Risks and Rewards With Donate Now, Pay Later Charitable Giving Model

Fewer Americans are donating to charity. Donate Now, Pay Later (DNPL) could change that.

It’s no surprise that charitable giving is down in the US right now — not when high prices have diverted consumers’ attention and dried up possible sources of donation cash.

Just how bad is the U.S. charitable giving drought?

Consider that fewer than half of all U.S. households give to charity, falling from 66% in 2000 to 50% in 2018 — and that’s when the nation’s economy was humming along.

Four years later, Americans did pitch in with ample cash donations during the pandemic, but inflation ate into most of that charitable giving growth.

According to BWF and The Giving Institute, the total estimated charitable giving in the United States reached $484.85 billion, representing a growth rate of 4% between 2020 and 2021. When adjusted for inflation, however, the actual charitable giving growth rate fell by 0.7%, which left significantly fewer dollars for needy charitable organizations.

Donate Now, Pay Later to the Rescue?

Stealing a page from the retailer-driven “Buy Now, Pay Later” playbook, charity-minded technology developers are rolling out new “Donate Now, Pay Later” tools that enable givers to fund charities via the installment plan model.

Consider B Generous, a philanthropic financial technology organization that recently rolled out the first-ever DNPL charitable giving mobile technology.

Donors can either give to one of 1.7 million charities via DNPL on the B Generous platform or press a DNPL button on their favorite charity’s website and donate on an installment plan, choosing to pay the full amount by nine months after the original donation was made.

The intended charity receives the full amount immediately, while B Generous charges a fee of between 8%-and-16% of the total donation amount. Meanwhile, the donor pays the donation installments with no interest and no late transaction fees.

According to B Generous, 73% of U.S. charities want to use DNPL to boost donations and 83% of charitable givers say that DNPL makes it more likely they’ll increase their charitable donations.

DNPL Upsides and Downsides

Charitable giving experts say the “Donate Now, Pay Later” idea has merit.

“For small donors, in particular, the decision to give is often motivated by emotion,” said Andrew Forman, Ph.D., associate professor of marketing at the Frank G. Zarb School of Business at Hofstra University. “These emotions can be aroused by a poignant advertising campaign, a natural or man-made disaster, or a cause that directly affects an individual or a loved one.”

However, due to the deterrents Forman notes, donors often fail to follow through on their impulses.

“The “Donate Now, Pay Later” model pushes back against some of the deterrents to giving,” Forman said. “In the same way that “Buy Now, Pay Later” can make purchases more manageable, the “Donate Now Pay Later” model could yield a perception that donor can “afford” the donation.”

“Also, the donor can make a more sizable total donation when broken into monthly payments–one that they feel might actually make some difference,” he added. 

Some Risks Attached to DNPL

Just like “Buy Now, Pay Later”, which can lead consumers to shell out more cash than intended, “Donate Now, Pay Later” brings some financial risk to the table.

“Proponents of this strategy point to an increase in donor gifts, which is admirable,” said Glen Goland, senior wealth strategist at the financial planning firm Arnerich Massena. “The problem our team has with these plans is the additional cost incurred, as there is usually a bank and some sort of middleman (or mobile app) that is earning a percentage of every dollar given.”

Goland said his firm’s reviews found these fees were often in the 8-15% range.

“Consequently, we discourage this sort of strategy for the same reason we discourage our clients from financing their livelihoods with their credit cards,” Goland said. “Sound financial planning should involve a budget you can stick with, and it should involve reducing unnecessary costs.”

“Paying a bank and a software company to help schedule your charitable giving is one of these unnecessary costs,” he noted.

A safer move might be to simply make a smaller recurring donation pledge to your favorite donation, one that doesn’t require a BNPL-type service.

“You can even adjust your pledge each month if you have a little more or a little less cash to spare at that time,” said Matt Schulz, chief credit analyst at Lending Tree. “That way, the charity still gets its money, but you don’t accumulate any new debt.”

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