PayPal to pull payment protection for crowdfunding sites on June 25

Kickstarter itself admits that almost 10% of its projects never get off the ground, and it seems like PayPal is no longer willing to risk the odds on crowdfunding sites. As of June 25, PayPal will remove its buyer protection feature for crowdfunding projects. Previously, if a project went belly up you could dispute the charge, but in the near future you will be pledging 100% at your own risk.

There are numerous tales of failed crowdfunding projects that spirited away hundreds of thousands of dollars of backer funds. In those instances payment protection would at least give backers the option to dispute the charge. Of course, PayPal can’t recover money from failed crowdfunding projects, leaving the payment site awkwardly in the middle. But not any more.

According to a statement made to Engadget, the upcoming change to PayPal’s user terms and conditions was brought about by “the risk and uncertainties” of crowdfunding. This is an inherent – but often overlooked – part of crowdfunding: you invest money in a project, not a product. So if the project fails, you can easily lose your money.

While the change will likely be unpopular, it does serve as a reality-check for just how risky crowdfunding can be. In order to avoid being disappointed (or burnt) in future, it’s best to pledge based on faith in an idea, not on an expectation of receiving a finished product. If that happens, great, but crowdfunders must accept the possibility that an investment goes nowhere. Especially now that PayPal isn’t there to back you up.

Do you support crowdfunding projects? Have you used buyer protection in the past?