Paypal and Crowdfunding: don’t do it

http://garethhayes.net/paypal-warning/

by paramk • 11 years ago

97 48 11 years ago

garethhayes.net

lexx• 11 years ago

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

Mithaldu• 11 years ago

"many"? How many in absolute terms? How many in relative terms compared to the entire active userbase of paypal?

paramk• 11 years ago

These stories depends on whether you are using PayPal as seller or buyer. Usually buyers don't run into these kind of trouble. Also there is dedicated website to share PayPal horror stories. http://letskillpaypal.com/?page_id=40

Karunamon• 11 years ago

Insufficient data for a meaningful answer.

However, given the preponderance of stories surrounding PayPal's abysmal customer service, I'd be inclined to avoid them just because it seems like you can be SOL really easy and the guy on the other side of the phone can't/won't do anything to help you.

hello_there• 11 years ago

"it won't happen to me"

coldtea• 11 years ago

Because it works for most people, most people don't use it for "crowd-funding", and it's way better than any alternative (begining with existing in the first place: alternatives to easily handle worldwide payments and work across most of the world don't exist).

yc10102• 11 years ago

The thing about paypal is that when it works its fairly nice service, and people do not understand (or read terms) that it is not THEIR money displayed by digits on screen, but money held by a private company who does everything to not be regulated like a bank would.

So average people then demand merchants accept Paypal and throw a hissy fit when the merchant balks rightly pointing that beside the fees there is a very real risk that merchant would be screwed. And of course really good/big merchants (Amazon etc) have already great deals with banks/credit card networks directly and fraud detection systems in place.

So you endup in a situation where Paypal basically screws small merchants every single time. I had an account frozen before with business nearly going out of business thanks to Paypal, it is unnerving trying to get in contact with support technicians who speak English and are not robots reading from a sheet and having to PROVE THAT YOU ARE NOT GUILTY of whatever paypal thing you are guilty of, and of course they rarely tell you why money is being held ransom.

There are alternatives, here in Europe SEPA (and various either bank transfer methods such as Ideal) which makes Paypal redundant. Prepaid solutions such as paysafecard are good too (but high fees of circa 10%). And of course there is Bitcoin buy I better not talk about that on HN out of fear of being instantly down-voted by people who do not realize that outside the US there are very little payment options online or who do not understand bitcoin (which is strange for a nerd site) as can be seen from various past threads regurgitating same cons (its almost as if there is a coordinated effort one would think...).

dangrossman2• 11 years ago

who does everything to not be regulated like a bank would

People say things like this all the time and I don't understand the basis for the claim.

What does PayPal do to not be regulated like a bank? They're perhaps the single most heavily regulated financial company in existence. They operate in more countries [1] than almost any other, and each of those countries regulates them in some way. In some of those countries they are a licensed and regulated bank (including the European Union [2]). In the US, they are overseen by 54 separate governments, including every state and territory, all of which license and regulate money transmitters [3]. They wanted to be a bank in the US to get the FDIC insurance on deposits (they originally believed themselves to be eligible and advertised it as a feature), but a federal agency 13 years ago decided they don't qualify as one.

On the flip side of the same coin, why do you think being regulated like a bank would change how any of these situations play out? Most banks offer merchant account services for accepting credit cards online. Every merchant account agreement I've read has allowed for termination without cause, freezing of funds for up to 180 days without recourse, and establishment of reserve accounts or holds at the bank's whim. These real banks won't hesitate to terminate your account and hold your funds if you try to use them as an unsecured loan against future promises you've made to thousands of people, either -- if you're up-front about the fact that you're taking credit cards for crowdfunding you'd not make it past underwriting and get an account in the first place. No regulator steps in and stops banks when they hold a merchant's funds. PayPal operates no differently because it is, at its heart, a tech stack on top of those very same merchant accounts from actual banks with the same policies and same tolerance for risk.

1: https://www.paypal.com/webapps/mpp/country-worldwide

2: http://tamebay.com/2007/05/paypal-becomes-a-bank-no-longer-u...

