A Brave New World of Giving

Posted by admin on Aug 10, 2018 11:31:35 AM

Donors can now give money online to every charity in America. Seeking to do good works -- and to make money doing it -- a score of dot-com businesses have started Internet sites that they hope will become a one-stop place for donors to make all their gifts to charity. Some of the sites offer donors the opportunity to give to any organization that has been granted charity status by the Internal Revenue Service, while others are more selective. Such giving sites, or "philanthropy portals" as they are sometimes called, have been cropping up so fast that non-profit officials cannot keep track of them all. Many were started in the last six months, while others are still so early in the development stage they have yet to be announced to the public.

Businesses -- and a few non-profit organizations -- that have established such sites are betting that they will transform philanthropy, by cutting fund-raising costs and bringing charities many contributors they might never have reached through traditional solicitations.

But many seasoned fund raisers have their doubts. They say it's unlikely that large numbers of potential contributors will be attracted to these new philanthropic sites.

Among the obstacles: Donors might be put off by the percentage of each gift that some sites take to cover their overhead costs, as much as 15 percent in some cases, and by concerns the I.R.S. has raised about whether contributions made through some sites are tax-deductible. Perhaps more important, letting potential donors know a site exists and is worthy of visiting regularly will cost the sites many millions of dollars in advertising and promotion costs -- and could make it impossible for them to ever be self-sustaining.

David Eisner, head of the America Online Foundation, which started Helping.org, one of the most ambitious giving sites, says, "The cynicism is unwarranted." He adds: "We are building these tools and we have not seen their greatest application yet. Giving through these sites will become a tidal wave."

A Chronicle survey of 17 of the sites found that only four were willing to reveal how much has been donated so far: AllCharities.com ($250,000), DonationDepot.com ($10,000), GiveDirect.org ($325,000), and GiveForChange ($700,000). Because the sites must divvy up the money among dozens or hundreds of different organizations selected by the donors, no one charity is likely to have received much.

Charities interviewed by The Chronicle said they had received only small sums from giving sites thus far -- usually less than $1,000. The American Lung Association, according to its chief operating officer, Joseph Bergen, has received "$25, $30, or $40 from a few sites. It's so minimal we don't even track it." Its own Web site raises up to $200,000 each year.

The Salvation Army's national headquarters received $2,200 from Helping.org, which started collecting gifts in October, and $25 from AllCharities from December 31 to March 7. In contrast, the Salvation Army's Web site took in some $200,000 from November to February.

Founders of the giving sites say they realize they face challenges in making their sites into viable businesses.

Many of them hope to attract revenue and traffic by offering a multitude of services. Some help people find volunteer opportunities online, sign up to participate in walkathons and other charity events, learn about groups that work on specific causes or in particular regions, keep a record of their online gifts, buy merchandise with charity logos, or communicate with like-minded donors. A number of Internet companies are exploring ways to tap into the lucrative employee-giving campaigns run by corporations and other employers.

"We want to be everything to everybody in the non-profit world," says Todd Goozh, director of non-profit relations at CreateHope, a Bethesda, Md., organization that is starting a new donation site this month.

By offering features that appeal to large numbers of people, such sites hope to make money from advertisers or sponsors who are willing to pay to appear on sites that attract a lot of visitors. Some also hope to make money by conducting a large volume of transactions and charging fees on each gift, while others try to attract charities that pay membership fees to be listed on the site or buy other services.

The competition among giving sites to attract charities that will bring prestige and large numbers of visitors has been getting more and more intense as the number of such sites has multiplied. Several sites are now offering charities that agree to be listed the opportunity to win cash prizes, and at least one, 4charity.com, has even promised to give its charity participants stock in the company.

The array of pitches from the giving sites comes at a time when many charity leaders are inundated by Internet companies offering online fund-raising services such as auctions, shopping sites, and marketing promotions.

"It's a constant stream of people who say, 'I can do this for you, I can do that for you. We can make you millions,'" says Paula Van Ness, president of the Make-A-Wish Foundation of America, in Phoenix. "Many of these people really believe what they are saying, but how do we evaluate them?"

