When PayPal And Crowdfunding Don’t Mix

For the last decade or so, PayPal has drawn the ire of Internet commentators and people who try to do business on the Internet. The claims go from freezing the accounts of non-profits for months, earning interest all the while, ineffectual support, and generally behaving exactly like a bank but without all those nifty consumer protection laws on the books in every sane country. Then the founder of PayPal turned into Tony Stark and everything was cool again.

This doesn’t mean PayPal isn’t up to its old tricks, though. [Gareth Hayes], the guy behind the HackRF Blue, recently had a run-in with PayPal. The PayPal account associated with the HackRF Blue Indiegogo project was frozen shortly after the campaign ended. To unfreeze his account, [Gareth] was required to submit a few forms of identification and proof of residence. He could submit this via fax (‽) or through an ‘upload’ button in the PayPal resolution center that didn’t exist.

[Gareth] is not one to mess around, and it was only after several emails, ending with him demanding PayPal release the funds with interest and a few hours of consulting at $300/hr that the funds were released. When somebody is keeping $40,000 from you, it’s a good idea to play hardball. However, [Gareth]’s PayPal account was still frozen for the better part of three weeks. For a crowdfunding campaign, that’s three weeks that suppliers can’t be paid, components can’t be bought, and assembly can’t happen. For any campaign, PayPal is a liability.

This, unfortunately, isn’t anything new. Google News is littered with stories of PayPal withholding funds from crowdfunding campaigns. The message is clear: get your passport, driver’s license, utility bills, dog license, and fourth grade report card uploaded to PayPal somehow before the campaign ends.

Yesterday, [Gareth] received word that his account had been unfrozen, but not before he threatened the nuclear option and started letskillpaypal.com. A worthy cause if we’ve ever seen one.

58 thoughts on “When PayPal And Crowdfunding Don’t Mix

  1. I’ll use a credit card through PayPal, but only because it’s the only way to pay on some sites.
    I will never have a PayPal account, because they act capriciously and are unregulated.
    Good on Gareth for fighting them.

    1. Yep, but sometimes those card payments could fail.

      We had about 10% (that we know of) of card payments fail though Paypal. When you ring their customer support, they will not give you details why the transactions were declined as that would be revealing private customer information (sort of fair, but not helpful). They would then up sell the next package subscription which did not suffer from this… but it did… eventually they ‘unofficially’ told us that it could be because if a credit card is used a lot without a paypal account being created it could fail, as they should have an account if they are using the gateway so much!. humm. Needless to say when those 10% of customers called us to say paypal we had alternative payment mechanism that accepted the card payment.

      We now offer an alternative for card payments online so customers have a choice.. it is 60/40 ish with 40% being Paypal.

      So far in 2.5 years of trading we have yet to experience any fraud (thankfully)

      Bad Paypal.

    2. Interestingly enough, I just tried to close my paypal account, but paypal wont let me. They say I have pending transactions and am not allowed to close my account, even though I havent had a paypal transaction in weeks AND all transactions are posted as complete, not pending. WOW this is ridiculous

      1. I have the same issue, but I’m trying to update my card with a replacement. I was notified by my CC company that there were suspicious transactions (correct) so they cancelled my old card and issued a new one.

        I have been able to easily update my card everywhere, except paypal. I now have two cards listed, the old one which can’t be erased due to a “pending transaction” (which has been pending for 3 months now). Good luck getting the transaction through on the cancelled card.

        I would never trust paypal as a payment receiver, and I would never link them with my bank account. There are too many sites which only accept paypal, otherwise I would cancel the account.

