Tanvi’s Take: Charitable Giving is the Next Big Thing in Fintech with a $11.8B+ Market Size
69% of all US charitable giving in 2020 came from individuals (more than foundations and companies put together!).
The average American donated $5,931/year to charity pre-pandemic. Millennials and Gen Z gave the most during the pandemic but even before that were the most likely to donate to disaster relief organizations. 32% of Gen Z donate their own money. Individual charitable giving is up, and it’s driven by Millennials and Gen Zers.
As the charitable giving space gains momentum, there is a clear opportunity for fintech. After all, non-profits can run the most engaging fundraising initiatives but without a simple way for individuals to donate, non-profits miss out on the money. That’s where fintech comes in.
Before we get into it, let’s do a quick market sizing. Americans donated a total of $471.44 billion in 2020. Both Stripe and PayPal’s discounted non-profit payment processing fee structure is 2.2% of donation dollar volume + $0.30 per donation.
Putting this together, and assuming an average donation amount of $100, we get a whopping $11.8 billion market size just from processing donation payments!!! Holy smokes!
To put this in context, PayPal processed a total of $10 billion in donations in 2019. Using their fee structure, and assuming an average donation amount of $100, they raked in approx. $220.03 million from donations alone pre-pandemic.
With such a large market size for just donations payment processing, there’s no doubt that charitable giving (whether its payments or other services) is a burgeoning and profitable market that fintech and investors should pay attention to.
Five Giving Fintech Trends I’m Tracking
1. The Rise of B2B2C Donations Processing
There is an increasing expectation for corporations to be socially minded. In fact, 66% of workers expect their company to be philanthropic. As a result, philanthropic companies are more likely to retain workers and boost employee engagement. Companies like Alaya and Deed, which make it easier to manage for companies to manage employee donation programs, are banking on this trend.
There’s even been M&A in this space. Similar companies to Alaya and Deed have been acquired in the past few years (social good software provider Blackbaud acquired YourCause and non-profit America’s Charities acquired Causecast).
2. Cryptocurrency Donations
Coinbase CEO Brian Armstrong remarked that if Bitcoin hits $200k in value, half of the world’s billionaires will be from cryptocurrencies. Bitcoin is currently at ~$50k so this is a big IF; however we cannot ignore the increasing wealth individuals have in cryptocurrencies. If cryptocurrencies are the main source of one’s wealth, it holds that they would likely want to donate using cryptocurrencies. Donations in the form of cryptocurrencies have a couple of benefits: potential increase in value (depending on volatility) and simplified international aid. The reality, however, is that your average non-profit is not resourced to manage such a complicated asset. While platforms like The Giving Block enable non-profits to accept cryptocurrency donations, there is nothing that helps non-profits optimize cryptocurrencies. What if there was an intermediary that managed and hedged the risk (like how Stable is doing for commodities insurance)? What about NFT donations?
3. Blockchain-Enabled Donations
Two of the most commonly known benefits of the blockchain, smart contracts and increased transparency, have huge positive ramifications in donations. Smart contracts will make the actual process of donating quicker and easier, while transparency will ease consumer doubts about where the money is going. There’s a lot of exciting work already going on here, with companies like Alice (blockchain-based crowdfunding platform), BitGive (blockchain donation platform), and Binance Charity (transparent donation platform) rethinking how donations are done.
4. Individual Access to Donor Advised Funds (DAFs)
DAFs are tax-deductible financial accounts meant purely for charitable giving. One can donate cash, stocks, and even cryptocurrencies into a DAF. The money sits there (and may appreciate depending on how the DAF is managed), and the individual decides when and where to donate the money. DAFs have typically been associated with high-net-worth (HNW) individuals and there have been allegations that individuals manipulate the account to reap tax benefits. But no longer will the charitable giving DAFs enable be reserved just for the 1%. Companies like Groundswell, Daffy and CharityVest and creating DAF access for individuals through both D2C and B2B2C channels. It’s an exciting development, and I’m curious to see what other charitable products and services that exist for HNW individuals could be democratized for the everyday consumer (maybe Charitable Lead Trusts?).
5. APIs that Enable Donations
I’d be remised if I discussed fintech trends without discussing APIs. As donations become a more integrated part of our day-to-day lives, there will be demand to enable donations everywhere. Today, Pennies enables round-up donations at the point of sales. However, going forward an API could enable donations in other places and within products. Percent, who recently raised funding, has built just this: an API to help customers donate. With Percent, any company can enable donations as a part of their product. CEO Henry Ludlam even has eyes set on integrating into streaming services so you could donate as you, for example, watch a documentary that personally resonates. Again, we see some interesting M&A here: Pinkaloo, a company that creates APIs to improve the donor experience, was recently acquired by RenPSG, a philanthropic services provider.
Charitable giving is a niche I’m thrilled to see within fintech. Not only is it exciting and profitable, but it has the potential to drive tangible impact. While the pandemic likely encouraged and prompted higher donations, I’m bullish that consumer behavior in younger demographics will make this a recurring trend.
Questions? Thoughts? Please comment on this article, I’d love to hear them!
