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Paypal Shafts Indie Developer, Withholds Donated Money

Illustration for article titled Paypal Shafts Indie Developer, Withholds Donated Money

It was one of the year's feel-good stories when Lab Zero Games raised over $800,000 so they could make more content for indie fighting game Skullgirls.

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It's one of the year's saddest stories, then, that Paypal is being really weird with the studio's money.

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Most of the contributions to Lab Zero's IndieGoGo campaign were paid via PayPal, but given the size of the amount, the net payment giant wanted the Skullgirls developers to "take on the risk" if a large number of backers decided not to actually pledge. Something the studio obviously couldn't do.

So PayPal froze Lab Zero's account, locking them out of their cash and preventing employees from being paid (part of the cash was to pay the wages of the developers needed to create the content).

Following complaints, including one lodged with the Consumer Financial Protection Bureau, PayPal have since opened up the account, though they're still holding $35,000 as "collateral".

Skullgirls DLC Character vote | The Campaign united us, The Voting will destroy us [NeoGAF]

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Skullgirls funding held by Paypal [GI.biz]

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OneTimeUseName
OneTimeUseName

I work for a bank as a credit card processor, so I'd like to shine a little light on this subject for people who don't know the details of running a business.

So, for those of you who have never ran a business, or thought of running a business, let me clue you in on how merchant processors work.

When you process payments on behalf a merchant, you're essentially taking on the risk associated with those transactions. Doubly so when those transactions are virtual. You see, when there is a virtual transaction, there is nothing proving a product or service has been delivered.

What this means is: if you are not happy with your transaction, you can go to your credit provider and dispute it by saying say one of three things. "This is unauthorized," "I have not received my product/service," and "The product/service I received is not satisfactory"

Now, every time you receive one of those, the processor is dinged for an extra 20USD on every transaction that goes south, on top of the actual amount of the product. Also, every chargeback(that's what stopping payment is through your CC,) puts you in the direction of being non-compliant. The acceptable rate for credit card issues in the general industry is 1%, get more than that, and your processing rates go higher and you are deemed a more risky business.

This type of chargeback happens a lot with virtual items and sellers of virtual goods, so, to stave off any of the excessive risk, some processors ask for collateral, or reserves to help defer the associated risk. This is common practice for the industry.

The headline of this article is hyperbole to the max and honestly, PayPal should know better with a PR sense, but this isn't the big man keeping the little man down, this is business as usual for a business to function.