are making interest on money they don't pay out to their users or something.

Actually selling stuff on e-bay has become horrible. Any issue just immediately turns into a dispute now rather than just talking to the customer to see if you can do anything about the issue first, and they freeze your funds until it's resolved, regardless who's at fault.
We've thought about not using e-bay or paypal any more. Time to jump ship to ubid?

Their service is convenient but their politics are very bad. I use PayPal for my company and out of no where they decided to permanently withhold 3,000 usd as collateral and put a standard hold of any incoming funds for 90 days leaving me missing the 3k and another 5k+ trapped contentiously for 90 days. Maybe we should all just go BitCoin :)

I really wish there was an alternative. It is a super nice service and easy to use on the internet but they have so many bad stories like this and others. I still never heard a resolution to the violin story.

Future kickstarter and indiegogo projects would be wise to hire an attorney to negotiate a legal agreement with Paypal concerning these issues before allowing paypal as a payment option for their project.

Also, get hype for Yatagarasu! That game looks awesome. I found out about it on SaltyBet, of all places. Some of the Yatagarasu beta characters are available for use in Mugen. Also... you should probably bet big on Yatagarasu characters when you're on SaltyBet. They're all really good.

Great read, Patrick. It's disappointing to hear that this is how Paypal operates for crowd-funded projects. They claim they have the best interests of the backers at heart, but why then do they immediately buckle without explanation as soon as a big enough developer makes noise publicly about the situation?

I think there could be a good set of articles and investigations about the entire topic of indie funding!

Sounds like someone needs to kickstart a competitor to Paypal...

Wow, I had no idea this kind of stuff was happening. For some reason, I never use PayPal. The situation has just never come up. It's always Amazon Payments for me.

Yeah, I think I'll stop using PayPal for my Steam purchases. Or altogether, actually. I've heard too many such stories.

This goes back for years upon years with Paypal. I still remember them locking down an account that was created for Hurricane Katrina Relief and refused to do anything about it. They ended up losing a ton of registered accounts at the time as a result and eventually got around to fixing it, but they are really a terrible company. Everytime I've had to deal with someone at Paypal it has been an exceedingly fruitless experience. I wish we had better alternatives. Whenever I see the option for Google Wallet or Amazon, anything NOT Paypal that's what I go to.

I guess they aren't the only ones. Here's the story of somebody who took them to court to get their funds back. http://www.independent.co.uk/money/spend-save/simon-read-is-paypal-right-to-freeze-customers-accounts-2360058.html

Great to see most of the issues of these studios are resolved. I've come to despise Paypal fairly quickly after its inception, and actively avoid items or services where its the mandatory payment option. Never had an issue with any other payment service yet ( though that may be because I regularly bathe in orphan tears for good luck ).

Another aspect folks are missing here is that in the USA any bank transaction involving over $10,000 must be reported to the government, so they'll be able to monitor the movements of that cash to try and find patterns related to funding crime (importing drugs, sex trafficking etc.). I'm not sure if PayPal is forced to do the same reporting, but even if they're not, the government itself could hold them responsible for aiding in funding major crimes.

Again, that limit is $10,000. When an account is opened and $828,768 goes in, and then $700,000 goes right out again, PayPal is probably thinking, "Fuck, who's laundering money now? Are we screwed this time?" Not to mention the very real chargeback concerns others have mentioned. Just because there have been crowdfunding successes, doesn't mean that one of those won't be scam. And if you were at risk for having to refund tens of thousands of dollars from an exchange, and the item people were paying for didn't even fucking exist yet, you'd probably want to make sure those people got what they paid for too.

And sure, they should develop standard policies so they can clearly outline a procedure for these huge transactions, but just saying, "They should know better, fuck them." is blatantly only telling half the story.

As an awesome artist and digital & virtual entrepreneur I'm thankful Paypal has provided an easy option for me to make a little cash on the side. Sadly the easy part is fading and its getting harder and harder each year though and I find myself having to call them several times per year AND HOLY CRAP IS IT FRUSTRATING. Their customer reps know absolutely nothing and e-mail correspondence never quotes or remembers your past conversations. You always start from square one with a new person, every single time.

Reading about how they're policing companies is not surprising at all. Paypal is monolithic, stupid and reckless. A wonderful combination for someone who's handling your money.

While I accept that the threat of chargebacks is legit, how is it the correct answer to threaten the SELLER to try and prevent them? How does the people receiving the money have control over preventing chargebacks?

And even if it was the seller's responsibility, how does PayPal attempting to forcibly insert themselves as a "bank lender" help the situation? Would this whole situation not be solved instead through simple TOS methods? I would think that someone attempting a chargeback because they disagree with the way something they decided to fund is progressing would actually be fraud on the consumer's side. Why is the CC companies or Paypal or even the receiver of the funds not making a bigger deal about that?

