PayPal to drop purchase protection for crowdfunding

PayPal is soon to update its terms of service, quietly removing any purchase protections for payments made on crowdfunding platforms. The new policy, which comes into effect next month, also removes protections for users paying for gambling and gaming, as well as payments to government agencies. The move is reportedly due to the increase in fraud and failure related to crowdfunding projects. An excerpt from PayPal’s statement on the subject reads: “…we have excluded payments made to crowdfunding campaigns from our buyer protection programs. This is consistent with 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…”

PayPal won't be so crowdfunding-friendly in the future. The payment giant is dropping Purchase Protection for crowdfunding projects as of a user agreement change coming June 25th. From then on, you back efforts at your own risk -- if a campaign goes bust or otherwise doesn't deliver what you were promised, you can't dispute the PayPal charge to get your cash back. You might not want to take a chance on that too-cool-to-be-true gadget, then.

The move is unfortunate if you like to give artists and inventors a helping hand, but it's not all that shocking in light of crowdfunding's riskiness. Kickstarter notes that about 9 percent of its projects never deliver, for example -- if the failure rate is similar or worse on those crowdfunding sites that take PayPal, that's a lot of potential refunds. We've asked PayPal for its official reasoning, but it might simply be a matter of wanting to keep costs down.

Update: Sure enough, PayPal tells us that the policy change reflects the "risks and uncertainties" of crowdfunding. You can read its full statement below.