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Comment by kghose | Hacker News Reader

I don't understand why kickstarter can not deduct the money from the card/account and hold it until the deadline passes. If the goal is not met all the money is refunded.

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That costs Kickstarter more money than waiting until the end.

If Kickstarter deducts in advance and refunds later for a failed campaign, then it must do two credit card transactions: once to charge the money, and another to refund it. Additionally, refunds are sometimes more expensive than charges.

Not only that, but Kickstarter would also have to worry about situations like, e.g., Alice pledges money, and then later closes her card account. How would Kickstarter get the money back to Alice?

So it's almost certainly done for reasons of simplicity and avoiding legal/ethical obligations about safeguarding the money in escrow.

Indiegogo has surmounted those obstacles and charges a pledge when it is made then refund slater if the campaign doesn't succeed. That might be a competitive advantage going forward.

I reckon you could charge a certain % of the pledge to prevent this kind of trolling. You'd still be allowed to back out, but the money would stay on Kickstarter and cannot be withdrawn, but instead just put towards another campaign (but that money no longer counts towards the reserve of future campaigns). This makes sure that the troller gets their money locked up in Kickstarter. Few if any legitimate Kickstarter funders would be bothered by this and if they really were bothered by it, Kickstarter staff could evaluate those few incidents on a case by case basis.

> Few if any legitimate Kickstarter funders would be bothered by this

Except those that only come to Kickstarter to back a specific campaign, instead of backing lots.

Then these people should better not back out.

so sort of like store credits, where you return a good you purchased, but can only use the credit to buy something else from the store.

I don't know if "surmounted" is the right word. Kickstarter has made deliberate choices to operate this way. Kickstarter favors the backers, not the campaign. They surely know well how the system operates, and it's not an obstacle per se, but a rule of their game.

That is an option that can be changed, there have been indiegogo projects such as the ubuntu phone, that would only have charged if funding had been successful.

Not true. I was frustrated when indiegogo deducted money from my bank account instantly when I pledged for the Ubuntu phone. It was surprising because I had only pledged significant amounts on kickstarter previously. Honestly, for someone without much in the way of liquid assets it was frustrating to have so much money frozen for over 30 days.

And you highlight probably the biggest issue with indiegogo's approach. Keeping money tied up while waiting for the project is pretty bad.

They could reserve the funds in the account (like most sites do), right?

The time an authorization on a credit card lasts varies by issuer; it may be as little as week on some cards. That said, many payments gateways allow you to later process a new authorization with the original transaction reference.

Even if they can't re-authorise, they could just do authorisations for donations made in the last week.

I don't have a document handy, but it is in Visa's merchant ToS (at the least, I don't know about other CC companies) that you can't actually charge a credit card until the good they are paying for has been shipped to them.

This is why when you order things online, your credit card is typically not charged (i.e. Apple pre-orders) until your item has shipped.

IANAL so I don't know how certain things work such as Tesla deposits (what did they "ship" to you for $2,500?) and so on. But I've heard this is why Kickstarter can't do this directly.

I'm sure there are ways around it, but something to keep in mind.

This is why Kickstarter is not a store. A pledge is not the purchase of a good, it's a donation towards a goal with an optional reward attached to it.

I doubt it's a donation. Who can accept donations is highly regulated because taxes.

Not true. Anyone can accept donations, in the US anyway. (Are there really other countries that prevent you from giving money to someone?).

The receiver will have to pay income taxes on the donations; and the giver will not be able to deduct the donation on their own income taxes. That's what requires special status.

This actually makes me realize I never thought about how people have to pay income tax on what they receive via kickstarter; I can't think of any reason they wouldn't. http://www.kickstarter.com/help/taxes

Assuming the people running the kickstarter campaigns are running a business, they only need to pay taxes on net income. I imagine most kickstarter campaigns go through the money fairly quickly so that's probably not typically a problem.

Who can accept tax exempt donations is highly regulated. You can donate or gift money to anyone, you just may not be able to make it tax deductible.

That doesn't seem to make sense. The funded parties generally aren't sending you anything immediately after it's funded either. You're backing a project which eventually may send you an item, after it's been created in some way.

That is money transmission. Once the money leaves the credit card it needs to stay out of the control of kickstarter otherwise they become money transmitters and that's becomes a huge can of worms for them.

I believe that it's because of card processing fees don't work out in that situation. They'd lose money on failed projects.

To help solve this problem they could do an auth once the project reaches the time limit of their auth requests (eg 7 days before the project ends). Anyone who has the auth fail would be placed in limbo and their pledge withdrawn until they add a valid card. That way the project creators would know exactly how much money they could get if no one pulls out.

I know a few crowd funding websites that place an authorisation on your card, but release it if the campaign is unsuccessful.

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