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back to article Paypal not sure if its bargepole is long enough for crowdfunding

Paypal is considering its policy on crowdfund payments after freezing transactions on a number of mob-monetised projects. The online money-sending service has announced that is looking into how best to move forward with crowdfunding, after admitting that its "existing policies and processes aren’t working quite right for this …

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Why Pay Pal... ?

Never really seen the point of Pay Pal. It simply adds a level of complexity that is not needed. Make the payment directly via credit card and sorted. No need to make the payment through a third party : Visa > Pay Pal > Retailer when the model of Visa > Retailer does the job.

And, is Pay Pal regulated in the same way that credit cards are ? Where is the consumer security against fraud ? Probably non existent.

P.

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Re: Why Pay Pal... ?

Look at this from the point of the actual facilitating website, getting any payment processor to accept your business model when it is slightly out of the ordinary is very often impossible due to their unknown risk, so you have no way to accept card payments if third parties like paypal refuse to process the payments for you. It isn't as easy as just applying to a card processor and them immediately accepting to process cards that you take in the details of, they have to accept the risk and you have to spend serious cash on PPI compliance.

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Gav

Re: Why Pay Pal... ?

The point is that some small companies/websites do not accept payment in any other way. I'm not an online retailer, so I don't know what its advantages are to them. But I suspect that paypal, because it got into the online payment market early, perfected an easy way of handling secure payments before the credit card providers got their act together.

Done properly, I still find paypal convenient. More so than some credit cards and some of the nonsensical hoops they make you jump through.

As for criticism about them making money out of it; well duh. Name one financial organisation that doesn't.

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Re: Why Pay Pal... ?

For some things, PayPal is about the only affordable way to make these things possible. For example, a couple of the sites that I run rely upon donations from the users. On one, we have had an average of four donations per month over the last four years, increasing if we run things to encourage people to give - but even then, I don't think we've ever broken 30 payments per month.

At that level, it simply isn't economic to have a normal agreement with a credit card processor, and your own merchant account; yes, you can get a virtual terminal from Barclay, for example, for £10 per month, but there are merchant fees on top of that, and the need to be audited for PCI compliance, etc etc. So, for low volume things like that, a pretty hefty percentage of our monthly donations would actually end up being spent on banking and transaction fees - in a quiet might, it might well be as much as 50%.

PayPal is an incredibly annoying company to deal with; their inability to understand that not everything works the way it does in the US, and to suspend an account while they ask you to produce documentation that you neither need nor have, is frustrating, to put it mildly.

But for many smaller organisations who don't have the infrastructure or resources to go down the route of arranging a merchant account of their own, the percentage fees that PayPal charges are, while more than I'd like them to be, rather easier to bear.

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Re: Why Pay Pal... ?

OK, replying to my own post, and the comments above, which I've read and re-read.

It seems then that the point of PayPal is for the retailer and not the consumer. Nigel commented that the need for PCI compliance disappears. Ok, fair enough, as this keeps down the retailers cost and complexity. However, there seems to be the missing item of /consumer/ safety in this, the "mandatory" credit card fraud protection.

If I have a dispute on my credit card, my bank will take this up with the retailer, the "amount" is removed from my balance until the "dispute" is resolved, either for me or for the retailer [maybe I "forgot" or was being a bit thick that day..... it happens !]. My understanding is that this is a "legal requirement" through the Consumer Credit Act, or similar. I could be wrong.....

However. with PP where is the "enforcement" of the consumer rights ? I see PP on my visa statement, I say "woha, steady on there.....". I call my bank, they contact PP and PP are obliged to do what ? As far as I can see, they /could/ turn around and say "we've done our bit, of moving money from A to B"; that is what PP are, money movers.

With respect to the honourable Reg posse below, I still don't see how PP helps me, the /buyer/ even though it may help the retailer.....

P.

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Re: Why Pay Pal... ?

I don't believe I've ever had a chargeback, so I can't speak from experience at that end. But if you use PayPal to pay by credit card, and it appears on your bill, it's just like any other transaction. You can query it with your card company, and I would imagine that if you declare it to be fraudulent, they will do a chargeback, and the consumer doesn't end up out of pocket. From the point of view of the consumer, the only difference is that they merchant that has actually charged their card is PayPal (and if you donated to one of my sites using your card, it would appear as "PayPal *Nigel" on your statement.