        When my wife was organizing a conference, she needed a way to accept payment. She found Stripe which was very easy to setup, cost less than paypal and works really well. Anyone looking to accept payments I would steer them in that direction. You do need an SSL certificate for your site, but you don’t need to be PCI compliant (or better said, the only thing you need to be PCI compliant is a certificate; the CC data is never on your server you just get a token back from the Strip API)

  2. Seems that the site can’t handle the traffic… Unfortunately!

    As a seller I would never recommend using PayPal. I once had a similar issue with them when a friend offered me to supply Asus EEE PC’s. This went well for a couple of days. This product was very popular and it didn’t take PayPal very long too find my transactions, that were all traceable through eBay sales, suspicious and they froze my account. My luck was that this friend understood my problem very well and continued to ship the PC’s to my seller. Only after 180 days my account was frozen I was able to pay him. Of course, no apologies whatsoever from PayPal. They make honest sellers look like thieves.

    Since then I have had better luck with using moneybookers (now Skrill)

  3. Paypal should be the symbol of eveything that is evil and wrong on the business side of the intarwebs. I’d never trust it for any use for my companies, but I did use it for private transactions years ago. That stopped when Paypal decided to be an evil jerk and block any and all transactions to wiki-leaks. The remainder of my account I donated to wikipedia and then I closed the bloody account.
    Even the thought of Paypal produces a bad taste in my mouth. the Taste of corrupt evil renegade bankers.

  4. I started using PayPal in 2000 and have never had a single problem with them.

    I probably receive money 10 times per year and pay people 20-30 times per year.

    So that’s in the neighborhood of 500 trouble-free transactions.

    1. You are lucky. I’ve never had a problem either. Nevertheless I know from having supported PayPal as my customer in the past that they would do anything to avoid being regulated like a bank.

      Think of it this way. They perform the actions of a US bank: they have accounts, they can issue credit cards, they can seize accounts. However if PayPal went under, all account holders would simply lose the assets in their accounts because PayPal is not FDIC insured.

      PayPal used to move parts of their business from eBay and back to avoid various liabilities.

    2. I’ve had problems with them suddenly deciding a subscription was fraudulent after three years and over $10000 of successful monthly transactions. Or refusing to allow me to accept money, and refusing to tell me or the customer why other than “our fraud controls – which can’t be overridden – blocked the transaction”

    3. I also buy lots using paypal (maybe a few hundred items in the last few years), and I have sold maybe 10 things in the last 10 years.

      My results have been mostly positive, however I have lost around $100 with paypal and their “buyer protection” not working at all (international orders can take around 60 days to arrive here, which is standard. After 45 days if you don’t open a case the protection is cancelled). Now I open a case on the 44th day, much to the ire of the sellers.

      I have also had them take money from my account by changing my default method from credit card to bank account. If you look at it, technically i authorized it because I clicked the buy button, but I would have never, ever done that. After that, the account got unlinked.

  5. Am I one of the very few who hasn’t had a problem with PayPal so far? Been with them for the better part of 3 years. MY account is registered so deep that one step higher and it would be a business class account. PayPal fixed a problem with a bad eBay seller that couldn’t be fixed through eBay.

    Yeah, I have no issue with PayPal.

    Yet…

    1. I’ve never had a single problem with Paypal either, and I’ve used the service regularly for several years. By regularly, I probably send/receive 600-700 payments each year for personal use or for my business. I’m either really lucky, or others here are very unlucky.

      Unless something bad actually happens to me, paypal has absolutely earned my trust and I will continue to use it. Sorry to hear about the misfortunes of others.

  6. Digital currency will wipe PayPal, along with it’s money grubbing ways, from existence. It’s just a matter of everybody catching onto there being something far better.

  7. I gave paypal the boot years ago after they froze my account on a $300 sale. I told them I’d delete my account if they didn’t immediately unfreeze the money and they still refused; I guess thinking I wasn’t serious. I cancelled the transaction(something they didn’t see coming) and then did exactly as I said I would. The buyer and I then worked out the arrangements outside of ebay/paypal and she got her stuff and I got my money and paypal never got another dollar from me. $300 wasn’t a huge amount of money but I would have done the same over a $1 transaction.