If a seller makes it clear that they're taking money to support an unfinished project and that there's no guarantee of completion, I don't see how anyone could have a leg to stand on to justify a chargeback if the project fails or doesn't turn out how the funder thought it would. Kickstarter and other similar services makes it clear that they're not preordering systems. These people got what they paid for regardless of the results, and if that turns out to be nothing then that's the risk they accepted when they chose to back the project.

I really hope Paypal get taken to the cleaners, they have been doing this to people for far too long, Amazon payments are not perfect but way less shady than Paypal.

Now THIS is real journalism. I'm not always a fan of how Patrick writes his articles (or the biased agendas within them), but IMO this is the finest thing he's ever written. Just a well-written, incredibly informative article that people truly should be reading... period. Bravo, Patrick.

Consider me yet another person who has encountered some issues (questionable fees that made zero sense in regards to their policies) with Paypal. However my story pales in comparison even to some other poor victims I know personally. It's now more apparent than ever that Paypal makes most of their money by misleading good people. Pretty sure that's illegal.

Fortunately, word is finally getting out about this crooked outfit across the board. I'm confident we're going to see some big changes and repercussions sooner than later in regards to these illegal acts commited by Paypal. Keep spreading the word, everybody.

I got my paypal account in the first place because my bank blocks transactions with GOG. I've since used it for Ebay and stuff, but at no point am I ever going to directly link it with my bank account or otherwise process a lot of money through it. Shady bastards.

Also, further to what I wrote above there, I do think it would be wise of Kickstarter and Indiegogo to take initiative on their own in negotiating better terms with Paypal in the interests of the projects they represent. Being hands off about the whole thing after the funding campaign is complete does not engender trust amongst current and future project groups who may be looking to their site as a means of funding. Kickstarter could do very well for themselves by negotiating clear terms with Paypal for all future funding projects, and provide a guarantee based on that agreement regarding the release of funds upon successful completion of the funding goal.

@mars: Because its typically convenient. When I need to send money to a friend I do it over Paypal. Also, I can use paypal to pay for things without my financial information being accessed by the purchaser or some other party.

Sort of true, but mostly false. It's hard to say whether they are "helping" the customer. You could see it that way since they want to hold on to money to make sure that there are no fraudulent people. But also they are just covering their ass in case something happens, so really who are they looking out for?

On top of that they are holding on to money that is needed if the project is actually going to go forward claiming that they want to see progress made before releasing money. That places them as a producer, which was not stipulated in any agreement between the payer and services such as IndieGoGo. I don't know what IGG's policies are but I would assume they have something in there saying you should be careful of what you back with money, the final product might not be what you were hoping. This happens with startups who get venture capital all the time. There are a lot of young entrepreneurs that secure VC and deliver a shit product and walk away with their "salary". The investors just have to mark as a loss.

Meanwhile PayPal still isn't thinking of the customer when they don't allow the developer to work freely and use the money in the way the best see fit. PayPal in this way is harming the customer by slowing the development process. Forced stops in development by services like PayPal make it difficult to deliver products within the timeline as well. Most of the time people wouldn't even know its PayPal and blame the developer.

Paypal is terrible. It wouldn't even let me support Skullgirls.

Just add this to the reasons I avoid using PayPal whenever I can. (I started actively trying to avoid them since the whole WikiLeaks thing.)

Thankfully most stores I've gone to have at least one option besides PayPal.

The money doesn't belong to PayPal, they have no legal right to hold it hostage. This is obvious because when companies go public about it PayPal immediately backs down and releases the funds. Someone should skip the "going public" and just go straight into lawsuit mode, maybe that would stop them from pulling this kind of caper in the future.

As for unsatisfied consumers asking for refunds when a project dies or doesn't turn out how they want PayPal just needs to tell them "No."

I always use the Amazon Payments option for Kickstarter. Hopefully it's more reliable for the developers to deal with. I have a Paypal account for some things, but I'm always wary of them based on stories and my own experiences with them not really seeming to give a shit about customers.

"Millions upon millions have been raised by game fans, and with FTL and Shadowrun Returns proving it can work"

Among millions and millions of failures and "Good Will" scams...

Is it just me, or is Paypal super unreliable? The tagline is pay with confidence, and its called freaking paypal, but its anything but. I've had friends sell stuff on ebay through paypal, they see the payment in their account, they send the goods, and then all the sudden paypal takes the money away and says don't send anything. And its too late! I'd stay far away from paypal, as much as possible, with payments big and small.

Insightful article Patrick, well done again sir

I've had this exact same problem with PayPal all the way back since 2005 or so. After a similar event in 2006 I finally decided that I'd had enough and stopped using PayPal for anything other than purchasing small items. PayPal is one of the worst companies to use for businesses and sellers. I don't even need to mention their gross transaction fees. If you get a call from PayPal these days you have kowtow and treat them like the police. Anything other than a "Yes, sir.," "No, ma'am" and giving the exact information you're asked for when you're asked for it will immediately hinder your chances to get the result you desire.

