OBSERVATIONS FROM THE FINTECH SNARK TANK
Daffy, a platform for charitable giving, announced the launch of its open APIs designed to make it easier to bring giving into financial budgeting and investing apps, as well as eCommerce sites and marketplaces.
Integrating Daffy lets financial institutions and fintechs take advantage of the tax benefits of having a donor-advised fund (DAF) by providing their customers the ability to donate cash, stock, or crypto to nearly any charity.
Roughly 70 million US households give to charity each year, contributing nearly $500 billion. A study from Cornerstone Advisors on the impact of social issues on consumers’ financial lives found that 60% of Gen Z and 40% of Millennials financially support organizations actively engaged in social issues.
As Daffy’s press release noted, however:
“While new [fintech] entrants have made it easy to spend, save money, buy and sell securities, crypto, and even increased access to complex services like tax-loss harvesting, charitable giving has been missed. Despite the incredible innovation of the past decade, almost none of the successful new fintech companies have incorporated these capabilities.”
In addition to its Developer APIs, Daffy also announced a set of Partner APIs designed to help enable even more powerful financial use cases. Sample use cases of the Partner APIs include:
- Personal financial management apps can help users track their giving goal and incorporate their tax-free donor-advised fund into their list of accounts.
- Brokerages can make it easy to donate stock or funds to any charity.
- Crypto apps can make it simple to donate crypto to the charity of their choice.
- Roboadvisors can improve their tax-loss harvesting and direct indexing features by incorporating the donation of low cost-basis shares to a donor-advised fund.
- eCommerce sites and marketplaces can enable customers to let donate a percentage of their purchase to non-profits they support.
The Embedded Fintech Opportunity for Charitable Giving
While embedded finance makes all the headlines these days, the broader opportunity for many financial services firms is embedded fintech. Embedded finance is about enabling non-financial services companies to provide banking services. Embedded fintech, on the other hand, is:
“The integration of fintech products and services into financial institutions’ product sets, websites, mobile applications, and business processes.”
A study from Cornerstone Advisors identified embedded fintech opportunities for banks that included bill negotiation services, subscription management, data breach and identity protection, wealth transfer management, and cryptocurrency investing.
I hadn’t considered the idea of charitable giving as an embedded fintech service before talking with Daffy CEO Adam Nash (formerly CEO at Wealthfront). It makes sense, however, for a wide range of fintechs and financial institutions to integrate a charitable giving program to support their:
- Brand promises. How many banks claim to help consumers with “all their financial needs”? Most (if not all). How many support consumers’ ability to make charitable donations? Other than the largest brokerages and investment management firms, few (if any).
- Customer engagement efforts. Having customers come back to their app on a weekly or monthly basis to make charitable contributions helps banks and fintech increase positive customer engagement.
- Advice offerings. Many banks offer PFM tools that advise consumers about the management of their financial lives. But how accurate is that advice if it doesn’t include their charitable giving? Banks’ ability to provide tax-related advice is improved with a charitable giving program, as well.
- Social image. According to the Cornerstone Advisors study, Gen Z and Millennials want their financial providers to make public statements on key social and political issues. Integrating Daffy into banks’ digital platforms might not exactly do that, but providing a charitable giving capability can help enhance banks’ social image.
Daffy Is Not The Only Choice For Embedded Giving
Daffy isn’t alone as a provider of embedded charitable giving. Spiral, founded in 2019, was developed to help people and nonprofits drive tangible environmental and social impact through everyday banking products. It launched a socially responsible consumer banking app in 2021, growing to more than g65,000 customers and $65 million in transactions in less than a year.
Spiral has since transitioned to a B2B model in order to provide access to this technology to all financial institutions. According to Spiral CEO Shawn Melamed:
“We saw that rather than offering an independent banking app, the greatest value would be to partner with financial institutions. We realized that our products are differentiators for financial institutions that want to give back to their communities while increasing their revenues and expanding their customer base.”
The Embedded Fintech Imperative
Mobile banking adoption is approaching ubiquity among Gen Zers and Millennials with 88% of the two generations accessing their bank accounts using a mobile device.
For many, a mobile app is the primary way they interact with their checking account (and, in essence, their bank).
So, as far as these consumers are concerned, the app IS the product.
In order to remain competitive, then, banks need a digital product development and deployment capability that goes beyond a digital platform that only enables consumers to manage their account.
Embedding fintech products into the bank’s digital platform is, in effect, a strategy to expand the set of features offered with the account—and as a result, increase the perceived value of the product.
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