When Fintech Met Philanthropy

Tis the season for giving.

35% of Americans anticipate donating to charity on Giving Tuesday this year. This is in spite of the fact that the threat of a potential recession weighs heavily on the minds (and pockets) of consumers. Charitable contributions have been staples of the holiday season for time immemorial. However, in recent years, technological innovation has radically changed the method and frequency with which individuals participate in philanthropy. This, in turn, has had knock-on effects on the organizations that are the recipients of these gifts. While fintech is commonly associated with digital infrastructure and retail applications, the philanthropic world has been quietly undergoing its own virtual revolution.

Index funds: the first fintech “movers”

The first seeds of change were planted in pooled product franchises. The rise of index funds at the turn of the millennium catalyzed a growth in wealth accumulation for millions of consumers. Platforms such as Vanguard and Fidelity gained mass appeal thanks to their simplified investment strategies and low cost products. This empowered DIY investors to take control of customizing their own portfolios. Simultaneously, social awareness around ESG grew in prominence. Today, 85% of investors say that they are interested in sustainable investing.

DIY investing helps spotlight the importance of ESG

COVID-19 vastly accelerated the adoption of ESG investing. According to the Financial Times, “sustainable funds based on ESG themes pulled in a record-breaking $20.6 billion of new money in 2019 – almost four times the 2018 figure of $5.5 billion, itself a record.” Increasingly, consumers have clamored for more holistic company reporting, which includes sustainability metrics alongside financial performance.

The tech industry took notice. A handful of innovative companies emerged that addressed the gap between what consumers wanted from ESG investing, and the products that were available. Personalized indexing was one solution. Platforms like Ethic made it simpler for an investor to ensure that her investment portfolio aligned with her personal ethical decision-making framework.

Personalized indexing is the next generation of pooled products

Founded in 2015 by Jay Lipman, Doug Sott, and Johnny Mair, the company received seed funding from 500 Global and Kapor Capital. Since then, Ethic has reached almost $2bln in AUM and has captured the attention of strategic investors, including UBS. In an interview with Access Ventures, Mair elaborated on what makes the Ethic value proposition so resonant, “It’s really rewarding to build a product that not only shows people the risks in their portfolio but also presents the answer to their problem through portfolio construction.”

Ethic highlights a consumer-oriented fintech solution for philanthropy that harnesses the power of the individual. However, this is just scratching the surface of innovation in this sector. New technology enablement platforms have emerged that target charitable organizations and systemized donation processes. One example of this is in the rise of donor advised funds.

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Donor advised funds as enablers of mass charitable giving

You may or may not have heard of these vehicles when evaluating charitable gift giving options. Donor advised funds (or “DAFs”) are investment accounts that exist solely for the purpose of supporting charitable organizations in the future. DAFs are the fastest growing charitable giving vehicles in the United States, thanks to their simplicity and tax efficiency.

Much like index funds revolutionized retail investment, DAFs have contributed to the democratization of charitable giving. DAFs hold on average $166,000, and can be viewed as “mini foundations” for individuals. According to Philanthropy Roundtable, “while the number of DAF accounts has steadily risen in the past few years, reaching more than 720,000, the average asset total in DAF accounts has fallen, indicating their growing accessibility. Even as DAF contributions have increased, so, too, have grants to all other major categories of charitable organizations, including human services, health, education, and religion.”

Next gen fintech platforms are streamlining philanthropic processes

A brand new fintech is taking aim at the DAF industry. Giveback is a platform that helps donors and wealth managers create and manage giving portfolios, working toward a future where philanthropy is efficient, engaging, and personalized. The platform launched today, this Giving Tuesday, and was co-founded by Brazilian immigrants Ba Minuzzi and Rochelle Silveria. The two women have more than a decade working in finance and fintech, and decided to join forces to address a promising opportunity in the global philanthropic market.

With giveback, donors can use the all-in-one platform that helps them find reliable and tax-deductible nonprofits by suggesting a giving portfolio through an intuitive interface based on their core impact goals. According to Silveria, “philanthropy is kind of a black box, because it can be very hard to find the information.” Giveback aims to solve this problem by leveraging its easy-to-use interface to provide transparency to consumers, and utilizing a rigorous screening process to partner with high-quality organizations.

The platform is free for non-profit organizations and wealth managers. Users pay a 5% management fee, which allows individuals to find multiple DAFs to pool their investments together. This way, investors can manage their giving portfolios the same way they do traditional ones. Although giveback is only beginning its journey, Silveira and Minuzzi are excited about the future. “There is a misconception that efficient ways of charitable giving are only available to billionaires,” explains Silveira. Platforms like Ethic and giveback are eroding this outdated notion, and broadening the use cases for fintech along the way.