Well, the development of new products in philanthropy continues apace. The innovation has moved to the back office, where new companies such as
Foundation Source and trusted names such as
Fidelity Investments, which provides the services through a subsidiary, National Charitable Services, offer complete administrative services to support foundations and donor advised funds. The biggest purveyor of private label back office services to support donor advised funds is
The National Philanthropic Trust which manages these funds for 8 major financial firms including American Express, Bank of America, JPMorgan Private Bank, and Morgan Stanley. (Disclosure: I am on the advisory board of NPT).
What are these companies selling? Pure back office functionality - check processing, grant distributions, account reconciliation. They also can manage all the administrative and regulatory filings for accounts, and in the case of Fidelity's subsidiary,
National Charitable Services, they'll provide customer support to your donors as well.
Clearly, there is an opportunity to outsourcing the technical processing of account management and grants distribution. Is this a good thing? I think so. First, these companies have automated the drudgery that keeps most foundation board members (i.e., family volunteers) from enjoying the privilege of giving away money. No one likes to balance the checkbook or fill out the 990 forms for the IRS - so why not let these companies do it for you?
As these companies compete for business, they have all the more incentive to make these tasks cheaper and more automatic -
Foundation Source offers its clients a quick eligibility checker that can let grant applicants screen themselves in or out of a donor's interest areas online and immediately. This saves time for both the nonprofit and the funder. As these companies compete (NPT is a registered 501 c 3 charity; Foundation Source and National Charitable Services are commercial entities), they will bring down the costs of the transactional parts of grantmaking while also building robust, remote, easily customized systems that could support a small family foundation, thousands of donor advised funds, and even large staffed foundation operations.
They might also develop some interesting and useful auxiliary products. For example, it won't take too long for these companies to be hosting databases of grant information that will rival The Foundation Center's giving database in size, though certainly not in public accessibility. Each company will hold detailed information on donor advised funds, donors, and giving patterns - information that hasn't existed on this scale before. They'll also be rich in market research on the services, products and information that individual donors and small foundations will pay for.
While these new datasources may rival what the information we now collect on giving, they also will be proprietary, Limited as it is,
The Foundation Center's data on 10,000 US Foundations is available for public use and purchase and is the basis for most industry research. These new data sources will have a treasure trove of information - that could provide the best news lenses on industry trends - but the databases will be owned by the companies that build them, and how and if they are available to or used for industry research remains to be seen.
How will existing philanthropic institutions respond to these new products? Will we see large staffed foundations - almost all of whom "hate" their grants software, can't make it "talk to" their financial packages, and operate completely separate systems to manage their investments - migrate to these systems that have been built as aggregate, integrated, online tools from the start? Will the data these firms gather on individuals and institutions be used for industry analysis, proprietary gain, or both? Will new metrics on giving trends flow from these new tools and service providers as complements too or replacements for the industry databases now maintained?
Any and all of the above are possible. I'd bet on these newcomers - who have launched themselves with competitive zeal - to be the rapid innovators and automators of all parts of the financial management process. I'm also counting on them to capitalize on the data they collect on donors, giving, and nonprofits.
Just like donor advised funds in the early 1990s, these back office systems are important harbingers of a new era in philanthropy. They're low cost. They're automated. They're designed to be customized on a mass scale. And they're the product of competitive, commercial interest in the philanthropic marketplace.
I think this a great thing for philanthropy. Creating resources that people need and will pay for - this is how we should be promoting philanthropy. I hope the established "data purveyors" are worried about these newcomers. I support all parts of the philanthropic industry to take the approach that "data matter," "the customer matters," and that the tools and products we create should bring people, passion, and information together.
These development also show that what was once joined (financial management and knowledge about philanthropy or social issues) continues to be rendered. We are continuing down the path of having two distinct product lines in philanthropy - financial management products (such as those discussed above) and knowledge products. These two products came bundled as one for so long - in the form of staffed foundations or community foundations - that many thought they couldn't be unbundled. But they have been effectively decoupled in recent years, and the key question is what new forms will emerge as services and products are re-bundled and re-packaged for the 21st Century philanthropic marketplace.