Online payment processing firm PayPal is working with crowdfunding creators to distinguish between campaigns that are pre-selling merchandise and those that are more strictly for fundraising.
Chief risk officer Tomer Barel detailed the new rules via PayPal’s site, specifically highlighting that crowdfunding campaigns now may proceed without interruption of payment as long as the creator is "explicit and transparent" that backers are not guaranteed reward delivery for their contribution.
"There is a distinction between crowdfunding and ‘preselling,’" Barel stated.
"In crowdfunding, the process involves speculatively supporting a new concept that may, despite the best of intentions, not make it to market. In ‘preselling,’ there is an expectation that you will get something tangible for your money … even if it takes months for delivery.
"If it is not made clear that there is no guarantee of product delivery, this can cause regulatory and risk issues (and upset customers) when the final goal isn’t reached.”
Barel also pointed out that PayPal is the first and only payment processor to customize policy to support crowdfunding.
"Currently, PayPal is the only payment company that has customized its policy and processes to specifically support crowdfunding and we have done it without changes to our price structure.
Providing a lower price point than our competitors is also important to us because PayPal’s very essence is in connecting people. The last thing we want to do is get in the way of the innovative new products coming from entrepreneurs raising money via crowdfunding."