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Article03 Nov 2022

Global Giving Goes Local: Account-based Solutions Create a Smart Way to Collect International Donations

Charity-minded donors are increasingly supporting worthwhile causes in foreign lands. In fact, cross-border charitable donations worldwide now exceed $68 billion annually and is expected to continue on an upward trajectory.1

A globally growing middle class that supports nonprofit missions to help eliminate food insecurity, provide disaster relief, and improve access to education — to name a few — has boosted global philanthropy. So has the evolution of digital media and numerous online giving and crowdfunding platforms that make international donations easier, faster, and safer than ever before.

Despite the willingness of donors to make financial contributions to overseas organizations, they and the nonprofits they support are frequently disappointed by the cross-border donation process, particularly when it comes to options for making international donations.

On a more optimistic note, modern bank-account-based payment solutions offer a more effective way for organizations to accept cross-border donations, and a way for donors to increase the financial impact of their donations. Account-based solutions, which include instant payments and other account-to-account funds transfers, feature lower transaction costs, and can provide better information flows than more mainstream remittance mechanisms.

Reducing fees, optimizing funds received

As a case in point, fees imposed by more commonly used credit card and alternative payment methods such as PayPal and Amazon Pay. Some can take a significant bite out of a cross-border donation. A £1000 donation to a U.S.-based nonprofit organization, for example, can cost the donor £40 in fees via some online alternative payment methods. As a result, the intended donation is reduced to the USD-equivalent of £960, diminishing the donor’s generosity.

High fees often leave donors feeling like they’re being ripped off and can even turn off would-be contributors. That’s a losing proposition for charitable organizations and benevolent donors alike.

Nonprofit organizations themselves also face hefty fees, particularly for cross-border card payments made online and card-not-present transactions. Transaction processing rates, combined with foreign transaction and global acquirer fees, can reduce funds received from anywhere by one percent to nearly three percent for donations made via major card networks or popular alternative payment methods. Electronic wallet payments, whose use is on the rise in many markets, often include fees that are higher than those applied to card donations.

By comparison, when an international donation is made via a bank-based instant global payment network, the receiving organization pays a small fee, generally less than for a cross-border card transaction. With this type of payment, donors have the option to pay transaction fees or not, in which case the nonprofit absorbs them. A welcome benefit of instant payments is that in most countries they settle in real time and around-the-clock, with proper foreign exchange (FX) arrangements, giving recipient organizations near-instant access to donated funds in their preferred currency regardless of a donor’s source currency.

Making donations easier

In addition to high fees, other downsides of card-based donations for receiving organizations include limited donor access in some markets and error-prone manual processes. Even affluent donors in some markets may not be able to make card-based donations online despite the seemingly ubiquitous nature of the internet. In a number of countries, particularly emerging markets, card usage is limited.

In India, where booming social media usage and online giving are expected to boost donor participation, 80 percent of the population is banked, but card penetration across the country’s population is only 21 percent. Similarly, in Thailand, where 82 percent of the population is banked, a meager 10 percent uses cards. Across numerous markets, credit cards are not a common or widely used online payment method. Instead, domestic instant payment methods such as UPI in India and PromptPay in Thailand are popular. Yet, for international donations, these methods are often not readily applicable.2

In the absence of convenient online means, resolute donors often turn to local offices of global charities to make their donations. Donor details and collections are frequently managed via offline manual processes, where donor information and other details may not be captured accurately or completely. When funds are repatriated to headquarters, incomplete details can complicate the maintenance of meaningful donor records. Even worse, sometimes funds simply get lost.

Bank payment platforms that facilitate cross-border account-to-account transfers can provide nonprofits and their donors with a reliable and efficient domestic mechanism for international payments. Organizations can receive funds from a donor’s local bank upon the donor’s authorization of a transfer from his or her account. The bank providing the online payment platform collects the funds from the donor’s account, in the local currency, converts the designated amount to the receiving organization’s preferred currency, and transfers the funds to its account for immediate use.

In addition, a well-chosen payment initiation service provider, such as a large global bank, can provide access to a significant base of domestic banks — 90 percent of local banks in certain countries. Just as important, an experienced provider that operates across a large global footprint can accommodate popular regional and country-specific payment options, such as open banking, request to pay or the use of QR codes. They also offer convenient payment tracking and reporting that aids donor-relations activities.

From a regulatory and fraudmitigation perspective, accountbased collection may receive high approval rates, particularly for strong customer authentication. Donors can benefit too. When they go to an organization’s website and press a button to make a donation, a pop-up window appears where they can quickly fill in their details, select their bank from a list of local banks, and then make a donation from their account as they would with any other payment. In addition to realizing a frictionless and convenient local experience, more of their money goes to the causes and programs they support.

Gaining more control over FX

One of the more prominent benefits to organizations using an account-based international collection method is better control over FX. Unlike crossborder card transactions where the card networks and acquiring banks control FX, with account-based solutions FX rates are more flexible and can be arranged with the payment service provider, helping to reduce overall FX costs. Some providers’ rates also vary depending on donation size and occasion, in addition to handling requisite clearing and currency control documentation.

Moreover, donors can donate in their local currency without worrying about obtaining the target currency of the organization to which they are making a donation. Donors pay less or no FX fees on local currency bank transfers via a seamless FX process, while the receiving organization receives a larger, and more desirable, currency donation.

Partnering with the right provider

The pressure to make the most of donors’ largess exists during good times and bad. As global giving expands, it’s more important than ever to identify ways to optimize crosscurrency donations. Working with a payments service provider who can alleviate pain points and help optimize the impact of every single cross-border donation can have a notable impact on the bottom line.

Large global providers such as Citi can provide the global reach; in-house FX capabilities and discounts to help maximize donations; and the expertise in growing payment methods, such as instant payments, to help create more cost-effective processes and a better donor experience.

1 “Global Philanthropy Tracker 2020,” Indiana University Lilly Family School of Philanthropy.

2 “The Global Payments Report,” FIS Global.

 

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