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Growing interest in pre-authorized payments for donors
January 27, 1999; Canadian FundRaiser

Electronic funds transfer has been in use for more than two decades. Governments, for example, use EFT to move funds to bank accounts for social program payments, GST refunds, etc. Meanwhile, according to Calgary-based Cheque Free Corporation (www.chequefree.com), consumers are constantly demanding a more convenient means of paying for goods and services, while merchants and service providers - including fundraising organizations - are searching for more time- and cost-effective means of administering customer payments. The form of EFT which is becoming more popular for charities is that of Preauthorized Payment (formerly known as Preauthorized Chequing, or PAC, obviously a misnomer since the whole point is to get rid of cheques) for making regular donations.
One charity which has probably used PAP longer than any other is Foster Parents Plan of Canada (FPP), which has been accepting its "adoption" payments that way since 1980. "Overall, it's just a really efficient way of doing business and maximizing the funds available to go directly to the children," says FPP controller Jennifer McMillan. "We really like it because it's cost-effective and keeps our administration costs to a minimum, which is extremely important for any not-for-profit. We want our money to go to programs, not administration."
McMillan cited the system's advantages from two points of view, that of the donor and that of the agency. For the donor, she says, PAP is convenient because it's automatic, s/he doesn't have to remember to write and mail cheques; even if s/he is going on vacation or there's a postal strike, the child and its family are still receiving their support. It's also flexible because payments can be timed to be monthly, quarterly, semi-annually, or annually. If the person's banking information changes, the system responds quickly and efficiently because it's all electronic and the benefits continue to flow to the children.

Convenient and efficient
From the agency's point of view, she says, convenience and efficiency are the watchwords. The funds are automatically withdrawn and deposited in the FPP account, all on the same day, with no delay in the mail. No manual processing of cheques is required.
Plan promotes the concept in its welcome kit to potential foster parents, including in it a PAP agreement to be sent back with a void cheque. Although the availability of PAP does not increase the amount of funds raised for Plan as it might for some, because it has a fixed sum required for each "adoption", it does make it an "easier sell" because it can be so simple to set up the regular contribution - sign it and forget it, in effect. "As life gets more and more hectic, we all seek ways to simplify it," says McMillan.
Cheque Free Corporation, a three-year-old organization which has been offering its third-party EFT services to businesses, is now starting to make them available to not-for-profit organizations. The 1998 Alberta March of Dimes Campaign was the first to offer the three giving options of Cheque Free bank account deductions, regular credit card charges, or one cash donation. "Donors are besieged with pleas for their philanthropy on a daily basis. It is the responsibility of the individual charity or non-profit to separate itself from the rest by making it as easy as possible for a donor to give," the company suggests.

Donors recognize the savings
Cheque Free notes that today's sophisticated donors are aware of the fact that PAP saves money for the charity as well as themselves, thus ensuring they get the biggest bang for their contribution buck, in that a larger portion of it goes to programs, a smaller portion to administrative costs. The company's promotional material outlines these PAP attractions for donors:

Larger donations can be budgeted over time; this helps foster long-term relationships because donors feel more involved when they contribute regularly.
Normal costs of regular contributions, such as cheque charges, postage, etc., are eliminated.
There is no need to remember to write and mail cheques; automatic debit of their account saves time and money.
For the agency, Cheque Free suggests, benefits include:

New donors are attracted by the ease of making donations.
Donors are likely to give more annually if their total donation can be broken down into smaller monthly amounts (it "hurts" less to give $10 a month than $100 at a crack, but the monthly amount increases the NPO's 'take' by 20%).
Overall costs of processing donations are sharply reduced.
Receivables are reliable and consistent, enabling the agency to budget its cash flow.
Costs and effort associated with attempts to win recurring donations are reduced as the PAP donor is likely to sign up for an unlimited duration.
Another satisfied NPO which corroborates the benefits cited by Cheque Free is Canadian Abortion Rights Action League in Ottawa, which has been using PAP since 1991. CARAL's Sandra Ide points to one figure as a proof of the pudding: 10% of CARAL's donors currently use PAP - but they represent 18% of its annual revenue. "Our regular donors give more because they're really dedicated to the cause," she says. "They also respond well to invitations to increase their amount because they're used to regular contributions - it doesn't hurt as much to increase it a little."

