When Fintech met philanthropy

‘Tis the season for giving.

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

Index funds: the first fintech “movers”

The first seeds of change were planted in merged product franchises. The emergence of index funds at the turn of the millennium catalyzed a growth in wealth accumulation for millions of consumers. Platforms like Vanguard and Fidelity gained mass appeal thanks to their simplified investment strategies and low-cost products. This enabled DIY investors to take control of customizing their own portfolios. At the same time, social awareness around ESG became prominent. Today, 85% of investors say they are interested in sustainable investing.

DIY investments help shine a spotlight on the importance of ESG

COVID-19 hugely accelerated the adoption of ESG investing. According to the Financial Times, “sustainable funds based on ESG themes attracted a record $20.6 billion in new money in 2019 – almost four times 2018’s $5.5 billion figure, itself a record.” Increasingly, consumers have been clamoring for more holistic corporate reporting, which includes sustainability goals alongside financial performance.

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

Personal indexing is the next generation of bundled 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 nearly $2 billion in AUM and has caught the attention of strategic investors, including UBS. In an interview with Access Ventures, Mair elaborated on what makes the ethical 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 only scratching the surface of innovation in this sector. New technology enablement platforms have emerged that target charities and systemized donation processes. An example of this is the rise of donor-advised funds.

Donor advised funds enabling mass pursuit of charitable purposes

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

In the same way that index funds revolutionized retail investing, DAFs have helped democratize charitable giving. DAFs hold an average of $166,000, and can be thought of as “mini foundations” for individuals. According to the Philanthropy Roundtable, “while the number of DAF accounts has increased steadily in recent years, reaching more than 720,000, the average total assets in DAF accounts have declined, indicating their increasing accessibility. Even as DAF contributions have increased, grants to all other major categories of charitable organizations have also increased, including human services, health, education, and religion.”

Next-generation fintech platforms streamline philanthropic processes

A brand new fintech takes aim at the DAF industry. Giveback is a platform that helps donors and wealth managers create and manage portfolios, working towards a future where philanthropy is efficient, engaging and personalized. Launched today, this Giving Tuesday, the platform 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 Payback, donors can use the all-in-one platform that helps them find trusted and tax-deductible nonprofits by proposing a gift 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 difficult to find the information.” Giveback aims to solve this problem by leveraging its user-friendly interface to provide transparency to consumers, and by using a rigorous screening process to partner with high-quality organizations.

The platform is free for non-profit organizations and asset managers. Users pay a 5% administration fee, which allows individuals to find multiple DAFs to pool their investments. In this way, investors can manage their portfolios in the same way as they do traditionally. Although the return is just beginning its journey, Silveira and Minuzzi are excited about the future. “There is a misconception that effective ways of giving to charity are only available to billionaires,” explains Silveira. Platforms like Ethic and giveback are eroding this outdated idea, expanding fintech’s use cases along the way.