3: https://www.paypal.com/webapps/mpp/licenses

analog312• 11 years ago

I use a PayPal merchant account for my very small side-business, selling a specialized gadget that's not very expensive. Over the past 7 years, PayPal has been utterly flawless. I have had zero issues. I monitor web forum chat, and enough people have commented about my product that I would know it if someone had a bad experience, or was reluctant to buy from me, due to PayPal.

This is without discounting any of the horror stories that I've read. In my little niche market, those stories tend to involve the eBay side of PayPal.

Once in a while I research alternatives to PP, and have really not found one that caters to the super-small business.

djim• 11 years ago

Stripe, Amazon Payments, WePay, & Square come to mind. Paypal is great, until it isn't.

dangrossman2• 11 years ago

Because their USP hasn't changed in 17 years: PayPal is easy, trusted by buyers, cheap, and will plug in to just about any selling system in the world with minimal effort. You can sign up immediately, and withdraw money you receive immediately. For a couple hundred million people a year, it does the job as good or better than the alternatives. In a lot of countries, there are no comparable alternatives.

Shivetya• 11 years ago

touch points.

the less people with my CC info the better and so many vendors accept pay pal it becomes a no brainer. for many sites I only need to enter my paypal information and not even register which in itself is usually obnoxious

makeitsuckless• 11 years ago

Because they are unable or can't be bothered to setup receiving payments in a legitimate fashion. This is one good example.

Yes, doing it properly, with sufficient guarantees for all parties involved, is hard, probably way harder than it should be, but there are good reasons why payments are governed by all kinds of rules and regulations.

Paypal is a shady business that allows other shady businesses to cut corners at a high risk. People take that risk because they are either lazy or have no other options, and this is an example of the former.

Especially since it concerns crowdfunding, and not a straightforward transaction of goods for currency, I find it hard to have any sympathy for the "victim". Being a small business or non-profit org is no excuse for playing fast and loose with other peoples money.

wolfgke2• 11 years ago

Because most other payment providers (say Stripe) require a credit card, which is, at least in Germany, a not very popular payment option (the prefered payment option there is SEPA direct debit).

I often have the impression that lots of vendors forget that in other countries (say, Germany) not everbody has and is willing to get a credit card and other payment options are prefered. Paypal provides them (in this case SEPA direct debit), while e.g. Stripe does not. So I use Paypal, though I don't like it.

jotm2• 11 years ago

Can you tell me if SEPA provide some kind of buyer protection? I bought a few parts on eBay and paid with SEPA, but there's no mention of any protection in case the seller is fraudulent, felt a bit uneasy unlike when paying with Paypal :-). Do you just call the bank and tell them to reverse the transaction? Thanks!

MrBuddyCasino2• 11 years ago

Exactly. If Stripe managed to offer SEPA transfers, or integrate with giropay.de or whatever, I would be happy to use that instead. Credit cards are an inferior technology compared to the electronic bank transfers that are common in Europe since the early 80s.

joepie91_4• 11 years ago

This, also in the Netherlands. iDeal is the common option here, but usually only offered by Dutch shops. The only other options are PayPal and Bitcoin, so...

Most vendors I talk to aren't even aware that there exist countries where creditcards aren't commonplace.

aplummer• 11 years ago

Good point to not waste time after your complaint is not handled as you'd like to contact the ombudsman, in Australia they are really aggressive.

I've seen 8k phone bills wiped (carrier not noticing the unusual overseas data usage and letting them know), laptops replaced years out of warranty (merchantable quality). Usually just mentioning you are going to escalate it to the ombudsman is enough, they get fined just for the complaint being filed.

droopyEyelids3• 11 years ago

It's not hard to understand.

Payment companies aren't going to give you other people's money as a free loan for selling future goods or services. From ticket sales of your first big event to crowd funding.

It violates every company's risk model. They have to hand you a huge chunk of money, allow you to cash out, and then wait for the chargebacks to come in months later. This kind of problem is spelled out in the tos.

What is the solution? Work with a company that will actually look into your financials and underwrite you. Braintree will do this. Your bank will do this. Authorize or whatever ancient CC processor will. Well, either they'll do it or tell you to move on before you've started processing with them. I think Stripe might have the same sort of instant approval, delayed rejection problem possible as paypal does here.

