New company encourages 'donate now, pay later' charitable giving

Donating money to charity is good and worthy. But should nonprofits encourage you to go into debt in order to do so? A new VC-funded company, BGenerous, says the answer is yes.

Why it matters: Hundreds of thousands of charities around the country rely on small-dollar donations from a broad range of individuals. As those donations move from physical checks to online pledges, BGenerous has decided to apply the buy-now-pay-later playbook to them. They call it "donate now, pay later."

How it works: When you use BGenerous to make a donation, you pay no money up front. Instead, Drake Bank lends you the money, which gets paid directly to the charity. You then pay the bank back in installments, interest-free, over three to nine months.

• Drake Bank and BGenerous split a commission of between 8.25% and 15% of the total donated, paid by the charity (or by the donor, if they're feeling extra-generous).

The upside: BGenerous CEO Dominic Kalms tells Axios that when given the opportunity to pay over time, 82% of donors double their donation — with that number rising to 89% among donors giving $1,000 or more.

• The downside: The model is “uncomfortably nearing the space of payday lending,” says Stanford philanthropologist Rob Reich.

Between the lines: The BGenerous product is an iron-clad commitment device. Many people want to give more in the future; this is a way of your present self binding your future self to doing so.

• The "give more tomorrow" strategy is very powerful; this just gives it teeth, and brings it in line with buy-now-pay-later products with which many modern consumers are already very comfortable.

Be smart: Inflation has cut sharply into disposable income, says Michael Gorriarán, the president of Arjuna Solutions, another company selling AI-based services that attempt to maximize the amount that donors give.

• Charities need all the tools at their disposal if they're to maintain their small-dollar income stream.

The big picture: Charitable fundraising isn't cheap — it generally costs the nonprofit around 25% of the amount donated.

• Paying 12% to BGenerous is "not terrible," says Caroline Fiennes, the director of charity evaluator Giving Evidence, when compared to the cost of raising money from foundations. That works out to at least 17% for smaller charities.

The bottom line: Charitable fundraising has never been particularly sophisticated, either technologically or financially. Maybe that's now changing.

Editor's note: This story has been updated to reflect a new pricing structure where the commission to Drake Bank and BGenerous starts as low as 8.25% (not 10%).