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PayPal 'overhauling' policies regarding crowdfunding

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PayPal is changing its policies regarding its use as a payment system for crowdfunding campaigns, said a company executive in a post on the PayPal Forward blog this week.

The payment service has come under fire recently for freezing funds collected during crowdfunding drives. Earlier this week, PayPal restricted the account of Nyu Media, the developer behind Yatagarasu Attack on Cataclysm, a fighting game for which the studio raised more than $118,000 on Indiegogo this past summer. PayPal soon released the funds, but the controversy drew attention to the issue; Skullgirls developer Lab Zero Games also had problems with PayPal this past April.

"Crowdfunding sites are an exciting and innovative new way to directly connect entrepreneurs with the people who want to help them create new products and services," said Tomer Barel, PayPal's vice president of risk management, in the letter. "However, there are unique regulatory and risk aspects inherent to this new way to raise money from supporters around the world. [...] Because the model is so new, it is potentially open to abuse."

Barel acknowledged, "It's clear that our existing policies and processes aren't working quite right for this particular fundraising model," and added, "We are now in the midst of overhauling our policies in this space."

According to Barel, PayPal is working with major crowdfunding services on a "permanent solution." For the time being, a senior member of the risk management team will review each funding drive individually.