Banks don't make it easy
Responding to complaints by many commentators, among them Ken Ramsay, president of Toronto-based Legacy Leaders Inc, that banks make it very difficult to set up PAP systems, Dr. Ide shrugs: "All banks are pretty bureaucratic by their nature, but we've found ours to be pretty efficient. They've continually upgraded since we started, and now we're working through the Internet."
Ken contends that charities ought to get together in groups to pressure banks to be more open to the PAP option, since its benefits to their clients are so obvious. Their massive bureaucracy and insistence on adherence to huge manuals and company-specific systems, he argues, makes it difficult for charities - which are not generally run by computer-comfortable people - to twist themselves around to meet the banks' demands. "Banks don't see charities as a market," he says, "despite the fact they're the third largest sector in the economy, and the second or third largest employers."
Of the 77,000 charities in the country, 90% are run by volunteers only, Ramsay contends, making it much more difficult for them to invest the long-term effort required to set up a complicated payments processing system. But banks should realize, he suggests, that not only do charities have an estimated $30 billion in liquid assets in investment, but perhaps more importantly, "their donors are where the real money is. The banks want to get into wealth management, and better co-operation with charities could be one route to that, but they don't see it."
Although she stops a well short of Ken's condemnation of the banks, Blanche Duchesne, direct mail co-ordinator for Planned Parenthood, has been coping with some of the bureaucratic problems of which he accuses the banks. The agency started work on its PAP system in June, and as of mid-November was just hoping to get its first payments processed.

Not user-friendly
It's a long litany of a long hard summer, but in essence Blanche found the bank initially very co-operative and supportive and insistent that establishing PAP was as easy as the proverbial pie. Just slip in this small, inexpensive software program, and you'll be up and running.
First, the software didn't work. Then the huge manual (just as Ramsay describes) was unreadable even to Planned Parenthood's outside computer expert. Then the bank itself said that it didn't recommend its proprietary software, but that a program from a third-party supplier should do it. It did, in the end - but it's insufficiently user-friendly to deal with some missing Windows 95 patches on Duchesne's computer, so it had to be installed on a co-worker's. The co-worker, however, doesn't have a modem, so material has to be processed on hers, then translated to Duchesne's by disk for later re-transmission to the bank.
All that said, Duchesne is looking forward to getting the system going. Market research undertaken before the process began indicated Planned Parenthood should be able to count on an increase of 5% to 10% in contribution amounts just from its current active donors over two years, she says. "They may or may not give more than they would with a one-time contribution," she says, "but the regularity of the contribution makes them more committed and makes it easier to ask them next year for a larger amount and eventually move them up to the ranks of major donors, and eventually to planned giving." She's also looking forward to the expected sharp reduction in the agency's paperwork.
Countering the image of daunting complications painted by Ramsay and the experience of Planned Parenthood, spokespeople for the Royal Bank and CIBC insist their PAP arrangements are user-friendly and welcoming to NPOs. "This centre has a team which is totally devoted to not-for-profits and charities," says Terry Arnold of the Business Banking Centre, Cash Management Division, at the Royal.
The system is simplicity itself, Arnold contends. The charity asks its donors if they want to pay by PAP, gets from them a void cheque and the other information required by the Canadian Payments Association, then submits the file to the bank once a month, either on a disk or via bank-supplied software. "There's nothing complicated about it, as long as the person donating makes an agreement with the charity," he says. "We are just the mediator, debiting one account, and crediting another." As long as the charity keeps on file the record of the agreement to donate regularly and the void cheque, there should never be a problem processing the contribution, he says. There is no reason for the donor's bank to question the debit order, any more than it would a cheque, he says.
CIBC is also heavily into promoting PAP for both business and charities, says Geoff Joiner, marketing manager for payment products. The bank will help an agency design its promotion material when they're first starting the system, ensuring it asks for all the information required by the CPA, he says, and presenting its benefits to the individual user: "ease of payment, no cheques, and they don't need to remember to make the payments all the time". It's a "very straightforward, simple process," Geoff says, "just ongoing maintenance once you're set up the individual's actual contributions."

PAP very cost-efficient
Canadian FundRaiser was unable to elicit comment on PAP for NPOs from either the Bank of Montreal or the Bank of Nova Scotia. However, the Bank of Nova Scotia's Web site (www.scotiabank.ca) has an interesting comparison agencies might want to incorporate in their promotion of the system to their donors:
Bill paying by PAP or by telephone or Internet costs only 40¢;
mailing a cheque costs 48¢ for the stamp plus 60¢ transaction fee for a total of $1.08;
paying at the teller costs $1.30 branch fee plus 80¢ transaction fee, for a total of $2.10 (figures, of course, are those for BNS; they might differ for other banks).
For further information: Chris Mabley, Cheque Free Corporation, (403) 296-0250, toll free (800) 836-2890, fax (403) 263-8793, e-mail cheque_free_canada@compuserve.com, Web site www.chequefree.com; Jennifer McMillan, Foster Parents Plan, (416) 920-1654, X 261, fax (416) 920-9942, e-mail n-cno@plan.geis.com; Dr. Sandra Ide, CARAL, (613) 789-9956, fax (613) 789-9960, e-mail caral@caral.ca; Ken Ramsay, Legacy Leaders, (416) 368-1071, fax (416) 941-8989, e-mail kjramsay@aol.com; Blanche Duchesne, Planned Parenthood, (613) 241- 4474, fax (613) 241-7550, e-mail admin@ppfc.ca; Geoff Joiner, CIBC, (416) 214-8136; Terry Arnold, Royal Bank, (416) 974-5151 (main number).