May 9, 2016 ยท 2 minutes

We’ve written a lot here on Pando about failed crowdfunding projects.

Some are started with the best of intentions, but fizzle out before a project is delivered. Others, sadly, seem like scams from the start: Consider the likes of Tellspec and Healbe, where the evidence was clear from day one that the miracle devices being promised couldn’t possibly be delivered as described.

Still, even when presented with incontrovertible proof of a scam, some crowdfunding platforms seem determined to give scampaigners the benefit of the doubt. The worst offender, by far in our experience, is Indiegogo. In the case of Healbe, Indiegogo actually went so far as to change its anti-fraud promises to give them an excuse for not cancelling the $1m+ campaign. In the case of Tellspec, Indiegogo’s (now former) CEO posed smugly with the company’s founder, Isabel Hoffman, at CES. As I reported last week, Tellspec has just published its latest excuse for not delivering its device, but still Indiegogo refuses to take action.

Now Paypal has decided enough is enough. Along with the regular credit card companies, it’s Paypal that’s left on the hook if a scampagn fails to deliver. It’s Paypal that gets hit with millions of dollars in chargebacks for all the Tellspecs and Healbes that never arrive.

In a statement to Engadget confirming the change in policy, Paypal wrote:

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.

In other words, if you trust something you see on Indiegogo (or Kickstarter or anywhere else), then buyer beware.

The question now is whether Indiegogo et al will take steps to project their suddenly-on-the-hook backers. The right thing to do, of course, would be for Indiegogo to immediately announce a new anti-fraud policy which will suspend dodgy campaigns quicker and which will, in some cases, hold pay-outs in escrow until allegations of fraud have been investigated.

Such a policy would give at least some comfort to users, but it will almost certainly impact Indiegogo’s cashflow. For that reason, based on past performance, we probably shouldn’t hold our breath.