Crowdfunding platforms remove platform fees

Ketto and Milaap remove platform fees to attract Tier 2 and 3 audiences.

Three weeks ago Ketto, Mumbai based crowdfunding platform announced that it has raised Rs 109 crore to help and support more than three lakh people in various capacities. From the beginning of the lockdown, the platform has been distributing PPE kits, ration kits, and providing support to migrant workers.

Earlier this year, Ketto also raised Rs 30 crore in crowdfunding through the philanthropy arm of CleverTap, CleaverTap4Good. The press note said that the main aim behind the collaboration between CleverTap and Ketto was to drive and increase repeat donations while reducing the number of people who abandoned their donation forms.

On this Independence Day, Ketto celebrated its 8th anniversary, and to make it memorable it announced that fundraising on the platform is free. It won’t be charging any platform fees. 

“You have showered us with immense love and support over the years. The number of people coming back to our platform has increased to 70% compared to 30% last year. With our ‘Zero Platform Fee’ initiative, we aim to reach out to the underprivileged sections of society and work for their betterment.

We are also planning to introduce a 'Voluntary Contribution to Ketto' section to allow our benevolent donors with an option to support us.”

Milaap, another crowdfunding platform that recently celebrated its 10th birthday on Independence Day did the same. The platform that initially would charge a 5% platform fees now has removed it to make fundraising completely free. Mayukh Choudhury, co-founder, and CEO of Milaap said:

“In the past few months, as the crisis of the Covid-19 pandemic unfolded, we have witnessed an unprecedented wave of generosity from people. Thousands raised funds on Milaap to help lakhs of people in distress. We made Milaap free for all relief related fundraisers as a token of gratitude. Therefore, it made perfect sense for extending this 0 percent fee to all fundraisers, in the upcoming festive season.”

Going forward it would also rely on voluntary tips from donors to help with the costs associated with providing customer service, trust and safety protections, and fundraising technology.

However, this will only be applicable for the upcoming festive season. Milaap hasn’t specified any ending date of this offer.

Crowdfunding platforms generally charge somewhere between 5-10% as a platform fee. This takes care of the support, website, staff costs, and marketing activities. With India’s two most renowned crowdfunding platforms removing this cost obviously puts pressure on the remaining ones. 

But the larger question is: Why and How will the platform costs be met going forward.

With an ongoing pandemic, the majority of the crowdfunding platforms have been busy with the causes related to COVID19. According to a news report by INC42, In India, some platforms have already collected more than INR 75 Cr in a short amount of time and they all have seen a 100-200% spike in donations this year as compared to the same time last year.

A news report from Livemint says crowdfunding platforms have seen an increase in the number of donations for COVID19 related campaigns. They have witnessed a record of two donations per minute for such campaigns, compared to about one donation in two minutes for other fundraising initiatives. 

Another significant trend that crowdfunding platforms have witnessed is the giving from Tier 2 cities who are also opening their wallets more, and contributing to local communities. Varun Sheth, CEO, and co-founder of the crowdfunding platform Ketto says, “The time for raising funds has gone up 100%.”

“It’s taking a quarter of the time to reach campaign targets. For instance, if it took two days to reach a target amount for a fund; for coronavirus campaigns, it’s half a day.”

Both Ketto and Milap have stressed the importance of making crowdfunding campaigns accessible to Tier 2 and 3 cities. And to do so they have removed the platform fees for now.

Donation-based crowdfunding

In 2013, the World Bank published a report on crowdfunding’s potential in emerging markets, which estimated a market opportunity for South Asia alone of close to USD 5 billion. Crowdfunding or crowdsourcing, in various forms and under various names, has existed in India since ancient times, says the research paper of Advances in Crowdfunding.

Talking about the dominant four prevailing crowdfunding models in India the paper highlights their growth: Loan-based crowdfunding is responsible for the majority of the activity. Since 2016, equity and donation-based crowdfunding have reached similar levels. The volume of reward-based crowdfunding which is a growing global trend, however, remains low in India.