So, no difference in consumer protection at that end of things (there will, of course, be slightly different rules if you pay using a PayPal balance).

A quick skim of the help suggests that PayPal leave it up to the credit card company to decide if the chargeback should happen; the merchant may (depending on whether it's something with seller protection or not) take a hit of the original amount, plus £14 processing fee.

So, pay by card via PayPal (where all they're really doing is acting as a card processor without requiring upfront fees from the merchant) and you have exactly the same protection as using a card anywhere else.

Pay using a PayPal account, and you're subject to the usual PayPal rules, and their own quirky interpretation of them.

In terms of how it helps the buyer, I suppose that's really just that it makes it easier for some people to provide a way for you to give them money that doesn't involve putting cheques in the post. A lot of people will be far more likely to give to something, whether it's one of my websites, or a cloud funding type of thing, if they can simply use the 'normal' way of paying, which is credit card. So, yes, the convenience is mostly for the seller/fundraiser, but being able to process cards does make life simpler, and the process more understandable, for a proportion of customers/donors

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Anonymous Coward

Re: Why Pay Pal... ?

"So, pay by card via PayPal [..as a card processor..] and you have exactly the same protection as using a card [..]. Pay using a PayPal account, and you're subject to the usual PayPal rules."

Aside from the fact that I want to minimise my dealings with PayPal as far as possible, this is another reason why I won't set up an account with them.

My understanding from what I've heard (don't take this as gospel) is that if you pay money into your PayPal account, then later use *that* to pay someone else, the credit card companies will claim that the transaction they're obligated to cover was the transfer of money to PayPal, and the later payment wasn't directly connected with that.

(I'm not sure what they case would be if you *did* have an account and effectively paid/transferred the money *immediately* but still did it while logged in. Since I've never had a reason to set up a PayPal account, I don't know how the transaction and money transfer is presented to the end-user.)

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Re: Why Pay Pal... ?

Yes, that would be the case, I expect. You've bought PayPal credit, is one way of looking at it. And the card companies don't want to be involved with that. I suspect that if, for example, you bought a voucher for John Lewis with your credit card, and later used the voucher to buy a toaster that turned out to be faulty, they also probably wouldn't want to entertain claims regarding the toaster, since that's not what the card was used to pay for.

When paying if you're signed in, you can select a linked bank account as a source of funding, but again, I suspect that that will be treated by the bank in the same way as topping up your PayPal balance, and probably is treated internally as two separate transactions, even though the UX presents it as seamless.

If you want the full credit card protection, then you should always pay using something that is directly charging your credit card for that transaction. And it's that area where, from the point of view of a small shop or club, PayPal is very useful, because with a premier account it's easy to offer people the credit card option, without the normal overheads. I imagine a fair number of people will still feel much happier paying using their card, and getting the protection they have that way, than using PayPal natively.

I do find them a nasty company to deal with - like eBay, any queries are almost always answered by scripted responses, whether via email or phone, that may at best have a tenuous connection to what you actually asked. If other Reg readers could recommend a way for small websites to actually get people to give money that's simple, allows them to use their credit cards, and doesn't require guessing in advance how much you might persuade people to donate and picking a pricing plan that might mean you end up worse off, I'd love to know about it.

I get the feeling that no one really enjoys dealing with PayPal; it's just that in a lot of situations, there aren't any easy or obvious alternatives.

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Re: Why Pay Pal... ?

Why?

There are people in this world who do not have a credit card. At one time even secured cards were difficult to obtain. PayPal can be linked to a bank account and allows plebs to participate in online shopping.

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Re: Why Pay Pal... ? @piloti

"I still don't see how PP helps me, the /buyer/..."

My take on it is that it reduces the attack surface on my accounts. I am not passing on the details of my cards to every entity I buy/book online with. Many small businesses do not have a nice secure payment option. For instance, if I had a choice of two bed and breakfasts equal in all other ways, I'd go for the one with a Paypal option because I'm not giving my card details to them - often over the phone when I don't know who might be listening - or in a plain-text email ...

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Anonymous Coward

Hear hear

I am not comfortable giving sensitive payment details to all and sundry. With the volume of stories about lost or misplaced data in the media I feel much safer that my personal and financial details are not scattered among hundreds of small business premises across the world. It also allows me to purchase from private sellers (i.e.eBay) that would otherwise involve a greater risk.