  8. Your not forced to use PayPal. Its not a bank (ie doesn’t lend account holders money for interest), has its own set of rules that it only kind of follows like most businesses. I fail to see this as anything other then a typical business doing what ever it can to keep your money. Walmart returns, only on a Walmart gift card that also charges you for NOT using it. So you vilify them and they deserve it but whats worse is YOU USED THEM, they got money from you in one way or the other. That’s a bit like complaining about the “payday loan” outfit that charges you 2000%+ interest (not an exaggeration) and then complaining that they cost too much.

    A fool and his money are soon parted, caveat emptor, don’t count your chickens before they hatch, etc. In this case don’t count your money before you have withdrawn it from PayPal successfully.

    For centuries this BS has been going on. If you are wise you use such services “responsibly”. You do your due diligence and verify your services etc as best you can. If a 2 second Google search reveals how bad PayPal and crowd funding sites don’t play well together, then why did you use them in the first place. Did you hope that it wouldn’t happen to you or were you too enamored with getting that $50,000 to make a widget that you didn’t think as a business venture that perhaps having a single point of failure wouldn’t cost you or your potential backers?

    All said and done, its a sad tale, one that needs to be told so that others might learn however the best thing you can do is simply NOT use any PayPal backed services.

    1. They may not loan the money, but you can bet your ass they are collecting tons of interest by holding millions of customers dollars in their accounts while you try to get your funds freed up again.

    2. Umm no Walmart will refund your money in whatever way you paid. Sometimes they will issue gift cards on returns that seem kind of shady that way the money will at least stay in the company. (I worked in a Walmart for about 8 years over half of that time was spent doing returns). If you payed with a credit card, you get your refund on the card. if you paid in cash you get cash. If you paid with a gift card, you get a gift card. And if you do not have a receipt for the merchandise you very well may get a gift card. Furthermore Walmart gift card DO NOT charge you for NOT using them. They may have done that 15 years ago but there was never any expiration or fees on Walmart gift cards during the time I was there. http://help.walmart.com/app/answers/detail/a_id/57 for their policies on gift cards. http://help.walmart.com/app/answers/detail/a_id/100/related/1 will also show you that even without a reciept Walmart will offer cash refunds up to $25. I know it is popular to hate successful businesses, but for every outspoken individual who had a bad experience, there are 100,000 who have no problems. Now I do not mean to say that Walmart is not guilty of some bad things. But if you want to use them as an example of how villainous large companies can be, make sure you use real examples!

      But I absolutely agree that if you are planning to use a service to process a sizable sum of money, one should do enough research to be confidant in their choice of service. And there are plenty of services to choose from.

  9. All the apparent convenience provided by “that company” at the beginning of your or your business’ relationship with them (when money is flowing in to your account) evaporates real fast once you want the money to start flowing back out (to you).
    I was a moderator at a discussion forum that was almost ruined by “them” since it was funded entirely by donations and the Admin had set up the simple and convenient paypal button to make donating easier for anyone wishing to do so.
    Funny how it was only after the donation account had accrued a fair amount of money that BackStab (a more accurate name for “them” IMO) decided to freeze it because “they” didn’t like the subject matter under discussion, period. There was no issue with the Admin having to prove his identity, it was a simple matter of arbitrarily screwing us over. And it happened after the donations had been collected and transferred on a monthly basis without incident for several months, but nothing about the site had changed in that time.
    The site was based in the U.S. and entirely legal. Nothing whatsoever was being sold on it (discussions only), it didn’t involve anything concerning “exothermic chemistry,” black OR white hat hacking (or files to download), any discussions of hard drugs, or any porn. All things considered it was a relatively boring discussion forum, but I suspect the threads about cannabis and psilocybian fungi were what made the BackStab staff clutch their pearls and freeze the account, or perhaps it was the sense that they could get away with it somehow. But we raised HELL until they gave up (“completed our investigation” was their BS spin on it) and released the funds… 8 months after freezing them, with no interest added.