Donation-based crowdfunding is the second-largest model by volume after P2P lending in India. Around USD 21 million were raised in 2017 and, as of May 2019, there are more than 25 donation-based crowdfunding platforms operating.

The study highlights that the growth of non-financial return or community-based crowdfunding is driven by an increase in charity and philanthropy among people in India, a rise in foreign donations, and support for new and innovative causes. 

Although crowdfunding in India is already covering a wide array of sectors, there still exists a number of areas that could benefit from the concept. Examples include agriculture, legal, real estate, and politics.

In a recent interview with TNN, General secretary of the Shri Ram Janmabho Kshetra Trust, Champat Rai emphasized that crowdfunding will be a major exercise to fund the Ram temple in Ayodhya.

Facebook enters crowdfunding 

Facebook has made the move with “Facebook Fundraisers” to tap the Indian crowdfunding market. The program that has been available globally was launched right when the country entered the lockdown zone due to the ongoing pandemic. 

In India, it has partnered with GiveIndia to launch a beta program with a select group of key charities. Instagram has also joined the mission of its parent company, while it is already active in the US and UK it will be rolled out in India.

Facebook does not charge any fees on donations made to charities. However, the social media giant does charge a small fee for donations made to personal fundraisers. The fee ranges from 1.46% to 2.99% depending on the country.

Issues with crowdfunding

In the crowdfunding sector, beyond the fundraising episode, what happens to the money is between the donor and the fundraiser. “While the funds collected would go to the individual at the face of the crowdfunding campaign, the impact and outcome of the donation keep the donor guessing / clueless,” says Shravan Charya, Founder and CEO, SocioLadder.

The other glaring issue raised by Shravan is that most of these platforms regularly target the same set of donors. So, there is a sort of a cyclical monotony in this act of crowdfunding. 

“A more sustainable option would be to take the narrative away from raising funds, which is only a component of the crowdfunding and charitable fundraising activity. When dealing with individual cases one never knows whether the impact is verified and relayed back to the donors.”

A risk that has also been highlighted by SEBI in the consultation paper on crowdfunding in India.

“Crowdfunding takes place through an online platform and therefore, has the potential to affect investors widely as compared to traditional modes of fundraising. Funding can be raised from investors residing in several countries without compliance to the laws prevailing in those jurisdictions.”

There is no specific regulator for either donation crowdfunding or reward-based crowdfunding. However, it is important to note that general statutes such as the Income Tax Act, 1961, the Foreign Contribution (Regulation) Act, 2010 (FCRA), and the Foreign Exchange Management Act, 1999 (FEMA) would apply to all types of crowdfunding.

Meanwhile, the Reserve Bank of India has found a hack to this problem and had decided to regulate the payment aggregator business, which is what crowdfunding platforms operate on. “The guidelines introduced new capital adequacy norms for these aggregators, but the onus is misplaced on capital adequacy rather than on transparency adequacy.”

In other words, a company that has more capital in its balance sheet can continue doing crowdfunding business rather than those that showcase transparency adequacy.

With the ongoing challenges of transparency, the recent move of removing the platform fees is beyond the greater good concept. One way to look at it this could be a momentary option with the festival period in mind. The Milaap way.

Organizations can’t just depend on inconsistent voluntary tips by people for monthly fixed costs such as employee salaries, website maintenance, customer support, and marketing initiatives. Makes no business sense. There has to be a constant revenue source which isn’t clear right now?

And I doubt if any of the crowdfunding platforms will like to reveal it at the cost of positive PR.

Meanwhile, both Ketto and Milaap have advanced plans for giving you wings to your fundraising that comes with a cost. For example, only the standard plan on Ketto is free. The remaining two - Premium and Plus come with a cost.

Milaap says this on its FAQ page explaining how Amplify promotions work:

So not everything is for free.

Nonetheless, this could be welcome news for most of the Indian nonprofits who don’t want to invest in their website and donation pages.

You can live momentarily on these crowdfunding platforms, till the freebies last.