Don't try and use PayPal to avoid the underwriting process or prepare to have your heart broken.

kijin• 11 years ago

The underwriting process is designed for stable businesses with a proven track record. It's not very suitable for today's crowdfunded projects, which is why those projects have to resort to PayPal. Just telling them to go through the good ol' underwriting process doesn't really help.

droopyEyelids3• 11 years ago

Doesn't help who? I say it does help them, because they need to understand no one is going to give them an unsecured loan, no matter what kind of business they're running. Thats the job of venture capital- not the job of your CC processor.

A crowd funding business especially needs to go through underwriting, which will involve proving they have the capital reserves or credit to handle problems that arise. Fostering the expectation that they should try to sneak a loan out of PayPal, or whatever payment company, is unhelpful.

Now, there is fault here in that PayPal's process isn't tight enough to catch them before they start processing. But you will find that fault to some degree with every modern payment provider.

rdlecler1• 11 years ago

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

jusben13692• 11 years ago

Weird he or she blames PayPal much more than Indiegogo. PayPal is the one who carries all the risk (if you aren't legit and people demand their money back after you fled) while IG watches this play out in their front yard over and over again and says nothing. And the reference to a rifle and other sections about physical violence being the only way PayPal will learn are disturbing.

jotm2• 11 years ago

Oh, but Paypal has been doing this to a whole lot of people for a very long time. There's plenty of horror stories of this kind.

In fact, he should've known that they are really, really biased against crowdfunding, pre-paying for events and processing lots of payments for non-physical goods.

The reasons technically make sense, but in reality, they should be able to do that without issues - it's not the early 00's, after all.

But it's like Paypal wants to be a "small payments" processor, instead of holding large amounts of money for other people. Maybe there are legal reasons for this...

jusben13692• 11 years ago

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

copsarebastards• 11 years ago

Paypal: don't do it

kentf• 11 years ago

Everyone on HN should be crowdfunding with www.tilt.com (YC 12). Use Reward Code: HN10 and get $10 towards any tilt and 0 credit card processing fees.

stonith• 11 years ago

The article was regarding an Australian, and Tilt is US only.

nhangen2• 11 years ago

Do you work for Tilt?

smeyer• 11 years ago

Either that or this is quite the coincidence: https://clarity.fm/kentf

wmt• 11 years ago

It fills me with confidence when even a company has obviously never read its TOS and it's riddled with hilarious glitches like this:

"Tilt is not liable or responsible for:

1. Any Campaign not attaining a goal amount, no matter the reason. 1. In the event the Campaign Tilts, any refunds, including without limitation, for Contributions or Perks. 1. Any errors or omissions in the Destination Account.

2. The failure of the Payment Processor or Campaign Admin to pay Contributions to the Beneficiary. 1. Checks that are incorrectly processed, lost, or stolen.

3. Your Member Content."

That's a lot if firsts!

mangeletti• 11 years ago

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

crsmithdev• 11 years ago

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

junto• 11 years ago

Much of these problems can be avoided when you treat PayPal as a conduit and not as a bank. It isn't a bank. Don't trust it to hold your money.

Treat it like a dodgey money exchanger on a back street in Lima and you are much less likely to get burned.

shalmanese• 11 years ago

Paypal is absolutely not freezing accounts to earn interest, that's absurd.

Paypal, and other money transmitters have a business model that earns them ~1% profit for a non-fraudulent transaction and -100% profit for a fraudulent transaction. That's just the nature of the game when you're in payments. That means paypal cares ~100x more about preventing fraud than keeping you happy.

joepie91_4• 11 years ago

Paypal is absolutely not freezing accounts to earn interest, that's absurd.

Then why else are they doing it, on cases where no investigation is pending (not for fraud or otherwise), and they have already decided to terminate your account?

kw71• 11 years ago

I wish I knew what documents PayPal demanded.

I wish I didn't have to enable JavaScript to see anything other than an empty white browser.

pvaldes• 11 years ago

Remember me this:

"Scottish Ruby Conference 2008-2011..."

http://conferencesburnedbypaypal.tumblr.com/

Paypal and Crowdfunding: don’t do it

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