Sid Pershad, Director of Risk Management, PayPal

At PayPal, our goal is to build trust between buyers and sellers to enable millions of transactions around the world. As part of this, we support entrepreneurs and small businesses, and allow them access to cutting edge tools. One of the benefits of using PayPal is that nearly anyone can sign-up for an account and start accepting payments in seconds. We are also one of the few payments companies to have customized our policy and processes to specifically support crowdfunding.

So, aligned with our commitment to help protect our customers, and make sure they are informed, we wanted to share some additional insight around our preselling policies.

First, as we’ve previously noted, it is important to understand the difference between crowdfunding and preselling. When you presell – you are setting a condition with your customer that they are purchasing a product or service before it is available, and there is an expectation that your customers will get something tangible for their money, even if the delivery is delayed. It is important to note: with a presale, customers are charged for a product that’s still being developed.

With crowdfunding, the expectation is that customers are putting money in a campaign and they face a risk of not getting what they expect. Crowdfunding is similar to an investment. There is hope it will be successful, but there is no guarantee of a product or service. Our point of view is that campaign owners are still responsible for making that clear to consumers, so they are fully informed before putting money into a crowdfunding campaign.

We collaborate with several crowdfunding platforms, such as Indiegogo and Fundrazer, to offer entrepreneurs the option of raising money from the public. Our policy with businesses and campaign owners on these crowdfunding platforms is that sellers get a quick release of the funds raised as long as they put a clear disclaim about the risks for buyers. But, when a seller chooses to presell merchandise independently of these platforms, PayPal takes the steps below to help protect its customers as well as itself.

Occasionally, businesses that presell items run into unexpected problems that leave them unable to deliver what was promised and can even put them out of business. This puts PayPal in a tough spot when something goes wrong, and one of our highest priorities is to help protect our customers while creating a positive experience. We want businesses to get paid and we want the customer to get what they ordered.

That’s why when a business presells merchandise more than 30 days in advance, we may hold a percentage of the seller’s funds to help ensure that buyers receive the product or service they paid for within the agreed timeline, or a get a refund if the product isn’t available. That being said, we understand that a seller may need additional funding to run its business or make a product, so we will work with sellers on a case-by-case basis to release additional funds. All a seller needs to do is contact customer service and provide proof – such as pay stubs for employees or invoices for suppliers.

We don’t want to get in the way of the innovative new products or services consumers want, but we want to ensure both buyers and sellers have our trust. It’s about helping to protect our customers, to ensure they get the items they ordered.