Since 2021, the number of smaller donors contributing to nonprofits has declined, sparking a new interest in using technology to make it easier to give to a charity.
Economic upheaval, inflation and the ongoing decline in the use of checks and cash, which have traditionally formed the backbone of individual contributions to nonprofits, have taken a toll on small donations, according to the Association of Fundraising Professionals’ latest data.
“Donations are down for many nonprofits, particularly for small and local organizations, at a time when demand for services continues to grow,” said Rick Cohen, chief communications and operating officer for the Washington, D.C.-based National Council of Nonprofits.
But the recent success of a pair of payments startups in digitizing donations to nonprofits gives hope for a turnaround in small-dollar donations, which reduce nonprofits’ reliance on major donors and corporations.
GiveSmart, a software maker specializing in nonprofit fundraising that launched in 2008, saw the pandemic as an opportunity to rapidly shift donations from checks and cash to digital channels.
Introducing new email, online, app and text-based methods of collecting donations, GiveSmart helped organizations shift fundraising from in-person events to virtual channels, said Junaid Gill, senior director of payments for Community Brands, which owns St. Petersburg, Florida-based GiveSmart.
“The big change has been creating a comprehensive way for organizations to collect payments through any channel, which has helped them tap a larger database for recurring payments,” Gill said.
Over two years, GiveSmart nearly doubled the number of nonprofits using its platform, to 7,000, Gill said.
On the opposite coast, Los Angeles-based B Generous went live six months ago with a concept applying the popularity of buy now/pay later loans to donations by enabling individuals to space out donations over months through installment loans.
The firm has since signed up 80 nonprofits, including PETA, the Jewish Federation and Boy Scouts. B Generous’ “donate now, pay later” model is pulling in donations that average $470 each, compared with Nonprofit Hub’s national estimate of $128 per individual donor, according to B Generous Founder and CEO Dominic Kalms.
“The product is scaling very quickly,” Kalms said, noting that participating nonprofits say they’re seeing average increases of individual donations of 300%.
Recently, B Generous lined up secondary funding for loans with two undisclosed banks in addition to its core partner, Minneapolis-based Drake Bank, in anticipation of growing demand.
Participating nonprofits embed a B Generous link in their websites, and consumers who are approved through a rapid credit-check commit a dollar amount to donate to a nonprofit, which B Generous splits into installments of three, six or nine months.
Consumers pay via credit, debit or ACH. Drake Bank sends the full amount to the nonprofit for immediate use, and consumers get the full tax benefits immediately. B Generous and Drake Bank split a fee of about 7% that nonprofits pay to access the platform.
So far, B Generous has seen no defaults or fraud within the service.
“I’m sure eventually we’ll see that as we grow, but we don’t plan on chasing people down who default on donations,” he said.
B Generous plans to extend installment lending to finance tickets to nonprofit galas and charitable auctions. The company also hopes by next year to have a way for consumers to donate to any nonprofit, including those that haven’t directly integrated with B Generous, and it’s also working on a way to apply installment loans to crowdfunding initiatives.
“There are 1.7 million U.S. nonprofits and there’s a lot of demand for new approaches to funding donations,” Kalms said.
The runaway popularity of BNPL loans in recent years was key to B Generous’ quick growth so far, Kalms said.
“I don’t think we would have gotten this far without the success of BNPL, which made it easy for everyone to understand what we’re offering,” he said.
The nonprofits’ shift to digital payments began before the pandemic, but charitable organizations weren’t aggressively pushing the change, said Cohen, of the National Council of Nonprofits.
While many donors still use checks and cash, nonprofits have steadily expanded their ability to accept digital donations in recent years, making it easier for donors to set up recurring contributions, boosting donations and reducing the need for nonprofits to prompt donors for every contribution, Cohen said.
One of the downsides many nonprofits cite for resisting digital payments is the 2% to 3% it costs to accept a card transaction, Cohen said.
“Credit card donations can mean a nonprofit only gets $97 out of a $100 contribution, and those losses of $3 here and $8 there can add up,” Cohen said.
Certain nonprofits offset the fees by prompting credit card users to round up to cover the processing fee, but not all nonprofits do, and not all donors check that box, he said.
Installment loans could offset their fees by enabling consumers to make bigger donations, Cohen said.
“As long as there isn’t too much of a cut [from fees], BNPL donations could be helpful,” Cohen said.