Since when was this a secret? They can be an enemy to anyone who uses them. PayPal has always looked for any excuse to hold your money, even for personal accounts. No surprise they'd try something when tens of thousands of dollars are right in front of them.

Paypal, continuing their fine trend of being run by absolute shitheels.

Paypal's outlook is that every single one of their customers is a liar, a cheat, and a thief.

Sadly this isn't really a new issue. Back at the time of Hurricane Katrina, Something Awful ran a fundraising campaign to send relief aid to smaller charities in Louisiana. Paypal stopped them dead in their tracks and gave them two options: refund all donations..or give it to the Red Cross. No option to let the smaller charities get money. SA has not had Paypal support since then for either their account system or merch.

So, legitimate question to @patrickklepek. Did you reach out to Paypal for an all-encompassing take of the story?

I get the feeling that whenever this happens, games journos reach out to PayPal, whoever there is in charge of this not happening makes a call, that particular issue is resolved. But clearly the policies causing this are responsible and the company as a whole remains oblivious to the issue.

So is anybody following up after each incident just to see if they are making any structural changes? I'd like to know which policy is at play, who decided it should exist and why it has this outcome.

I'm also curious about the legal angle. This sounds really shifty to me. Surely PayPal has to operate as a bank, right? They do give credit and transact with real currency. Aren't there any provisions to prevent a company like this from muscling their way into controlling a company whenever they see fit?

Let's not forget how they blocked payment to Wikileaks too, though that probably had the US government involved.

Fuck Paypal. Ever since the somethingawful.com debacle I've stayed away from them.

Man, though reading about the frustrations with paypal - I've seen similar stories for the last few years across loads of mediums (comics, games, fundraising drives). I really think @patrickklepek hits the nail on the head by pointing out that there just seems to be no clear policies on how this is dealt with.

I know they've recently been putting out bewildering updates to the terms of service but they should surely get something written up in absolutely clear language and then follow that for everyone.

On the flipside though, they did get me a years subscription to a cyberlocker (think it was when Hotfile stopped allowing any downloads, christ, you go through so many I forget) re-payed so that was nice.

One question I'd like to see an answer to, can you get a refund for a crowd sourced campaign that doesn't produce the goods? Has anyone actually done this - if not then it seems like they are over-stepping their responsibility and taking a huge chunk of interest on the money in return. For example - Stephenson's CLANG just got put on the back-burner, could a backer realistically get their contribution refunded?

If there are real risks, interest is payed on the money held to the campaign and the policies are clean then, personally, I think that would go a long way to removing some of the stench of corruption around these policies.

And fuck, remember when ebay was just a nice place to buy foreign cigarettes and bootleg DVDs? Ah those were the days.

Kickstarter will cripple itself when all the games fail and people lose faith.

Amazing, had no idea such nonsense was happening at PayPal. Sounds to me like they're going way beyond cautious in these situations.

People need to stop using pay pal.

If a site ONLY takes paypal? Send their support an email saying that you wanted to buy/pay/donate but can't due to paypal only.

FORCE THEIR HAND

The stuff listed in this article wouldn't crack the top 100 of shitty stuff paypal has done.

I've never liked paypal, I suspect like any other "bank" they want to hold on to as much money as possible from people so that they can gamble with it themselves.

Maybe I should also add that I've used pay pal doing freelance comic work for years and have never had any problems. Probably because the transactions were around $100 at a time and not absurdly huge like these kickstarter things are. And to all the people saying "that's illegal!", well, no, it's probably not. I'm no expert at all, but neither are you. So maaaybe the gigantically successful international company knows a bit more about the law than angry-person-on-video-game-message-board.

And don't forget that "regulated" banks (as well as the government itself) can do the exact same thing about withholding money if they suspect that there's anything fishy with your account.

Yeah 3 stories about people not getting their free money for no work done? Fucking silly. How about the thousands upon thousands of people that fall victim to actual fraud? A non story, GJ...

Well at least Paypal is working to fix this problem because this is a very useful process of getting money for projects of small scale. I just started using Paypal for internet shopping so I can't say I have any negativity from them. However, when I heard when Minecraft donations were cut off due to Paypal thinking it was some scheme kinda ringed some bells. Hopeful, things can get worked out since this will be a big business for both sides.

@drakesfortune: I see your point, but it looks like PayPal would greatly benefit from defining SOME policy to handle this situation before it even happens. Instead, it sounds like they only liberate founds of people with enough leverage to stir the waters on twitter or other public media, which sounds closer to PR damage control than true anti-fraud policies.

umm some dude into fighting scene said the fighting games article was great so you're wrong.