For many charities, it's not just the pitches that are overwhelming but the number of sites they need to monitor to see whether their organizations have been listed without permission. Some sites, especially those that screen charities to determine their legitimacy, have formal agreements with charities they represent.

But many of the giving sites, such as AllCharities, 4charity, Helping.org, and Shine, have obtained information from the I.R.S. about every organization that has been granted charity status and have posted it, along with the option of making a credit-card gift to those charities. Officials of the giving sites note that the revenue service's data are publicly available, so they don't think they need to get permission from charities before listing them. However, most say they're willing to take any charity off their site that doesn't want to be included.

Failure to get permission could cause problems for donors who try to claim a deduction for their gifts on their income-tax forms. Gifts made via sites run by charitable organizations will probably qualify for deductions, experts say. But the I.R.S. has not issued any formal guidance explaining what happens when a donor gives to a charity through a site run by a for-profit business.

In a training manual for its agents, however, the agency said it had examined at least one company-owned giving site that accepts donations for several charities and takes 15 percent of each gift to pay its overhead costs.

The I.R.S. guide noted that donors can generally claim a deduction when a charity has hired a company to receive gifts in its behalf. But in such cases, the company is expected to keep gifts to the charity separate from its own monies and transfer funds earmarked for charity promptly, the agency noted. The company generally must also have a written agreement or contract with the charity. Many giving sites do not have such contracts, however, particularly those that list all charities registered with the I.R.S.

Some for-profit sites are trying to get around any potential problems by arranging for non-profit organizations to accept online donations for them. Gifts made via the Shine site, for example, go directly to the non-profit National Philanthropic Trust. AllCharities has created its own tax-exempt entity called the Internet Giving Foundation to accept contributions.

Even though Internet businesses have found ways to avoid deductibility difficulties, some legal experts are bothered by the lack of formal agreements between charities and many giving sites. Celia Roady, a Washington lawyer who specializes in non-profit cases, says she is worried about the potential for fund-raising abuses by Internet companies that use charities' names to seek online revenue.

"You cannot simply appoint yourself as somebody else's agent without their permission," she says. "The question posed by many of these sites is whether you can be a fund raiser for someone who doesn't even know you're raising money for them." 

Charities are also worried about the potential for abuse. "It is a little frustrating that we find ourselves on sites that we did not agree to be on," says Gabriella Fitz, who oversees Internet operations at America's Second Harvest, a national network of food banks that has received some small checks, in the $30 or $40 range, from donation sites.

The giving sites face other legal questions beyond tax deductibility. State officials are trying to determine how best to protect online donors from fraud.

They are now considering whether the giving sites need to comply with the same rules applied to direct-mail, telemarketing, and other companies that raise money for charity. In many states, such companies must register before soliciting; in some cases, they must file copies of their contracts with their charity clients and disclose the amount raised, their fees, and other details of the arrangements.

The National Association of State Charity Officials has drafted a set of guidelines to help states determine whether the donation sites should follow the same rules as other solicitors, but those rules have yet to be publicly announced.

Even without any official guidance, some sites like AllCharities, CharityCounts.com, and Givenation.com have registered with the nearly 40 states that require it. But others, like CharityAmerica.com and Conscious Change, argue that they don't need to, either because they do not handle donations directly or because they are not actively soliciting people by contacting them and asking for money.

Aside from such legal issues, the giving sites have been subjected to some attack over the size of their fees. The criticisms, plus the fierce competition among the sites, has caused many to take steps recently to lower or eliminate the administrative fees taken out of each donation.

The National Society of Fund Raising Executives studied the issue of fees and announced in March that it believed that it was ethical for Internet businesses to charge reasonable fees for transactions involving gifts, just as banks and financial institutions charge a small percentage to process off-line contributions.

