How to use blockchain to reduce admin costs and increase transparency

Written by
Josh Murchie
Photo by rawpixel on Unsplash

Trust in charities is on the decline. Unfortunately, lack of transparency means that we are left wondering “Where is my money going when I donate to charity?”. There have been increased reports of scandals and misuse of donated funds from marketing intermediaries. We are worried how much of our money is going to administration costs and how much is left for those in need. We like to feel good when donating to charity, and something needs to change in the charitable giving industry so we can fix these trust issues and create emotional connections with the people we are donating to.

Charity collectors call your house or ask you to put money in tins outside shopping malls; but you don’t know where this money is going or how much of it is going to a “for-profit” firm which is working for the non-profit charity. Blockchain technology can help to overcome these issues and help to increase transparency at the same time as lowering administration costs.

The main administration cost of charities:

The highest admin cost of a charity is raising the money. Usually charities outsource this by paying a marketing firm to find donors through methods such as cold calling, billboards and street canvassing. Marketing firms charge upfront commissions of between 800% to 1700% for monthly direct debit subscriptions to charities. This means if you continue with the monthly direct debit, it could take up to 17 months for the charity to break even! Donors who would like to contribute for shorter periods of time and then cancel their subscription can actually cost the charity substantial money upfront and make no impact on the cause they care about. This also means that this form of marketing is near impossible for smaller charities, who don’t have the capital required to pay for these upfront commissions. Once the funds are raised, the international money transfer fees can be substantially high. Shipping medical supplies and food creates an admin trail, more money spent on admin means less money spent on the cause.

Main problems with traditional donations to charities

Aside from the administration cost problem, trust is declining because people aren’t sure if there’s a genuine reason that someone needs their help. They also aren’t sure of where their money goes after they’ve given it. Think about the last time you gave to a charity. Your money left your bank account and now are you even sure what you contributed towards?

Enter Little Phil + Blockchain:

Little Phil is a platform which allows donation to charities with a level of transparency previously not possible. People can search to find a cause they are passionate about, then give small amounts of money. Donations are tracked and people can watch their money reach their intended destination so they experience the real joy of giving — which we call a #littlePhilgoodmoment. Like a true philanthropist, givers have full control over their money. Users are sure that their funds can only be used for the purpose they intended.

Little Phil uses blockchain to solve problems:

Proof of need“How do I know the receiver genuinely needs help?”

When recipients register, our platform captures information unique to them, which allows support services to cross-reference their access to various charities. Givers have peace of mind knowing their funds are going to intended recipients with verified needs. Anyone can access the public ledger and be assured that the receivers are not creating duplicate claims (for more info, follow us for next week’s article which will be about “How can blockchain reduce fraud using Unique Digital Identities”).

Proof of impact “How do I know my money is making a difference?”

A Little Phil “smart contract” is created at the time of a transaction, giving you peace of mind that your funds can only be used as intended. The contract is embedded in the digital code and stored in transparent, shared databases. This allows the giver to see where their money has gone from the moment they give, all the way through to the receiver. It also only allows the money to only be released for the cause it was originally intended for and only to approved suppliers of goods and services. For example, if someone has donated money to go towards the building of a new wing in a hospital, the money will only be able to be released for that purpose. The contracts are unable to be deleted or changed, which means that every payment has a digital record and can be accounted for. When your funds are released for the use that you intended, you will immediately be notified of the positive impact you made. Anyone can access the public ledger to audit administration charges for each transaction, so givers know exactly how their money is spent.

Marketing firms — “Who knows how much money the marketing firm is taking before my charity sees a cent!”

Using blockchain technologies leads to improved pricing. Instead of the typical 40–80% (Sometimes up to 83%) that other organisations retain when fundraising money for a charity, Little Phil only takes a 6% fee. The extra money saved on fees empowers charities to do what they originally intended. It will also help to decrease the fundraising and overhead costs of the charities and can ensure that each dollar given has the maximum impact for the cause. Monitoring costs should be low or nothing, as monitoring is built into the smart contract.

Take this graph for example, which demonstrates the traditional model of the upfront payment of commissions to a charity vs Little Phil.

Other admin costs — “But all my money is going to admin costs!”

Blockchain provides an opportunity to decrease fundraising and operational costs, at the same time as increasing transparency and accountability and control over how funds are used.

Little Phil can decrease administration costs in many different aspects. Using Little Phil will mean that charities can save time, money and resources that they would have to spend developing their own solutions. They can integrate Little Phil into their own platforms using custom APIs. This gives smaller charities, who are lacking upfront capital, a chance to raise money in ways they normally couldn’t.

In the case of shipping medical supplies, those could potentially go through dozens of people and organisations between here and Africa. The blockchain solution not only makes these interactions transparent but also reduces the complexity of the administrative costs of tracking these transactions. Lower complexity means less administration costs and in turn, donors can track their donations from the suppliers through to the consumers they have intended to give to. International money transfers are expensive. Blockchain means lower international money transfer fees and faster transfer times.

Little Phil is just the beginning. We believe that the technology will bring about change in the not-for-profit industry, where organisations will be able to cut down administration costs and report in a more transparent way.