Nov 02 2021

How Nonprofits Can Create New Fundraising Potential with Fintech

The merging of technology and financial services is creating new avenues for donors, including cryptocurrency.

In recent years, nonprofits have found plenty of reasons to modernize their approach to donations beyond direct mail campaigns and in-person galas.

One reason is that donors have gone digital. Thanks to trends like Giving Tuesday and to dedicated giving apps, the way the public interacts with nonprofits has changed.

That’s just scratching the surface of what’s possible with fintech, or the integration of technology into financial services offerings. Fintech is a broad term referring to emerging innovations in the way we pay for goods and manage our finances. These innovations represent a significant leap forward from dealing with cash, and have led to use cases in the nonprofit realm such as mobile point-of-sale systems and text-to-donate tools.

One fintech trend in particular, cryptocurrency, is growing in prominence — and could require shifts in thinking so organizations can accommodate its use.

Why Cryptocurrency Matters to Nonprofits

Cryptocurrency is a type of digital asset produced through cryptographic calculations and stored in a type of secure ledger known as a blockchain. The most popular type of cryptocurrency, Bitcoin, has been around for more than a decade, and has seen its value increase significantly in recent years.

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It’s become popular among donors as a result, despite the cryptocurrency’s well-known volatility. The nation’s largest donor-advised fund, Fidelity Charitable, has reported that cryptocurrency is one of its fastest-growing categories — and accepted $150 million worth of cryptocurrency during the first seven months of the year, according to The New York Times. There is also a tax benefit to donating cryptocurrency that makes the value of a donation if it is not first converted to cash.

Given the wide array of cryptocurrencies, including Ethereum, Tether and XRP, there may be cases where nonprofits that accept cryptocurrency will be working with more obscure variations. Earlier this year, for example, a digital history nonprofit received a $10 million donation in Filecoin, a relatively new type of cryptocurrency tied to a next-generation storage medium.

While not every nonprofit will use cryptocurrency, there is a lot of potential to be had in building solutions based on blockchain technology.

Three Other Types of Fintech Nonprofits Should Know

While cryptocurrency is perhaps the buzziest trend in fintech at the moment, other areas are emerging and growing, including:

  1. Crowdfunding. In recent years, popular services such as GoFundMe and Kickstarter have helped expand interest in raising money in a campaign-style format, an approach that popular social networks like Facebook offer directly and that has driven the success of some nonprofit platforms, such as DonorsChoose. The crowdfunding market shows signs of sustained growth over the next few years: Research from Statista projects that the global crowdfunding market will grow to $25.8 billion by 2027, more than double its size in 2020.
  2. Non-fungible tokens (NFTs). This technology, which effectively uses the blockchain to validate the authenticity of digital assets such as artwork or music, had a breakout moment in early 2021 as celebrities and collectors embraced the trend. Nonprofits have gotten in on the trend: The National Independent Venue Association helped raise more than $200,000 for its members this past spring through NFT sales.
  3. Robotic process automation. One other way that fintech is showing its potential in the nonprofit space is through automation, which can help to improve targeting of messaging to donors. RPA also comes in handy in areas such as accounting and finance, where repetitive tasks can be taken out of human hands, reducing error.

MORE FOR NONPROFITS: What the industry should know about cloud security posture management.

How Nonprofits Should Approach Fintech

Automation, mobile payments and other types of fintech carry a lot of potential for nonprofits looking to attract new donors or improve their business processes. However, they also raise concerns about security and compliance. For example, cryptocurrency is not treated as cash in the eyes of the law. That may require nonprofits to treat the donation as a noncash gift, which can require an appraisal.

“Generally, it is lawful for a nonprofit to accept a donation in the form of a cryptocurrency,” lawyer Gene Takagi writes at NEO Law Group’s Nonprofit Law Blog. “However, this does not necessarily mean that it would be prudent for all nonprofits to do so.”

The volatility of cryptocurrency markets raises another question: Should nonprofits liquidate the gift, or should they hold onto it? If they keep the cryptocurrency, how do they store and manage it? The Journal of Accountancy recommends creating a separate bank account, but different organizations may need a different solution to fit their needs.

Building an effective compliance strategy will help nonprofits adapt to changing regulatory standards. CDW Cybersecurity Advisory Services, for example, can help your organization understand the security implications of storing and maintaining such sensitive digital data.

It’s important to understand that not every type of fintech will match every need: Cryptocurrency, for example, is often produced using methods that consume a lot of energy, which may go against a nonprofit’s mission.

Not every donor is going use Bitcoin, and most donors may not be interested in NFTs. Still, putting your nonprofit in a position to properly accept and manage such donations could offer benefits down the line.

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