There are plenty of niche markets in the payments world. And then there’s examples of the niches among niches — crowdsourced funding payment options available through major payment providers such as Amazon, PayPal and credit card companies.
Let’s start with Kickstarter, for example, which instead of developing its own payment platform, taps into Amazon Payments to make the money go round. By linking with Amazon it offers Kickstarter users and contributors an extra layer of trust, but even some of the most legitimate sounding projects have been plagued by scams or delayed beyond a reasonable date it promised its investors return on. From a payments perspective, fraud protection and prevention means everything to keeping users active and interested.
Rob Chesnut, who served as eBay’s senior vice president for trust and safety for nearly a decade until 2008, said modern-day crowdfunding is not unlike the early days of e-Commerce when it comes to fraud protection.
“When Mr. Chesnut started at the online marketplace, he said he was inundated by a flood of claims of fraudulent transactions. The company then was positioning itself as simply a platform for person-to-person transactions,” a Wall-Street Journal article reported, which also explains the steps he took to create a fraud department. The reasons was twofold, Chestnut said. eBay positioned itself at the time to have automated fraud protection and later brought in PayPal to help monitor transactions.
“Both because it was the right thing to do to the business and because of concerns that if we didn’t do it the government would do something about it,” Chestnut cited as reasons to start the fraud department.
Because crowdfunding sites like Kickstarter and Indiegogo don’t offer refunds, it’s up to the users to trust the leaders pitching the projects. The WSJ article cited an exampled of a digital information bracelet on Indiegogo that raised hundreds of thousands of dollars, but has failed to deliver. Once red flags were raised, backers started demanding money back, but money continued to be raised and the company collected $1.5 million. When is it time for the crowdfunding platform to step in, and how much vetting should crowdsourced companies do when it comes to approving projects?
Well, according to Kickstarter and Indiegogo, there’s measures already in place to combat scams, according to WSJ, who reported that the companies “argue that contributing to projects isn’t the same as making purchases in stores. The companies both say they employ trust and safety teams, proprietary algorithms and feedback from the community to handle such issues, without detailing their procedures.”
“While there’s risk inherent to every project, the system overall works remarkably well,” a Kickstarter spokesman told WSJ.
A couple payments companies that used Kickstarter to jump start operations — LoopPay and Coin — demonstrate potential successes but also pitfalls of being a backer of a crowdsourced fundraiser of creative projects. LoopPay, which surpassed its $100,000 fundraising goal just over a year ago, has already delivered on its promises and is creating new products. LoopPay technology allows user to pay with via smart phone at most retail merchants; existing point-of-sale systems. The company recently introduced the LoopPay ChargeCase, which both extends the iPhone battery charge by about 60 percent and allows consumers to pay with their iPhone 5 or 5s at any card swipe reader. It also recently released the LoopPay Card and the LoopPay Card Case that allows consumers to load all their cards into a simple, low-energy Bluetooth-enabled device.
Coin, however, has been sharply criticized for delays. One criticism surrounding crowdsourced funding projects is delayed shipping and a lack of assurance when backers will receive the product. Coin has recently fallen into that trap, as first shipments for international customers were moved from summer 2014 to spring 2015 following a series of technical bugs. Some in the U.S. have received their Coin, but Coin remains in damage-control mode. This started with an apology issued Nov. 20 for the shipping delays. The letter apologized for a “lack of transparency and clarity” to its impatient customers, but also announced the launch of an expanded Coin Beta program. But the company must build consumer confidence back up before it moves forward.
There’s several other popular crowdfunding sites, including GoFundMe, YouCaring, GiveForward and CrowdRide — some of which that aim to raise money from everything from people suffering personal tragedies and extreme medical bills to local sports teams needing an extra boost. All the sites assure the payments part of the platform is secure, using industry-standard SSL encryption, but it’s often reminded that the funder needs to personally vet what or who they are funding. From a backer’s standpoint, this starts with having a secure payment system.
“People will always be eager to support others they care about. GoFundMe removes the physical barriers traditionally associated with receiving financial support from the people in our lives,” the site says. Donors should be cautious when it comes to making payments on crowdfunding platforms, but it’s easy to want to make that payment when it appears it’s going to help someone. Despite the challenges companies face in providing the safe and secure way to make payments on these spaces, there’s hope that crowdfunding is a trend that’s here to stay.
“Jason Haensly, who co-runs the blog drop-kicker.com that looks into technical feasibility of crowdfunded projects, hopes that major crowdfunding platforms would be able to address existing issues,” WSJ reported, “Despite concerns, many backers and founders—including Mr. Haensly—say the future of crowdfunding remains bright.”
“We’re at the point where things are changing,” he told WSJ. “And they are changing for the better.”