    So be careful if you ever host or facilitate discussions advocating or discussing strategies for politically-controversial subjects (e.g. advocating decriminalization or legalization of medicinal and/or recreational cannabis or anything similar). In the U.S. we might all technically enjoy the free speech protections of the First Amendment, but that only protects us against government censorship.
    As soon as what you say or write passes through a private entity (i.e. someone else’s forum, a blog, most news sites, your ISP, Facebook, photo sharing sites, Facebook, Pinterest, Facebook, etc..), or as soon as funding for your forum is processed through a privately-held escrew (err, I mean “escrow”) company (i.e. BackStab) then those protections do not apply.
    This is a disturbing trend that if left unchecked will result in all public discourse taking place within privately-held space. The First Amendment only applies to the Commons and government sanction of speech but when private spaces like Facebook become the de facto Commons (if they haven’t already) then we’ll still have our freedom of speech on paper but all our discussions will take place in the digital equivalent of a shopping mall. Try getting on your soapbox and advocating an unpopular or anti-consumerism position inside a conventional brick-and-mortar Mall and see what happens (prepare to be tossed out and perma-banned!). Then imagine all relevant discussions of politics or social policy, etc. being confined to the Online version of the same thing.

    Ebay sellers who only accept BackStab are taking quite a risk and really ought to consider alternative means of accepting payment lest they log in one morning and see their business stopped dead in its tracks because some faceless twit at what is essentially an unaccountable-to-anyone pseudo-bank decided they didn’t like something about it. Or maybe they froze your account by mistake, which happened to a friend of mine with an Ebay store. They’re quick to freeze an account but infuriatingly slow to thaw it back out (as they collect interest on your money) which almost put her out of business, too. Her savings kept her from losing her house, so this can get very serious and ruin someone’s life real quick.
    It seems to me (from reading many similar stories around the web) that this problem is rampant and has resulted in so much lost income for legitimate businesses (and continues to do so) that BackStab’s victims… uh, I mean “marks” (or as BackStab calls them, “customers”) probably already qualify for Class-Action status in a lawsuit.
    [/end rant]
    Apologies for the length of this; having your money stolen, only some of it returned, and the thief getting away with it tends to inspire verbose rants (as anyone doing business with “them” will eventually discover).

  10. In some countries you can send money without fees:
    http://www.insulators.info/general/paypal.htm

    Paypal might be nice for customers, but for vendors they have virtually no customer support.
    And they managed to have European lawas passed that forbids vendors to charge extra fees to their customers.
    So my customers that pay by bank transfer end up paying Paypal fees aswell due to higher product costs.
    Another silly thing is you can only withdraw to bank accounts in countries your account is registered in and if you move to another country you have to create a new account.
    With classic banks in the EU you can just move to another country and keep the bank account.

    1. With classic banks in the EU you can just move to another country and keep the bank account.

      I am afraid that is not true. The IBAN scheme is a tree-like structure with a country code in front and ranges of numbers assigned to particular banks.

      What has changed over the last few years is that money transfer faster and cheaper thanks to SEPA.

      In Poland we’ve got the Express ELIXIR service which provides instantaneous money transfers between Polish banks. I suppose there are similar services in other EU countries as well. Before it was conceived there were a few companies which had their accounts in different banks and because intra-bank transfers has been instantaneous (at least since banks has provided transaction websites for customers) they accepted payments in one bank on their account and transferred money to the recipients account in a different bank from their account there. Quit complicated but worked well enough to make money transfers the most common form of payments in Polish Internet shops instead of credit cards or PayPal.

      The older ELIXIR service is quite fast too, recipients get their money the next working day.

  11. Oh please. Selective reporting at its best again. A few people have problems with PayPal so naturally ALL of PayPal is bad and it should be discouraged. What about the millions of people who use PayPal to send and receive payments every day without problems?

    Have you experienced the agony of trying to set up a “proper” online credit card payment system such as WorldPay + Streamline + RBS, compared with the simplicity of using PayPal? In addition, customers recognize PayPal and are familiar with it – who’s going to use some other payment service they’ve never heard of before.

