New Tool Helps Banking Providers Capitalize on Charitable Giving

Americans' benevolence and generosity adds up to roughly $500 billion in annual donations to charities. Seizing on this trend, a cloud-based startup aims to make philanthropy as easy as online banking — for consumers and retail financial institutions alike.

You’d assume the pandemic negatively impacted charities, with financially-strapped consumers holding onto cash more tightly. But actually donations went up sharply during the first six months in 2020. One of the biggest growth areas is donor advised funds (DAFs). These vehicles, administered by a third party, manage charitable donations for individuals, families or organizations.

“A donor-advised fund is a little like a personal charitable savings account,” states Philanthropy.com. “A donor creates an account and makes a contribution of cash, stock, or other assets like real estate or artwork and can take an immediate tax deduction for the gift.”

Tax deductibility does depend on whether an individual has enough expenses to make up more than the $12,400 standard deduction per person. NerdWallet offers a worksheet to help donors calculate that.

In 2020, DAF providers saw a 50% increase in terms of the value of grants and the number of grants, according to Cor Hoekstra CEO and co-founder of Amicus, a DAF platform provider. Donor advised funds in the U.S. already hold $121 billion, and Hoekstra expects that amount to grow to over $1 trillion.

Amicus has developed a cloud-based platform that retail banks and credit unions can use to let customers establish donor advised funds (DAFs) which can offer tax-advantaged giving. Instead of reacting to crises with one-off donations, Amicus users can develop their own charitable giving strategies and become philanthropists, even if they aren’t in the wealthiest top 1%.

Using modern technology, Amicus makes a plug and play DAF application that automates receiving and investing donations and then paying out to a donor’s preferred charity, Hoekstra explains.

Growth Opportunity:

Donor advised funds democratize charitable giving, create ‘sticky’ relationships and can help banks and credit unions retain customer dollars within the institution.

DAFs are the fastest growing financial tool in the charitable space, according to Hoekstra, but typically they are offered in private banks only to high net worth clients because the processes have been very manual. The Amicus software, which it dubs DAF 2.0, allows retail financial institutions to offer a donor advised fund to the mass affluent.

“This is going to be a massive business,” Hoekstra predicts. “It is a very good business for investment managers and wealth management divisions of banks. In a world where these legacy customers are under attack from neobanks and online trading companies, this is a chance to offer another customer touchpoint with a high emotional content. They make the same money on managing these DAF assets as they do with other accounts. Plus, when you incorporate charitable giving, it’s so personal that it fosters a next level of intimacy with that customer, which translates to stickiness and a broader share of wallet.”

As evidence of its potential, Amicus has attracted the attention of big banks and VC investors alike. Amicus was a participant in the Wells Fargo Startup Accelerator, a six-month virtual program focused on helping early-stage startups learn what it takes to break into the financial services vertical market. Amicus also participated in the Charlotte-based QC fintech accelerator. Wells is also an investor in the Amicus Series B funding.

Amicus is in talks with five of the nation’s top ten banks and has already partnered with a tier 1 bank. Chris Jones, an investor and advisor to Amicus and former chief investment office at Blackrock, says he expects DAF services to start showing up in the offerings of neobanks and traditional financial institutions soon.

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An Opportunity for Banking Providers to Catch Up

Just by standing still, retail banking providers are falling behind in DAFs. The big mutual fund firms have long offered DAFs, although usually with high minimums, but Fidelity and Schwab recently eliminated their $5,000 minimums for a DAF while Vanguard continues to set a $25,000 minimum, a $5,000 minimum for additional deposits and a $500 minimum for grants.

And while Amicus says its platform is easy to use, the Big Three are already there. As Morningstar states: “Fidelity Charitable, Schwab Charitable, and Vanguard Charitable, have user-friendly web solutions that make donating and granting easy. Donor-advised funds make things easy from a record-keeping perspective, too, because even if you donate to multiple charities in a calendar year, the fund consolidates the receipts you would file with the IRS into one statement and one deduction amount.”

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With Amicus, retail financial institutions can offer DAF’s at a fraction of the costs that private banks incur, which is good for retail banks that don’t have DAFs for the mass affluent, but probably does not pose a competitive threat to the mutual funds.

“We seek to democratize philanthropy,” says Hoekstra. “By using this technology there is an opportunity to make the tool available to the 99%,” he explained.

“We have created a digital banking platform that offers a self-service, self-directed digital DAF offering that can be used by the banks in context of the digital wealth division to serve the mass affluent,” explains Hoekstra. You could also see it as broadening the bank’s digital payment strategy. Banks today offer bill pay to vendors, now you can broaden this with payments to charity,” he added.

Amicus is cloud-based so banks can deploy this solution through a white label arrangement. Also, by accessing a library of APIs, they can build their own interfaces, Hoekstra adds. Customers typically are offered a pre-set menu of investment tools once their balance is above a certain threshold.

“The problem for the banks has been they simply have not been able to keep pace because they had no access to a scalable plug and play platform that would allow them to offer this DAF product in the context of a friction-less, seamless banking experience.”

DAF 2.0 technology automates and puts online the entire DAF administration process, from contribution and investment to final grant and generation of appropriate tax records. Its architecture has been designed to support the largest banks in the country with scalable, elastic architecture that can grow to millions of accounts, hundreds of thousands of charities and billions of transactions, Hoekstra said.

Much like banks, he added, charities have had to step up their digital game, both in fundraising and in executing their missions. A unique element Amicus plans to offer in a future release will allow charities to engage with the people who contribute, tell their stories and provide a feedback loop to donors about the outcomes of their grants.

What DAF Does For Banks

“The other piece of this puzzle is this is a very good business for investment management and wealth management divisions of banks,” said Jones. “It is very similar to retirement and savings accounts — they are investing the money as a service for their clients who want to be charitable.”

And, notably, Amicus provides a way to keep those funds at the bank rather than migrating to a DAF operated by a mutual fund.

“In a world where banks’ legacy customers are under attack from neobanks and online trading companies, this is a chance to offer another customer touchpoint with a high emotional content,” Jones adds. Increasingly the trend is that the wealth management divisions of retail banks want to offer solutions. Financial institutions make money out of the solution and the customer relationships, Jones maintaints, not just selling individual products. “We think in a couple of years everyone will have access to a DAF, and now no one does unless you are in a high end private bank.”

“We are the first company to provide banks and credit unions with a competitive and differentiated offering,” Hoekstra boasts. “We provide 360-degree visibility right to your customer. The bank is seeking to drive net deposits, increase assets under management, acquire net new customers and retain existing customers. Giving is so personal that it fosters a next level of intimacy with that customer which translates into stickiness and a broader share of wallet.”

“Banks can do good and make money.” added Jones.

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