While many donors exhaustively research charities before they give, few stop to consider which payment method they should use to express their generosity. And that could be hurting both the charity and the donor, according to a first-of-its kind study examining the costs and benefits of various payment channels.
The study found that the amount of a donation that makes it into the charities’ coffers varies, depending on factors such as size and frequency of giving. That means that a donor giving a one-time contribution of $500 might be wise to choose a different method of payment than one who contributes $50 a month.
The findings provide new insights into a rapidly evolving payments landscape in which the costs and benefits of different payment methods need to be factored into charities’ business plans, said Clam Lorenz, general manager of social innovation, North America, for
PayPal, which commissioned the study.
“I’m not sure how often charities think about how much they pay to get paid,” he said. “We’re hoping this creates a general baseline of awareness that enables a charity to begin to ask questions and engage with their supporters in new ways.”
The
study, conducted this spring in partnership with the economics research team at Sidley Austin, examined more than 20 academic and nonacademic studies of payment methods – focusing on the direct and indirect processing costs of paper checks, credit cards and digital wallets – and surveyed 864 charities of varying size and maturity about fundraising practices. It did not factor in wire or ACH bank transfers – the payment method preferred by many large donors – since it is much less frequently used.
Among the key findings:
- Most charities accept all of the top four methods of payment by volume, with paper checks accounting for 44 percent of the total, followed by credit cards (22 percent), digital wallets such as PayPal (21 percent), and cash (13 percent).
- Digital wallets and credit cards hold a significant advantage over checks when it comes to lower donation amounts. The processing cost of a $50 gift, for example, runs $3.25 for credit cards and $3.15 for digital wallets while it’s $3.63 for checks.
- Digital wallets also hold the advantage when donor costs, such as time spent, are included, costing an average of $3.28 vs. $4.15 for credit card and $4.30 for a check.
- Checks remain the cheapest method of accepting single donations of $100 for the charities, with an average processing cost of $3.61 vs. $4.15 for digital wallets and $4.25 for credit cards.
- Digital wallets are cheapest when it comes to repeat or recurring donations – a growing trend in philanthropy – and problematic gifts, such as when a donor has incorrectly filled out a form or fraud is involved.
- Larger and more established charities tend to value the benefits of a check, while younger emerging charities prefer digital wallets.
PayPal’s Lorenz said the study fills in knowledge gaps about the changing use of payment methods that can help charities navigate the shifting landscape ahead.
“Nearly half of all individual giving still comes via a check in the mail, but the demographic of donors who prefers checks is shrinking over time,” he said. “The best way to encourage the type of donor that is most important to the long-term viability of an organization – the one that gives regularly, repeatedly and is fully committed – is through digital giving.”
Interviews with some charities surveyed for the study indicate that incorporating digital wallets into their business models has paid off.
Ettore Rosetti, senior director of social business strategy and innovation at
Save the Children, said the worldwide charity established in 1919 was an early adopter of digital wallets and was one of the first to accept Bitcoin.
He said the charity that pioneered the “Sponsor a Child” recurring gift campaign initially had difficulties integrating the new services with its legacy systems. They pressed on because digital wallets offer a big advantage over credit cards when it comes to repeat giving: they don’t expire or get lost, or require issuance of a new card with a new number.
“That creates disruption in our business,” he said, “and adds cost.”
Digital donors, who tend to contribute more often in smaller amounts, also are becoming increasingly important to nonprofits in general, Rosetti added.
“We’d rather have a donor that gives $5 a month than someone who gives $60 once a year,” he said. “We prefer someone who stays with us for a generation.”
Having digital wallets as a payment option is critical in reaching new younger donors, too, said John Mix, director of digital marketing for the
International Rescue Committee. He noted how digital wallets were key during a recent fundraising effort for Syrian refugees organized by the gaming community.
“Some donors like a variety of options and if you don’t have one they might go to the other,” he said. “But some of these gamers, they had no credit cards. It’s PayPal or nothing.”
The IRC invested in a direct integration when it began offering PayPal as a donation option in October 2015. But Mix said he knew it would be worth the effort after fielding several calls from donors asking why PayPal wasn’t available.
Today, PayPal accounts for between 11 and 15% of the IRC’s smaller donations.
“From my perspective, it is pure customer service,” he said. “People just want PayPal and I have to meet them where they are.”
This is a contributed post from guest writer Mike Brunker. Mike Brunker is an award-winning veteran journalist of three decades who has covered technology, business, the economy and even country music. He has worked in traditional media at San Francisco Bay Area newspapers and online at msnbc.com and NBC News Digital.