Crowdfunding campaigns have breathed life into various products and services, with the relatively new fundraising option growing in popularity.
PayPal, however, will become less friendly to crowdfunding backers beginning June 25.
On that date, the company said, it will amend its user agreement to drop the eligibility of payments on crowdfunding platforms for PayPal's Purchase Protection program.
The feature allows users to shop safely online and make payments without fear of being ripped off. If, for example, an eBay seller disappears after a customer made a PayPal payment, that customer can file a dispute with PayPal to be able to get back the money they paid.
It seems failed crowdfunding campaigns are becoming more prevalent than fraudulent eBay sellers.
PayPal is changing its Purchase Protection program; it is not responsible for reimbursing backers of campaigns that go south.
The exclusion from the feature, according to PayPal, is due to the risks involved when making contributions to crowdfunding campaigns, which do not guarantee any returns for investments.
A study last year funded by Kickstarter revealed that 9 percent of the projects put up on the platform do not deliver rewards, showing the risk that backers face when investing funds in crowdfunding campaigns. One such campaign is the Zano Drone, which raised $3.3 million but ultimately failed.
The change in policy will not be affecting Kickstarter though, as payments made to support campaigns on the platform are already not being protected by PayPal. Other crowdfunding platforms such as Indiegogo are the ones that will be affected by the policy amendment.
PayPal, however, is not completely withdrawing support for crowdfunding, as the company said it will continue working with its partners in the industry to encourage fundraisers on the different platforms to communicate the risks that are involved in making investments into campaigns.
Is the change a bad thing for crowdfunding? The answer, surprisingly, is that it could actually be a good thing. With the new policy, PayPal will be releasing funds to campaign owners faster, which will make it easier to provide returns to early backers. Previously, the company does not release funds to campaign owners until products are delivered as part of the Purchase Protection program, which has at times placed crowdfunding campaigns in a tight spot.
