Have you ever been part of a crowdfunding campaign gone wrong? No doubt some of you have, and some of you may well have contributed to such campaigns through PayPal for a reason that, until now, made it quite handy in the event of such a misfortune: purchase (formerly buyer) protection. PayPal's purchase protection basically is a "guarantee" that if you buy something through PayPal and never receive it, PayPal will reimburse you the cost of your purchase. So, instead of making you play a never-ending dispute resolution game of cat and mouse with an unresponsive - or in this case, likely non-liquid-asset-possessing - seller, you just get the money back, and PayPal can choose to go after the merchant.
Crowdfunding, though, presents a greater-than-usual risk for a company like PayPal than your typical Etsy or Ebay transaction. Because when a crowdfunding campaign fails to deliver a product or do so in a remotely timely or satisfactory manner, buyers who paid through PayPal had a 'get out of jail free' card of sorts, and PayPal ended up footing a bill for a transaction they'd be very unlikely to ever collect on.
This essentially gave crowdfunding backers a form of insurance against failure, which may have helped facilitate speculation in outlandish concepts over strong beliefs in their feasibility and usefulness. It's unclear just how much of Kickstarter and Indiegogo's typical campaigns receive in funds from PayPal, but the amount is almost certainly going to drop when these new rules go into effect on June 25th, 2016.
The rule change, in full, is available here, with the relevant portion excerpted below.
SECTION 13.3 Ineligible Items
We’re updating the list of items that are not eligible for Purchase Protection. The new items that will not be eligible are:
- Payments on crowdfunding platforms
It's nothing if not unambiguous.
Source: PayPal