Oh, and in relation to a previous point: one of the main benefits of PayPal for the retailer is it allows them to avoid any card security obligations such as the PCI DSS. This means that a great deal of expense is saved for smaller retailers, meaning that as a consumer one enjoys a greater variety of choice and better pricing.

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For some value of nuanced

Paypal said that competitors had simply banned mob payments, but it was planning to take a more nuanced approach.

So, while PayPal's competitors refuse to accept payments at all, PayPal's "nuanced" approach it to accept payments but then not pass them on to the recipient.

So, not just nuanced, but profitable too.

Business as usual.

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Anonymous Coward

"Never really seen the point of Pay Pal."

The point is to earn extra interest and charge fees on your money. That's it.

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JDX
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Re: "Never really seen the point of Pay Pal."

Just like a bank then.

You confuse the term 'point' with 'business model'. The point is to let people buy and sell stuff online, the business model is to make money off that.

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Anonymous Coward

Re: "Never really seen the point of Pay Pal."

JDX, I'm not confused at all. The point of PayPal is to make money. It's eBay that 'lets people buy and sell stuff online' not PayPal. No-one really needs PayPal to use eBay, we're just very strongly directed to do so.

Go and have a lie down and come back when you're less grumpy.

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The big downside of crowdfunding is the buyers take on all the financial risk that were usually shouldered by financial investors, but without the clout that comes with owning shares in the company. The large distribution of investment should mean that in the event of failure millions of people could lose a hundred quid or so instead of massive financial hits to a couple of investors.

Individuals haven't adjusted to this level of risk though, we have been spoiled by the consumer protections we are afforded in modern society where if you pay for a product or service you are entitled to it or otherwise have some legal recourse.

Perhaps the way forward is for Kickstarter and the like to partner with insurance companies; an optional few quid on each transaction to guarantee your money back in the event the venture goes tits up. They could also examine proposals as part of the insurance process and give a risk rating to projects (e.g. warning flags on projects where a single dude with no experience is promising something like an Ouya within 3 months.)

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Or we could return to a simpler time when people took responsibility for their own informed decisions.

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Gav

This is not a pre-order

As long as they are informed. Some of these crowd-sourced projects give the impression that they're just a few months away from shipping a final product. So naive people think that their investment amounts to effectively the same as a pre-order.

It may be a relatively small amount of money, but the risk is significant. They need to understand that they may never see the promised product, or their money ever again. And they can't sue or complain to anyone.

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As I've always said with investments - if it will hurt if you lose it, you put too much in. Crowdsourcing to me is a nice idea whose time has come. The projects aren't big enough to attract the hugely risk-averse big-money vultures, and there is a real indicator for the producer of whatever the project is as to whether it has any chance at all of success.

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Damn! That buggered up my plan for a

crowd-sourced alternative to paypal!

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PayPal's behaviour

I'm pleased to hear that PayPal are being open about how things are going. Of course they should have sorted these tricky issues out before going live.

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Responsibility

"PayPal has a responsibility to ensure [...] that consumers who contribute to these campaigns understand where their money is going."

No it doesn't. PayPal has a responsibility to send money exactly where I tell them to as soon as possible. The responsibility to educate users falls on the crowd source site / project. They have no more business sticking their beak in here than Visa has declining a payment because the food in my basket is unhealthy.

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Re: Responsibility

Exactly. Paypal have a habit of "freezing" large value accounts, then making excuses and hoops to jump through, with the intention of thieving the money. I'm surprised nobody has mentioned it yet, since it's common knowledge: NEVER USE PAYPAL - especially to store large amounts of money. They *will* attempt to steal it.

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Re: Responsibility

You're of course right, but I don't think they're talking about payments. Well, not in the conventional sense - I suspect their problem is with starting to accept "payment authorizations" the way Amazon does (which is the currently used means to power Kickstarter afaik), which may ultimately end up being charged or not off your card depending on the outcome of the campaign. Not that they have a valid case either way - it's still none of their business if I decide to authorize a payment - but I guess they just aren't feeling like adapting to new realities and opening up to new types of liabilities(?), secure in their knowledge they're big enough to not have to.

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Re: since it's common knowledge

Not common enough, apparently.

Paypal is benefitting from the fact that it proposes a service that is quite indeed useful to do things and behave in a way a proper bank never could.

