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Crowdfunding and PayFast

What is crowdfunding?

Crowdfunding is the practice of funding a project or venture by raising money from a large number of people. Well known crowdfunding platforms like Kickstarter and Thundafund allow people to list projects on their site and then members of the public can fund their projects by pledging an amount of money of their choice.

Can I use PayFast to accept payments for a Crowdfunding site?

Technically yes, but all payments through PayFast MUST be for "goods or services". The only exception to this is where donations are accepted by registered non-profit organizations (a registered NPO, section 21 company, not for profit trust etc.).

Generally, crowdfunding sites are not run by registered NPOs so they cannot simply accept donations. 

If you run a for-profit website, ensure that the backer receives something for their money. This could be one of the products being developed, a T-shirt to do with the project or something similar.

If you are a non-profit organisation, you can then accept donations that go towards a specific project without the "backer" needing to receive anything in return.

What if a project doesn't meet its funding goal? Will the backers be refunded?

In developed markets where crowdfunding sites have become popular, credit cards are the most popular form of payment used by the majority of the population. Normally the backer would make a "pledge" which is secured by an authorisation (or "auth") on their credit card.

This authorisation "reserves" the money on a backer's card, but it doesn't deduct the funds from their account yet. This is done at a later stage by the crowd-funding site that authorised the transaction and is known as "settlement". If the project doesn't meet its goal, the authorization will be canceled and the backer will not be charged.

This only works where all the backers have credit cards. In a developed market, this is true, but not in a developing one such as South Africa.

In South Africa, credit cards are only used by about 10 - 15% of the population. The market is equally split between credit card and EFT (Internet banking) payments. Unfortunately, an EFT does not have the concept of “auth” or “settle” like credit cards. Once an EFT payment is made, it's not reversible.

We suggest accepting payments via a variety of mechanisms, chiefly by credit card and EFT, and manage refunding of payments internally, no matter what method was used to pay. 

Another suggestion is converting failed pledges into "vouchers" or some form of credit within the crowdfunding system which can be used to back another project.

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