A new partnership between a credit-card company and a donor-advised fund may encourage people to spend their rewards dollars on donations to nonprofits.
Benefit corporation Charity Charge offers MasterCard credit cards that donate 1 percent of what users spend to charities of their choice. Now the one-year-old company is teaming up with the nonprofit fundraising website and consultancy Global Impact to permit users to accumulate those earned dollars in donor-advised funds.
The system is designed to appeal to those who want to “help out in easy ways,” says Stephen Garten, founder of Charity Charge.
A third of the rewards and loyalty points consumers earn through airlines and credit cards go unused every year, Mr. Garten said, citing a 2011 study by research firm Colloquy. That statistic spurred him to think about how to build a charity-centered credit-card rewards program.
Donating extra rewards points to charity is not a new idea. Discover customers can give their bonus dollars to any of nine large charities, including the American Red Cross, Junior Achievement, and World Wildlife Fund. American Express users can donate rewards points to any nonprofit in GuideStar’s database of more than a million charities.
But because these options require cardholders to actively make donations, there’s a risk that people will forget or let their points expire, Mr. Garten said. Charity Charge’s system eliminates this risk by automatically directing rewards to those charities preselected by cardholders.
Another distinguishing feature: Charities receive 100 percent of donated funds without having to pay a credit-card processing fee.
This week Charity Change and Global Impact have announced a partnership that allows card users to create a donor-advised fund to divert their cash rewards. It has no start-up fee or minimum balance, unlike donor-advised funds at many institutions. Diverting rewards may help consumers accumulate more money for charity and think more strategically about how they want to give, says Ann Canela, vice president for Global Impact.
Because both Charity Charge and Growfund are in the early stages of recruiting users, it’s unclear how much money charities stand to gain from either or from their partnership. The Growfund accounts have just over $1 million in assets, according to Ms. Canela.
Mr. Garten is optimistic the system will be especially attractive to fellow millennials, who, rather than spending rewards points on travel credit or gift cards, “want to redirect them to things that matter.”