I wonder when people will wise up to the fact that freezing an account is NOT something that should be allowed or tolerated, whatever the reason. A real bank never does that without a court order - it doesn't have the right to. If Paypal has a legitimate suspicion concerning the activity taking place on an account, it should go to the police; not freeze the account and then pretend that it is just trying to do what's best.

But, like Facebook, I suppose people will never understand that Paypal is NOT their pal - until it's their account that is frozen, that is.

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Anonymous Coward

Re: "PayPal is not your pal"

My day-to-day life over the last 10 years would have been significantly more hassle, less convenient and comfortable and cost me more if I wasn't able to shop on eBay. As a buyer I know that the rules give me the benefit of the doubt, I have had cause to test them in various ways and have always been happy and felt protected from risk. Without PayPal I would not feel confident dealing with private sellers, and I would much rather my card details not be held on badly-secured servers in small businesses all over the world.

For sellers there is more of a risk to consider, just as there would be in the bricks-and-mortar world - but again without PayPal many smaller sellers wouldn't even be able to operate. This would limit my choice and variety of products as a buyer, and for many things would make them more expensive.

I'm pretty close to the paranoid end of the security-conscious scale (security advice to business is a big part of my job), but from comments here I can see there's quite a few people far beyond me... I think I am perfectly justified in calling them Luddites and asking them to take their clogs home!

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Anonymous Coward

Very strange

Crowdfunding is very strange and questionable.

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Re: Very strange

> Crowdfunding is very strange and questionable.

Aye, I noticed that the guy who originally wrote Elite for the BBC micro was recently looking for crowd funding so he could bring it up to date/ convert it to an on-line game etc.

From memory he's got a successful software development company and has already had two or three software engineers working on some aspects.

In return for donating you can get obscure bits of the game named after you.

So if he raises the funding there's no risk for him in undertakin/ paying for the development but if it sells well he reaps all the reward.

Cheeky sod.

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Re: Very strange

"Crowdfunding is very strange and questionable."

Quite the opposite. Crowdfunding is a way to break the monopoly of wealthy businesses.

There are many businesses--the book publishing industry and the music recording industry come to mind--that have made being a content producer a sucker's game. It's difficult for many people to write, edit, print, and distribute a book, or record an album, by themselves. Sure, you can do a lot of it for little or no money, but to get professional editing, or design, or sound engineering? That (for most folks) costs.

The publishers know it, so they are able to charge extortionate rates, screw the content producers on royalties, and just generally be evil as hell, because until recently there was no other game in town.

Now, things are changing. Print on demand, online distribution, and--yes--crowdfunding are all parts of the process that's taking control of these industries out of the hands of big, moneyed corporations and putting that control back in reach of individuals.

And that's a good thing, I say.

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Re: Very strange

I'm definitely with Franklin on this one. Crowdfunding is an excellent way to break the chain of the incumbent risk-averse, conservative funders. An example: one of the blog writers I follow recently did a Kickstarter project to record one professional quality (studio, producer etc) album of "instrumental rock", some of which. He is clearly a man with a life who does not want to be a professional musician, and his music would not appeal to [m]any of the record labels, big or small. He asked for about $9500 initially, and was extremely grateful when it got close to the target. To cut a long story short, he had to keep inventing new extras, because the appeal topped out at $140000 (www.kickstarter.com/projects/168734274/permanence-the-new-album-by-deathmle).

Just like share ownership - yes, there is a risk, but if you have put so much into it that you risk hurt then you are an idiot.

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Why use PayPal? Customers like it!

I buy services 10-20 times a month from websites that offer PayPal or Credit card.

if I use PayPal then I enter email address (Normally offered by browser so no typing) and then PayPal password. So easy and quick.

If I use the credit card option I need to enter a 16 digit number, xp date, CV2 then go through Verified By Visa or Master-cards equivalent.

Guess which option I choose?

I'd actually be willing to put a bit of effort in to not use PayPal as I know their fees are much higher than Card Merchant service providers but the time and effort required is too much.

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Devil

So new it's open to abuse

What has the degree of newness got to do with the degree of openness to abuse?

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Anonymous Coward

@ Thad

Because there are people who are not yet familiar with the format, may not understand it fully and therefore assume that it is more like a traditional contract of sale than it is in reality.

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