    As for anyone who keeps money actually IN their PayPal account well, I’m afraid that’s just not good practice. Get it out to your REAL bank account as soon as possible so you know where it is. I’m happier knowing that money is in my RBS account , despite the bunch of jerks they are, than in PayPal.

        1. Yeah, I was going to say, speaking of content being “selective”, it seems Lindsay is touting paypal as the _only_ non-complicated solution.

          And all “selective reporting” aside, Paypal is guilty of illegal action, they do get a pat on the back for acting in accordance with the law most of the time, and it’s not an imbalance to point out when they break the law just because “Most people don’t have a problem with them most days”.

        2. As stated above..this! My wife setup stripe with her wordpress site … everything was easy and so far no issues (though we have only processed a small number of transactions to date, we are more than 100% satisfied with stripe!)

    1. Well, all reporting is “selective,” just like the single anecdote you selected for your counter-argument. And sure, the service works great right up until it doesn’t and you can’t get your money out of your frozen account for whatever reason. And the people complaining (of which there are far more than “a few”) are often complaining about that very problem. Knowing that millions of transactions take place every day without any issues arising is no consolation when it’s your money being held hostage for no justifiable reason, possibly putting your livelihood at risk in the process.

  12. I never had serious trouble with paypal either (as other emntioned) but still, I feel a bit slutty using it. For me it is the only way to get all those chinese good I frequently order, but still.. I feel like a dirty whore whenever I think about how much the fees are and how I’m under the thumb of paypal. Because I know: The day will come paypal will fuck with me… and it will not be gentle on that day from what I can read.

    I still dont get why the fees have to be that high. I think they can make them that high as they have virtually the market in their hand, but in the ends it is software and digital number transfer and still kickstarter campaigns that use AmazonPayments/Paypal/GoogleWallet etc. sometimes show in their piechart: “Money transaction fees: 10%”… Thats a lot of money for transfering a couple of digits to another account.

  13. Bitcoin, Bitcoin, Bitcoin.
    But let’s be pragmatic in reasoning. Few people buy stuff with BTC just because it’s a ridiculous hassle to get them. And the credit card / PayPal fees argument (Hey merchant! Accept BTC so you don’t have to pay CC fees) loses its sense when you consider how outrageous the markup is at BTC ATMs.
    I want Bitcoin to succeed not because I want to be rich (well, that wouldn’t hurt ;P), but for the possibilities it opens. We could finally easily support people who do awesome things and share them with us on the Internet. No ads and associated middlemen who take a cut.

    1. It’s ONLY hard to get them because nobody is fixing charge-back policies with CC&PayPal and exchanges rightfully don’t allow them. Also nobody wants to store bank-wire info on servers that keep getting hacked..

    2. Can I assume that the $200 I put in to Bitcoins today would be worth roughly $200 in (bread/milk/oil) next week? Or even tomorrow? No?

      Oh, it gets rid of CC fees….but replaces them with exchange fees. And extreme volatility that make the ruble look stable.

      And what middle men get removed? For me to send you money by check, credit card, whatever, I put money in to a system, they send you notice, you take money out. With Bitcoin, I put money into an exchange (with a fee attached), I transfer those to you (either direct or via a cloud wallet) and you . . . keep your money in that volatile system to avoid the transfer out? Just don’t be surprised if I ask you to honor the price in this week’s advertisements with the bitcoins I bought today for 20% less than the beginning of the week.

  14. There’s a limit of money they let you run through the account before they want you to verify who you say you are. Fair enough I say, it’s just fraud protection. Although 3 weeks is an absolute piss take for anyone, least of all a business in need of the funding.

