Starting June 25, PayPal isn't going to protect you from questionable crowdfunding decisions anymore. Purchase Protection will no longer be available for projects of this nature, meaning if you invest in a campaign that fails — or just doesn't deliver for whatever reason — you're out of luck.
Startup Folds, Investors Don't Get Refunds
When Purchase Protection for crowdfunding ends, customers won't have the ability to dispute the charge with PayPal in the event that an artist or startup never actually produces the project that was funded. And if customers know they won't be getting their money back on unsuccessful campaigns, it might have a chilling effect on crowdfunding overall.
(Crowdfunding sites do not actually charge customers' accounts unless the projects meet their fundraising goals by a certain deadline, so customers are still protected in that sense.)
Without that "money-back guarantee," some are bound to be more hesitant to support these kinds of projects. Yet for others, it might just mean a lower investment, and therefore a lower risk. Either way, crowdfunding could potentially end up with less money, and fewer funded projects overall.
Many Crowdfunded Projects Fail
It's an unlucky move, especially for those who really want to support indie artists and inventors as they try to make their projects successful. But PayPal's decision isn't all that surprising. According to Kickstarter, about 9% of its funded projects never deliver what was promised to investors. If that's a standard figure for the crowdfunding industry, it makes sense that PayPal wants to avoid having to shell out so many refunds.
In a statement to Engadget, PayPal said the move came about because of the "risks and uncertainties involved in contributing to crowdfunding campaigns, which do not guarantee a return for the investment made in these types of campaigns. We work with our crowdfunding platform partners to encourage fundraisers to communicate the risks involved in investing in their campaign to donors."
Readers, do you agree with PayPal's decision? Does this make you less likely to back a crowdfunded project? Let us know in the comments below!