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+<html>
+<head>
+<title>PayPal trouble delays project</title>
+<meta name="author" content="Werner Almesberger" />
+<meta name="date" content="2015-12-06 15:52:42" />
+</head>
+<body>
+
+<p class="lead">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.</p>
+
+<p>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.</p>
+
+
+<h3>What happened</h3>
+
+<p>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.</p>
+
+<p>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
+so.</p>
+
+
+<h3>Timeline</h3>
+
+<p>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.</p>
+
+<p>Since some banks occasionally block accounts while waiting for routine
+paperwork, we were not overly alarmed at that time.</p>
+
+<p>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.</p>
+
+<p>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.</p>
+
+<p>We interpreted this to mean that incoming payments would be held for
+some days or weeks, to ensure their validity. This still sounded
+somewhat reasonable.</p>
+
+<p>The next shoe dropped in September, when PayPal revealed the conditions
+of this reserve:</p>
+
+<ul>
+<li>almost all of the existing balance in the account would be held for
+ the reserve.</li>
+
+<li>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.)</li>
+
+<li>PayPal elected to set the percentage to withhold to 100%.</li>
+
+<li>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.</li>
+
+</ul>
+<p>Considering that the project operates with minimum margins, just having
+most of its assets frozen for an unknown amount of time would be
+disastrous.</p>
+
+<p>PayPal wrote that such a reserve was normal for "card sales", suggesting
+some confusion on their end.</p>
+
+<p>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
+completed.</p>
+
+<p>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.</p>
+
+<p>Payments made by wire transfer to the Neo900 UG bank account are not
+affected by all this.</p>
+
+
+<h3>Why are they doing this to us?</h3>
+
+<p>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.</p>
+
+<p>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.</p>
+
+<p>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.</p>
+
+<p>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.</p>
+
+<p>One may now think that PayPal are simply malicious. Some people
+who had experienced similar issues seem to <a href="http://garethhayes.net/paypal-warning/
+" target="_blank">have reached this
+conclusion</a>.
+However, we eventually found (thanks to "ravelo" who pointed us to
+it) a much more plausible explanation: PayPal may simply be
+responding to <a href="http://www.digitalmarketer.com/paypal-vs-stripe-vs-merchant-account/
+" target="_blank">the chargeback risk that comes with accepting credit
+cards</a>.
+Unfortunately, PayPal choose to do this in a way that is extremely
+intransparent and harmful.</p>
+
+
+<h3>Why did we use PayPal at all?</h3>
+
+<p>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.</p>
+
+<p>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.</p>
+
+<p>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.</p>
+
+<p>PayPal proved to be very popular. For example, the project received in
+September almost 60% of the payments through PayPal.</p>
+
+
+<h3>Consequences</h3>
+
+<p>PayPal's aggressive blockade of most of the assets of Neo900 UG has
+the following consequences for the project:</p>
+
+<ul>
+<li>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).<br/>
+ If international wire transfers are expensive or difficult in your
+ country, you may want to consider to use <a href="https://transferwise.com/" target="_blank">TransferWise</a>, which may offer better conditions.</li>
+
+<li>in order to avoid misunderstandings of the kind PayPal allege, we
+ have also posted <a href="http://talk.maemo.org/showpost.php?p=1485640" target="_blank">a summary of how this project is financed</a>
+ and we have made small changes to the terminology used to describe
+ our project on neo900.org and in the shop.</li>
+
+<li>since most of the liquid assets of Neo900 UG are blocked, we had to
+ halt all advance purchases.</li>
+
+<li>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.</li>
+</ul>
+
+<h3>Communication with PayPal</h3>
+
+<p>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.</p>
+
+<p>The most common responses were:</p>
+
+<ul>
+<li>PayPal assured all our customers that their payment went through and
+ that it has been credited to the account of Neo900 UG.<br/>
+ 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.</li>
+
+<li>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.</li>
+ </ul>
+
+<p>We therefore think it unlikely that payments that ended up in the
+reserve can be liberated through a dialog between our supporters and
+PayPal.</p>
+
+<p>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.</p>
+
+<p>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.</p>
+
+
+<h3>How to fix it</h3>
+
+<p>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
+sweeping liberties.</p>
+
+<p>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.</p>
+
+<p>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.</p>
+
+<p>For your convenience, we have prepared the following template:</p>
+
+<pre>Dear PayPal,
+
+regarding my transaction, ID &lt;transaction&gt;, 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.
+
+Kind regards,
+&lt;name&gt;</pre>
+
+<p>In the above template, please fill in the following fields:</p>
+<ul><li>&lt;transaction&gt;: the ID of your PayPal transaction (e.g., 3UF390823E5159484)</li>
+<li>&lt;name&gt;: your name</li></ul>
+
+<p>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.</p>
+
+<p>Thank you for your help!</p>
+
+<p>&ndash; The Neo900 team</p>
+
+</body>
+</html>