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Open banking and the third sector: helping charities, help others

Author: Simon Lyons, Head of Ecosystem Engagement at the OBIE Open Banking Implementation Entity

Published: 01 Mar 2021

The continuing growth and maturity of open banking-enabled propositions is driving compelling new opportunities for the charitable ‘Third Sector’. Here at the Open Banking Implementation Entity (OBIE), we know that charities have felt the impact of COVID-19 lockdown in the past 12 months. Reduced high street footfall make it harder to reach donors through traditional means. Contactless card payments at checkout mean less spare change to drop into buckets across the country.

‘Third Sector’ organisations can leverage open banking to build new, ‘stickier’, digital fund-raising relationships. Donors can round-up transaction amounts and authorise the surplus as frequent micro-donations, bringing charitable donations into their daily lives rather than one-off ‘gifts’. Tokenised payment methods, such as a QR code on the sleeve of a Big Issue seller, introduce new fund-raising avenues. The smooth, mobile-first user journeys that these QR codes initiate maximise the donor’s experience, driving higher fulfilment rates. 

Once a donation is made, the benefits continue. The account-to-account nature of open banking payments improve charities’ understanding of who their donors are, enabling them to build deeper and more meaningful relationships. Thanks to the UK’s Faster Payment rails, settlement is nearly instant, so donations are on account and available to be used faster than card-based methods. Speaking of cards – the cost of receiving those payments tends to be lower via open banking methods. For £1 million raised, the typical 30% difference in processing fees would result in £12,000 or 1.2% additional funds available to be put to effective use for those who need it most. 

Back in April 2020, we spoke to several providers about the potential of open banking for the Third Sector. Since then, several other worthy examples have come to light – not least that of Captain Sir Tom Moore’s fund-raising efforts on behalf of the NHS. His original Just Giving fund-raising portal offered pay by open banking functionality, and a significant volume of donations were processed via this mechanism. When his foundation launched their own website, open banking payments was the first donation mechanism available, due to the low technical barrier to entry, high speed of set-up, and the competitive pricing model. 

While much discussion around open banking and the Third Sector focusses on payments, it’s important to note that open banking enabled Account Information Services have the potential to deliver just as much impact on charitable organisations ‘back office’ functions. Financial management offerings, such as seamless integration of bank account data into cloud accounting platforms or comparison services based on historic transaction analysis, are just as beneficial to charities as they are to small businesses. 

Upcoming open banking functionality has the potential to ‘move the needle’ even further. The continued roll-out of Confirmation of Payee by UK banks – powered by the OBIE Directory – will give donors additional peace of mind that donations are reaching their intended destination, at a time when Authorised Push Payment fraud is on the rise. Variable Recurring Payments and Sweeping are currently in consultation. Depending on that process, they could enable donors with a configurable alternative to direct debit, ensuring, for example, that the amount a person donates each month never exceeds the money on account, forcing them into an unwanted overdraft.

The future is bright for open banking and its ability to positively impact charitable organisations. Here at the OBIE, we will continue to support our thriving ecosystem of account providers and fintechs, as they bring new open banking-enabled tools and services to market, to enable the Third Sector to maximise their fund-raising efforts, reduce costs and reach new donors. Those organisations who embrace this opportunity will be well-placed to meet their goals in the years ahead, during and indeed beyond the current COVID-19 context. Ultimately, the goal is to free up key personnel to spend less time on administrative tasks and more time on what they ultimately joined the Third Sector to do: helping others.

*The views expressed are the author’s and not ICAEW’s.