More PayPal troubles
https://diaspora.koehn.com/posts/956959http://neo900.org/news/paypal-trouble-delays-projectThe truly open smartphone that cares about your privacy.
Dear Neo900 supporter,
If you have been following the project on IRC (Freenode #neo900) or
on talk.maemo.org, you will already have read that we are having
problems with payments made through PayPal.
We have now collected some more information, and we would like to
give you a comprehensive update on the situation, and how it affects
progress of the project.What happened
PayPal established a “reserve” on the account of Neo900 UG, preventing
the project from using the balance of currently EUR 37’934, which at
the time of writing represents more than two thirds of the liquid assets
of the project.
While communication with PayPal has been polite, we were given the
impression that our funds would be liberated within a reasonable amount
of time, and we provided PayPal with the information they requested at
various points in the dialog, PayPal have not removed the blockage and
have not even clearly indicated as to when they would be willing to do
In June, PayPal surprisingly blocked withdrawals from the account of
Neo900 UG. The explanation we received was that PayPal needed Neo900 UG
to provide various pieces of information regarding its business, and
that the block would be lifted once we provided this information.
Incoming payments were still possible.
Since some banks occasionally block accounts while waiting for routine
paperwork, we were not overly alarmed at that time.
Towards the end of July, PayPal also blocked incoming payments. Given
that we were at the time busy preparing for and then attending
CCCamp2015, it took a few weeks before we could provide all the
requested material, which we did at the end of August.
A few days later, PayPal allowed incoming payments again, but also
informed us that they would establish a “rolling reserve” on the
account, with details to follow in the following days.
We interpreted this to mean that incoming payments would be held for
some days or weeks, to ensure their validity. This still sounded
The next shoe dropped in September, when PayPal revealed the conditions
of this reserve:
almost all of the existing balance in the account would be held for
a percentage of all incoming payments would be held to further grow
the reserve, until reaching a total amount of USD 200’000.
(We had about EUR 40’000 in the account at that time, to spend
mainly on advance purchases but also on on-going development.)
PayPal elected to set the percentage to withhold to 100%.
the conditions for releasing the reserve were not clearly spelled
out, but there was an implied suggestion that funds entering the
reserve might be released after remaining there for 180 days.
Considering that the project operates with minimum margins, just having
most of its assets frozen for an unknown amount of time would be
PayPal wrote that such a reserve was normal for “card sales”, suggesting
some confusion on their end.
We were hopeful that these aggressive conditions were merely the result
of a misunderstanding, and PayPal themselves suggested that the reserve
could be lifted or at least improved once additional formalities are
We continued to accept payments through PayPal during all this,
expecting PayPal to act in good faith and to see a speedy resolution
as something in their own interest. However, after several exchanges
with PayPal failed to produce results, we decided to prevent further
damage and removed payments through PayPal from our shop.
Payments made by wire transfer to the Neo900 UG bank account are not
affected by all this.Why are they doing this to us ?
When blocking the account, PayPal indicated that they only needed
additional information about the account owner (Neo900 UG) and that
the blockade would be removed once the information was provided.
PayPal indeed did as promised, but replaced the blockade with the
reserve. Once again, the message was that more information (the
company’s registration number) was needed to loosen the reserve.That loosening never happen, despite providing the information.
PayPal also suggested that our supporters may not be sufficiently
aware of the crowdfunding nature of the project and the associated
risks, which in turn would increase the risk of unhappy customers
wanting their money back.
In further communication, there have been hints that the reserve
may be loosened after a while, or that part of the funds could be
released if we can present paid (!) invoices for project expenses,
but we basically got the impression that PayPal are stalling, and
are not interested in releasing the funds the project needs to
proceed.One may now think that PayPal are simply malicious. Some people
who had experienced similar issues seem to have reached this
However, we eventually found (thanks to “ravelo” who pointed us to
it) a much more plausible explanation: PayPal may simply be
responding to the chargeback risk that comes with accepting credit
Unfortunately, PayPal choose to do this in a way that is extremely
intransparent and harmful.Why did we use PayPal at all ?
Neo900 UG initially only accepted payments through wire transfer.
