Better Together: Why consolidation in the charitable financial market works.

At dinner with a few friends talking about charity, life, addiction and lego, when my ramble was interrupted: “I’ve never heard about charity talked about as a percentage of GDP” - something I had apparently let slip during the evening. Charity, in the eyes of most, is the quaint undertaking of the passionate few trying “change the world.” Charity is the thing we do because of moral, guilt, religious or societal pressure. Charity is a sidebar to our lives and our economy, it’s the bonus after our fixed and even variable expenses are paid off. Charity is small.

Wrong.

Let's look at the numbers, and one reason why ignoring these numbers (mainly by leaders of charities themselves) is detrimental to our economy. Advance warning, this is a fly-over. 

The charitable market in Canada is around 110 billion dollars [link to http://www.imaginecanada.ca/node/32] , or 7% of our country’s GDP [link to
http://en.wikipedia.org/wiki/Economy_of_Canada#Key_industries]: . To give some perspective, that’s larger than retail, transportation, the finance industry, education and just barely under the gas and mining industry. Yes, even the almighty Oil Sands. I guess I’ve missed my invite to our annual congress, lobby group, council or economic summit. 

The size of Canada’s charitable industry is significant . It’s a major player in the Canadian financial landscape and has (or could have) a lot of influence. One of the reasons (just one) why the size and scale of the charitable market matters, is around the issues of consolidation, and centralization of this financial market. 

We are a fragmented bunch. All 85 000 of us (charities) are managing our own money, processing our own transactions borrowing from our own institutions and functionally acting completely independent of one another, all under the name of autonomy of mission and independence of leadership and I would suggest a zero sum mentality over access to capital (a donor giving to you means a donors not giving to me right?). 

Why is this so problematic? A few obvious reasons come to mind, lets pick two and briefly explore them: cost and access. Our fight to survive, short term thinking mindset and general unwillingness to co-operate with those ‘not like us’ is hurting us tremendously in both present and opportunity costs and access.

Cost:

What does your charity spend on just the basics: Credit Card processing, cheque and bank fees, website security and PCI, receipting, and general donation processing technology as a percentage of what your charity nets in donations? I’d wager on the low end it’s 4% and on the high end… well lets take the low. 4% on the 10 billion that Canadians gave last year is $400 000 million dollars just on the very basic components of receiving a gift. Add in bookkeeping and compliance fees and the figure goes even higher. Could the downsides of consolidation be outweighed by the very obvious cost savings that would arise?

Access:

What did your charity spend on accessing the very fragmented capital available to the charitable sector (aka fundraising)? Sectoral average is around 20%. The sector is 110 billion dollars, but lets just focus on the 10 billion that’s donated every year (which is problematic as we know the difference doesn’t just magically appear either) and take 20% of that figure. If we operated like sectors much smaller than ours and had designated banks for the specific type of finances we needed (capital / long term, short-term money market etc) how would our approach to fundraising shift?

This is not an indignant on the costs of charity - it’s in part a reflection of the effects of a decentralized financial market for the charitable sector and it needs to change if we are ever going to actually tackle the worlds most significant problems. There are a lot of things wrong with capital, money and other markets, but one thing they understand is consolidation, and access reduces costs and increases opportunity. If our fundraising shifted to telling our story and raising awareness rather than hunting for fragmented pockets of money, could we better educate the sector? If we consolidated processing to a few specialized institutions could we shift our funding to developing more mission advancing technology?

Chimp Foundation, an operation I am connected to is trying to lead this shift. Starting with the donor market, it asks the question of what would happen when we increase Canadian’s access to, participation in, and knowledge of charity. Chimp right now is arguably immaterial financially speaking in the market place, but it represents something that could be industry changing. Through consolidating the donor market and leveraging the web to democratize the legal and financial charitable tools previously afforded only to the very wealthy, it could address those two really basic issues raised above: cost and access. 

Chimp launched the GiveOn campaign earlier this month. GiveOn is a consumer centred campaign that tries to highlight the idea that when we give together (centrally that is, not all to one cause) we can not only reduce costs, but we can find innovative ways to cover those costs for those who do not want to pay them. Partnering with another leading technology company, HootSuite, Chimp’s able to offer ‘fee free’ charitable transactions. This is interesting and significant to a point, but more because of what it represents than what the campaign around it provides right now. What it represents is hopefully a transparent conversation on the reality of fees in the gift processing market - a real conversation that neither cons people into thinking 100% “just happens” or that fees should be hidden. It also represents hopefully an insight into what happens when co-operation, consolidation and a longer term view of the market lead the conversation. Hopefully this idea signals one tangible reason why a little coordination in the market can go a long way in raising capital and reducing costs for all.

The tasks assigned to the charitable sector are too massive and too important for us not to be spending significant time thinking, planning and creating ways for us to solve the access to and cost of capital from a long term mindset. Money isn’t going to solve the most important problems facing humanity - you are. However, seeing the sector for its financial significance and potential can hopefully elevate our thinking away from fragmented, short term and scarcity thought processes and towards real collaborative solutions that overtime will help fuel the causes you are fighting for on our behalf.  

BIO: Jeff Golby works for Chimp Foundation, an online bank that allows people to manage and amplify their charitable giving. His role is to create a space where creativity, law, charity, money and trust come together in a way that inspires and motivates people to give.