BUSINESS

Breaking Down Why Crowdfunding Platforms Charge A Fee

There is no business model shared by all fundraising bodies, and certainly not by all crowdfunding platforms. Everywhere in the world, some crowdfunding companies use a social enterprise model, making profit while doing good and reinvesting some part of those gains into giving back to society. Fewer platforms operate as nonprofits, and fewer still are in business with no stated motive to make social impact, though of course, by dint of the work they do and the causes they support, good is done to people along the way, nevertheless.

Digital crowdfunding has taken the world by storm, and is valued by creative artists, performers, and social entrepreneurs alike. Medical crowdfunding, initially just an offshoot of the broad category of fundraising, has emerged as an industrial entity large enough and strong enough to stand alone. Millions of individuals have campaigned for their own or a loved one’s treatment for organ transplants, cancer, cardiac care, and other major health concerns. Thousands of others have campaigned successfully to make the world a better place to live in, through NGO crowdfunding.

The often asked question that crowdfunding platforms are asked by campaigners and donors is whether they charge fees for hosting the campaign in the first place. And most platforms do. FreeFunding and YouCaring are notable exceptions in that they do not charge a service fee. GlobalGiving, which is the world’s largest crowdfunding non profit, charges 5% of all funds raised as its platform fee. This is one of the smallest fees among the top platforms. Indiegogo and Kickstarter charge the same, with additional processing fees they do not retain, but pass on to payment partners and banks. These are platforms that have been in business for many years (GlobalGiving was founded in 2002!) and so it is reasonable to suppose that the fee is charged on empirical basis. Crowdfunding platforms could not sustain themselves otherwise.

Image result for Crowdfunding Platforms

Here is a bird’s eye view of where service fees go, and why they are necessary for crowdfunding agencies to keep doing the good work they do:

Bank fees and payment gateway charges: Crowdfunding platforms integrate payment gateways on their websites to enable quick and secure donations from anywhere in the world. Wire transfer fees are charged by platforms and given away to banks who partner with platforms to accept donations. Some larger international wire fees are charged exclusively on foreign donations by some platforms operating in India and other developing nations.

Overheads: Many crowdfunding companies are small and growing organizations and function from small workspaces. Yet they have to pay overheads, such as electricity, water, and cooking or heating fuel bills, as well as buy computers, smartphones, stationery, and other infrastructural aids for the people who work for them. Rent needs to be paid for the office space. Advertising, insurance, and legal fees have to be paid. Many fundraising activities involve local travel, which also has to be paid for. Vetting campaigns involves the expertise of consultants, and this isn’t free either. Depending on what geography the crowdfunding platform functions in, taxes (such as India’s GST) have to be met, and all of these expenses can only come from a service fee the platform charges for hosting campaigns.

Talent: Social enterprises and nonprofits need to hire individuals with certain core skills all kinds of organizations need in their workforces. These include finance, human resources, marketing, technical support, business development, and content creation teams. A lot of social enterprise startups, and most crowdfunding platforms, rely on small teams of highly gifted and young people with prestigious degrees and advanced professional competencies, people who are comfortable handling the responsibility of large workloads, a lot of multitasking, and working under tight deadlines, in addition to their ability to think outside the box and devise solutions for a myriad on-the-job problems. These small teams need to be remunerated in proportion to the high-quality professional deliveries they churn out consistently.

In an ideal world, crowdfunding companies can rely on angel investments and donations made regularly to keep up their operations, but that day hasn’t been concretized into reality yet. To get there, each of us as socially conscious individuals need to work toward creating a culture of giving based on trust, so all donations can directly benefit the campaigner in need.

Contact Us