PayPal US to scrap purchase protection for users who donate to crowdfunding platforms

PayPal users in several countries including the US will no longer be offered purchase protection against payments made to crowdfunding sites, under upcoming changes to PayPal's user agreement. The amendments, which come into effect for users on 25 June, mean that users who give money to crowdfunding platforms won't be able to reclaim money for projects that fail or prove to be illegitimate.

The move by PayPal is an effort to curb its liability for high-risk payments made by its users. Payments made to gambling or gaming websites will also no longer be protected under the new policy changes, nor will gift cards or "anything purchased from or an amount paid to a government agency".

Crowdfunding platforms like Kickstarter and Indiegogo present a risky business to PayPal, as the money its users pay to fund projects carry no guarantee of being put toward its intended use. Even if the cash does go to the right place, there's still the risk that a project could fall through unexpectedly or suffer other complications – something we've seen all too much of recently.

Back in 2014, PayPal users reported their accounts being frozen after the payments service revised its policies around crowdfunding campaigns. While the issue was eventually resolved, many start-up companies continue to report having their accounts suspended, often without explanation.

It's worth noting that not all crowdfunding platforms accept PayPal payments, Kickstarter included. Nevertheless, the fact that PayPal is no willing to foot the bill for failed projects highlights just how risky crowdfunding can be.

The company said in a statement: "In Australia, Brazil, Canada, Japan, United States and certain other countries, 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.

"We work with our crowdfunding platform partners to encourage fundraisers to communicate the risks involved in investing in their campaign to donors."

PayPal was unable to confirm whether UK customers would be affected by similar policy changes when questioned by IBTimes UK.