But some fund raisers believe that percentage-based fees charged by giving sites don't resemble such financial fees as much as they do commissions -- which N.S.F.R.E. says are unethical for fund raisers. The society's longstanding view has been that a fund raiser who receives compensation based on a percentage of gifts might have too much personal incentive to press donors for bigger and bigger gifts, while a fund raiser who receives a salary or flat fee will be motivated to seek the most appropriate amount given the donor's resources.

While ethical and regulatory questions persist, they pale in comparison with the fundamental doubts that some non-profit leaders have about the long-term viability of the charity sites.

Giving sites may help small groups that are not yet online raise a few dollars, experts say, or they can be a useful research tool for people who want to find specific charities. But many think that donors would prefer to give directly through a charity's own Web site.

"I am fundamentally leery of intermediaries who get between charities and those who want to connect with them," says Mark Rovner, senior vice president of Craver Mathews Smith Interactive, an Arlington, Va., direct-marketing agency. "Is this really what donors want?" 

Others worry that the sites are too commercial, and are based on the idea that giving to charity on the Internet is no different from buying a product online. Many founders of dot-com giving sites, they note, have a corporate or technology background rather than extensive experience in the non-profit world.

"The portals are seeking a relationship with donors not as donors but as consumers, yet there are probably only a small fraction of donors who are shopping for a place to give," says Michael Gilbert, the founder of Social Ecology, a Seattle organization that seeks to promote effective uses of technology among non-profit organizations.

Kurt Hansen, chief executive officer of CharityWeb, agrees: "People don't go online saying, 'I want to give away some money today. Who will I make a donation to?'"

Mr. Hansen says that he initially started his company as a giving site three years ago, only to realize that charities were more interested in steering donors to their own sites. His Mountain View, Calif., company switched strategies and now provides credit-card processing and other tools that charities use on their own Web sites.

Several other giving sites have also changed their approach because of fears about the prospects for multiple-charity sites. Charities Today last month got rid of its donation feature. Non-profit groups pay from $300 to $1,200 annually to be listed on the site; the higher the fee, the more detailed the financial and information that is posted about the group.

"My hope is not so much that people will read my information and give $1,000 online," says Charities Today's founder, Doug White.

"A person needs a relationship with a charity before giving," he says. "So I hope they will read my information and make a phone call or use a link to the charity to start communicating with it directly."

Charitableway has shifted its focus from luring individual donors to give through its site to seeking corporate customers. With more than $40-million in venture capital, the Internet company's business plan hinges on appealing to corporations that will pay Charitableway to build Web pages for their employee-giving campaigns and process donations electronically. Many other dot-com giving sites -- including Shine, the Giving Network, and Givenation -- are planning to add similar on-the-job features that they can sell to companies.

While many are skeptical about the giving sites, not everybody is.

Teach for America, a New York charity, has received $882 from Helping.org since February. While that's just a fraction of the $775,000 the charity netted in one night from a fund-raising gala, "we have done nothing to earn that revenue," says Asha Sekhri, vice president for development. "That's the beauty of linking up with these sites: $100 here and $300 here and $500 there. If you spread it across 10 to 20 sites, that is money you are not spending much energy to make."

Others point out that donation sites offer a new resource that people can use to quickly and easily find causes to match their interests.

"You can research charities with your family around the monitor and find a group you like; there was really no way of doing that before," says Putnam Barber, president of the Evergreen State Society, a Seattle organization that helps non-profit groups become more effective.

More important, he says, is that companies and non-profit groups are putting a lot of imagination, energy, and money into figuring out how the Internet can be used to stimulate giving. "We need an active marketplace in which people try out these models," says Mr. Barber. "Some will survive in some form, and the rest will be acquired or go away. But donors will ultimately benefit from all of this. It will keep the costs of giving down."


Custom Development Solutions, Inc. (CDS) is one of the most sought after fundraising consulting firms specializing in the strategic planning and tactical execution of capital campaigns for non-profits throughout the United States and Canada.  If you have a fundraising question, please call CDS at 800-761-3833 or send an email to info@cdsfunds.com.

Topics: Capital Campaigns, Communications and Networking, Fundraising Principles, online donations, online giving

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