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PayPal froze $45,000 of payments on MailPile project

September 16, 2013

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PayPal is reconsidering its Terms of Use on what it calls 'crowdfund payments' after the online payment processor froze about $45,000 of transactions on several illegal 'mafia-monetized' projects.

PayPal is looking into the best method in moving forward with its so-called crowdfunding issues after admitting that its existing policies and processes arenít working for this particular fundraising model.

In a statement, the company warned that crowdfunding is based around a model that is "so new, it's potentially open to abuse in a significant manner".

PayPal froze the accounts held by Dreamfall Chapters, although it later resolved the issue. It also froze about $45,000 of payments on a project called MailPile.

The payments were later released, along with a Paypal statement which claimed that "crowdsourcing is an exciting new part of our business".

PayPal said that competitors had simply banned mob payments, but it was planning to take a more nuanced approach. The company added-- "There are unique regulatory and risk aspects inherent to this new method of raising money from supporters around the globe. To name one, we sometimes hear from campaign contributors that they are confused about what exactly their money is going towards, and assume that theyíll get it back if the venture isn't successful."

"PayPal has a responsibility to ensure that the system remains secure, in compliance with Government regulations around the world, and that consumers who contribute to these campaigns fully understand where their money is going," the company added.

"When done correctly, crowdfunding is a powerful catalyst for innovation. But it's clear that our existing policies and processes arenít working right now for this particular fundraising model, and we are in the process of making changes to that," said PayPal.

"We are now in the midst of overhauling our policies in this segment. We're talking to the major crowdfunding players that we work with to put in place a permanent solution that avoids unnecessary account limitations. But making this work for all stakeholders, contributors, entrepreneurs, crowdfunding sites and us is pretty complicated," added PayPal.

Each crowdfunding application will now be looked at by a senior member of PayPal's risk management team, which will no doubt slow down transactions in a significant manner.

In other e-commerce news

Four months ago, Will Young led a group of his fellow employees on a trip to the nearby Westfield Mall in downtown San Francisco for an afternoon of watching people and their individual behavior in shopping malls.

Young, the director of Zappos Labs, has been busy developing new ways to lure more shoppers away from brick-and-mortar stores and into the realm of eCommerce.

Though online retail has seen incredible growth in recent years, it still accounts for only a small percentage of the retail trade, not just in the U.S. but abroad as well. Young wants to change that.

So for Young and a few of his people, visiting the shopping mall and other similar destinations in the area has become a regular occurrence.

Instead of relying solely on user interviews, Young's team goes to malls to observe the social aspects of shopping, in hopes of creating the same experience online. This includes noting how people shop and how they interact with things like boutiques, kiosks and directory boards.

So it looks like Zappos could have a friend, given the sharp growth in eCommerce. Online retail is going to be a $200 billion-plus industry this year alone, ComScore estimates in a recent study.

In the first six months of this year, consumers have already spent $100 billion online. Not only that, but mobile shopping dollars are also up a strong 24 percent from 2012's levels, and desktop spending is up 16 percent.

But nevertheless, shoppers still aren't flocking to online stores that much. Industry specialists estimate that about 90 percent of all shopping is still done at brick-and-mortar outlets, much to the chagrin of eTailors everywhere.

Zappos Labs was created to move that percentage more in its favor, and it's now working harder than ever in an effort to accomplish just that.

"How do we get people out of brick and mortar?" Young asked while chatting in his office just several blocks from the mall. "I think fit is one obstacle, but social is a part of it: How do we make online shopping feel more social?" That question drives his team's mission.

So far, they're still in the experimental phase, coming up with various ideas on how to make shoppers feel like they're a part of a community even as they buy their products by way of an inanimate device.

Located hundreds of miles from the Zappos headquarters in Las Vegas, Zappos Labs is the company's R&D arm. But you won't find 1,500 employees there.

Sandwiched between startups in a brick building in San Francisco's tech-centric South of Market district, the office of Young's 10-person team has its own startup vibe.

The walls are covered with whiteboard scribblings and ideas scattered across sheets of tacked-up paper. Multicolored plastic balls are grouped together in the corners and along the windows of each room.

These bounce-house balls, left over from Young's unrequited dream of having a ball pit in which to interview potential employees, give the office a sense of whimsy. The pit didn't work out because Young underestimated the amount of balls needed to fill even a portion of one room, however.

The office exudes a leanness-- seemingly just what Zappos or any large brand needs for innovation. The company, owned by eCommerce giant Amazon, found success selling shoes by delivering top-notch customer service and offering free shipping.

But now it carries a little over 150,000 products, and it's not just shoes anymore. "People still tend to think about Zappos as shoes. Our business was built on shoes, but we're really trying to push apparel," Young said after showing off the Labs' inspiration room.

Going beyond shoe sales has been a longtime goal for the company. It's tried to build up its fashion presence by participating in New York Fashion Week and striking an exclusive deal with Betsy Johnson for its clothing line.

In the second quarter of the year, "apparel and accessories" was among the top categories for eCommerce sales, according to ComScore. Better yet, it was the highest-grossing category for mobile sales, with more than $700 million in sales between April and the end of June.

"Amazon is very good at running product warehouses," Young said. "Zappos transitioned our warehouse to be fully run by Amazon. But things like fashion-- they're still trying to figure it out. You simply can't be best at everything," he added.


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