  15. Let’s come up with a solution, why is there no bit-coin exchange that can be secure and charge a small transaction fee to pay for labor. Certainly there is a way to stick it to douchelon musk. He is an elitist prick, if you still think electric cars and space travel are being developed for the common man, you need a reality check. Electric cars suck and will continue to suck because of energy density there are better options I am working on. 500 dollar a pound space travel will still cost 200,000 dollars for a man and life support just to get to space. Hemp based super-capacitors are one such idea but will still suck because motors with copper winding’s are incredibly heavy. I have a completely different solution I am almost done with.

    This is on topic as when I launch crowd funding for a technology that will threaten electric cars and I am pretty much forced to use paypal and I could almost certainly bet they will freeze my account. I guess I should use stripe.com?

    I have no clue how the stuff works just a pretended rudimentary understanding. Can not someone make a darkcoin exchange that is simple as paypal to use, and can be implemented into crowd funding? What are the limitations?

    Please somebody knowledgeable on the subject respond.

    1. Incredibly heavy? You can lift a car-worthy electric motor with your bare hands, try doing that with a 4-stroke that is capable of at least 50kW peak AND meets new emission regulations…It’s not the copper that’s heavy, the steel components make most of the weight…
      Electric cars will fail with the current model of car ownership (because of very high initial price despite significantly lower operating costs) , however the alternative ones (something like rental) have a very decent chance of succeeding…

      1. Lol, I said nothing about petrol power which is equally as weight inefficient. I could lift a vw engine with my bare hands that’s a pretty light dead lift at 220lbs at 8 lbs per gallon I could lift some fuel too. That being said you will not be able to dead lift that electric motor and a quarter weight of the battery pack. The Model S battery will be about 535-556 kg.

        So try not to be a dumb-ass for a minute and think about the actual problem here which is crowd funding with a reliable monetary scheme.

  16. Be careful using PayPal. They boast and promise a lot, profiling themselves as a wannabe banking operator, but they refuse to comply with the legal requirements of real banks.

    Paypal despicable policy of freezing user accounts for months would be considred a blatant violation of laws regarding customers protection in most countries.

    I wont even start talking here about their totally incomptent and uncollaborative user customer support.

  17. I eventually couldn’t use my current paypal account with Citibank Virtual Card numbers ( one-use number for each transaction)!

    They also screwed me over years ago traveling… when a friend’s mother sent me money to give to her son who had his wallet stolen.. they confirmed the transaction as complete then they reversed the transaction 3 days later and demanded I pay the $10 difference the exchange rate fluctuated. Worse yet.. they made it seem like his mother had challenged the transaction which started a fight in his family.

  18. I had two accounts with paypal. Both were hacked. Both times there was the same fraud. Both times Paypal said I won’t pay , since they see the IP was a korean one, and I live in Germany. After a month, I received a letter from a lawyer because they wanted the money back. Of course they didn’t disabled – with some excuse – the compromised accounts, because they are completely unaware of security practices. So i had to close all the credit card I registered and ask for new ones.

    This company is 100% bullshit, both on the point of view os security, and the support. Plus, your account get often “hacked” just after you ask to close it, as it happens to my wife.

    I am surprised they are still on the market, being honest.

  19. Ok. The paypal:
    1) shows up front the amount you will pay (no guessing the exchange rates from bank, etc).
    2) adds authorization to every transaction and not like CVV + card number.

    In my book (as a buyer) that is a killer feature. And no, I am not going to give credit/debit card number to any weird site. Had more than enough of bad stories when using bank cards directly. Was more or less lucky with paypal (no problems, but the amount of money sent was low).

  20. As a buyer you are right,
    but if you having big Crowdfundings, you better use direct bank account rather than paypal.
    having physical access to the bank (in case of account freezing, ect..) is way better and faster solution
    than a remote company that require much more time and effort to take action.

  21. Couldn’t agree more. PayPal is evil. They really don’t care about their users at all. (Well I’m butter because they ripped my off for $30 last month.) Anyway there UX is just terrible.

  22. Couldn’t agree more, I think Paypal is evil. They don’t seem to care about their users at all. (I’m bitter because they ripped me off for $30 last month.) Anyway, their UX for paying is just terrible.

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