However, after many supporters asked for a means to pay by credit
card, due to wire transfers being difficult and expensive for them,
we looked for a way to accommodate these wishes.
Directly accepting credit card payments is known to be difficult,
especially for a small start-up like Neo900 UG, but PayPal quickly
emerged as a supposedly friendly option.While there had been reports in the past about similar incidents, PayPal
have not received much bad press in the last years, and we felt that
these issues must have been resolved since.
What we did not understand
at the time is that using PayPal would not solve the underlying problem
inherent with accepting credit cards, and in fact make it worse.
PayPal proved to be very popular. For example, the project received in
September almost 60% of the payments through PayPal.Consequences
PayPal’s aggressive blockade of most of the assets of Neo900 UG has
the following consequences for the project:
to avoid throwing good money after bad, we no longer accept payments
through PayPal in the shop. We continue to accept payments through
wire transfer (SWIFT, SEPA).
If international wire transfers are expensive or difficult in your
country, you may want to consider to use TransferWise
), which may offer better conditions.
in order to avoid misunderstandings of the kind PayPal allege, we
have also posted a summary of how this project is financed
and we have made small changes to the terminology used to describe
our project on neo900.org and in the shop.
since most of the liquid assets of Neo900 UG are blocked, we had to
halt all advance purchases.
we had to suspend all technical work for the time being, to focus
the remaining resources exclusively on restoring the financial
viability of the project.Communication with PayPal
Several supporters of our project have contacted PayPal to inquire about
the status of their payment and to ask that it be passed to Neo900 UG.
The most common responses were:
PayPal assured all our customers that their payment went through and
that it has been credited to the account of Neo900 UG.
While this is technically correct and we can see incoming payments
in the list of transactions and the account balance, it is at the
same time misleading in the sense that all this ends up being part
of the reserve and we cannot withdraw and use it.
PayPal refuse to provide customers with any details about the state
of payments that have been credited to the account of Neo900 UG,
claiming privacy policies prevented them.
We therefore think it unlikely that payments that ended up in the
reserve can be liberated through a dialog between our supporters and
However, we believe that PayPal may change their risk assessment if
enough customers assure them that they want payments to be liberated
to Neo900 UG and that, if PayPal complies with this request, they will
consider the transaction as successful and fully concluded, even if
the project should fail to deliver or run into any other problems.
We believe that such statements from customers would give PayPal the
assurance that, if chargebacks should occur regardless, they could
counter and successfully challenge them.How to fix it
We contracted a lawyer and had her send a letter demanding that PayPal
release the funds. PayPal responded one month later basically
reiterating their position and stating that the hostile blockade should
not have surprised us, for their terms and conditions grant them
Furthermore, since PayPal so far has not provided clear indications of
which payments are affected by the “freeze”, and we cannot deduce this
from the information available to us, we have asked PayPal to provide
us with a list of the transactions affected. We are awaiting a response
to this request.
To strengthen our case and to ease PayPal’s worries, we would like to
ask you, if you have made a payment to Neo900 UG since April 2015, to
consider contacting PayPal on your own, assert that you understand
the crowdfunding nature of this project, and request that your payment
(which may or may not be affected by the freeze) be released.
For your convenience, we have prepared the following template:
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regarding my transaction, ID , the seller Neo900 UG
(haftungsbeschraenkt), informed me that PayPal has frozen the funds
in a “Reserve”.
To my knowledge, this is due to a misunderstanding whether this
transaction constitutes a pre-sale or a crowdfunding payment.
I hereby want to make clear that it is a payment for crowdfunding, and
I fully understand the risks associated with that. So I would like to
request PayPal to release 100% of the funds to the seller, upon which
I would consider the transaction as successful and fully concluded.
Thank you for your attention to this matter. I hope Neo900 UG will
swiftly gain access to the funds to complete the project.
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In the above template, please fill in the following fields:
the ID of your PayPal transaction (e.g., 3UF390823E5159484)
We are very sorry about this complication that delays project progress
and unnecessarily molests our customers. We hope you nevertheless keep
up with your incredible support and enthusiasm.
Thank you for your help !
The Neo900 teamhttp://neo900.org/news/paypal-trouble-delays-project