What Do Nonprofits Need to Know about "Fintech"?

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(updated 10/3/17) Entrepreneurs are making financial transactions simpler, easier, and better—not only for banks, but also for consumers. How might financial technology innovations affect nonprofits? We decided to investigate the up-and-coming in “Fintech.”

What is FinTech?

Financial technology, or “FinTech,” offers alternatives to “going to the bank” that take advantage of mobile technology tools. FinTech shifts banking activities into software products that make services such as cashing checks, making payments, and lending money, a snap on the go. According to Accenture, investment in FinTech tripled from 2013 to 2014, rising from just over $4 billion to $12.21 billion. Square, Stripe, and Venmo are just a handful of new businesses that are changing the way people make payments. Zelle is a new player in this space. Square, for example, facilitates payments on the go, while Venmo has changed the way a group of diners splits the bill at a restaurant, simplifying the process to a few smartphone taps. You may already have experienced FinTech when you swiped your card through one of Square’s sleek card readers or received a Venmo payment request from a friend.

How is FinTech relevant to nonprofits?

While the banking and nonprofit worlds are certainly different, there are lessons that both sectors are teaching each other about increasing the efficiency of financial transactions. Propel streamlines the food stamp application process by simplifying the paperwork and eliminating the need for paper documents. Visa now offers Pexcard, a prepaid debit card tailored to nonprofits. Organizations working with limited resources can issue these cards to volunteers and employees and apply restrictions on where purchases can be made and how much money can be spent without any credit risks. This system also eliminates the need for petty cash on hand, as well as the process of applying for reimbursement for small expenditures.

According to the Federal Deposit Insurance Corporation, 7.7 percent of all households (9.6 million) were unbanked in 2013, and 20 percent (24.8 million) were underbanked, meaning they used alternative financial services in addition to their bank account. Many individuals who are not currently using traditional banking services could easily become the new users of FinTech products:

  • SupportPay is a payment platform that facilitates child support payments for divorced parents, keeping financial tensions away from the children.
  • Digit helps users automatically save small amounts of money with an algorithm calculated from the user’s spending habits.
  • PayGoal provides a guided mobile experience for people to allocate wages toward their financial goals which could be useful in financial literacy programs.

Using FinTech for Fundraising

When online crowdfunding websites use mobile applications or other software to facilitate transactions, this is FinTech in action. Square, with its remote payment technology, is already in use by nonprofits, typically for fundraising events. Portable card readers and similar mobile tools make it easy for organizations to collect donations and payments on-the-go. Providing donors with alternatives to cash and checks opens up more opportunities for contributing to a nonprofit.

As with all fundraising activities, nonprofits need to ensure that their practices are in compliance with fundraising laws, yet most don’t directly address crowdfunding or other new technological developments involving FinTech. Nonprofits are encouraged to thoroughly understand their ethical and legal responsibilities in connection with fundraising activities before proceeding with FinTech solutions or any new fundraising tool.

Future of Fintech

While FinTech businesses, like startups in other industries, will come and go, one thing is certain: financial transactions will never be the same. As new companies come up with quicker and more efficient ways to provide transactions, there will undoubtedly be new ways FinTech will be utilized by nonprofits. Remaining open to change and continually looking for ways to solve problems are just two ways nonprofits can continue to take advantage of FinTech innovations. With creative thinking, nonprofits will surely be able to leverage FinTech for social good.

Resources

Contributing writer, Ray Lu, Summer Fellow

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