PayPal drops purchase protection for Kickstarter, Indiegogo campaigns

PayPal's long-standing protection for crowdfunding is set to expire soon -- so buyers, beware.

PayPal has announced changes to its usage policy which will eradicate protection for investors in crowdfunding campaigns.

Crowdfunding projects, hosted on platforms including Kickstarter and IndieGoGo, have become a popular way for users to 'pre-pay' and give startups the capital required to get projects off the ground.

From art productions to handy home gadgets and photography accessories, crowdfunding has proven a boon to many startups. However, there are also cases of things going very, very wrong -- with examples of fraud and swindling tarnishing the concept.

Investors can get a great deal on a product being developed through these campaigns as long as they hit a funding target within a certain amount of days, and used to be safe in the knowledge that their contribution was covered by Paypal.

However, those who invest in these projects through PayPal's online payment portal should be aware that from 25 June, their cash is no longer going to be protected if a project collapses or fund seekers are booted out for breaking the rules.

PayPal's Purchase Protection has long been a way for users to retrieve their funds when a purchase doesn't go as planned. In the case of crowdfunding, sometimes projects will fail despite reaching their funding goals and money would be returned, but PayPal's updated policy removes this protection.

In the update, the payment services provider says that "payments on crowdfunding platforms" will no longer be eligible for refunds. In addition, PayPal will no longer cover anything bought from or an amount paid to a government agency, "gambling, gaming and/or any other activity with an entry fee and a prize," as well as items "equivalent to cash to now include stored value items such as gift cards and pre-paid cards."

What does this mean for crowdfunding investors? It is time to be more careful and to not invest through PayPal if the amount is more than you would be comfortable losing. Sometimes even the best projects fail, and if you invest, you now hold full responsibility for your cash.

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