New Credit Card Lets Users “Charge It Forward” with Each Purchase

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June 21, 2016, Fast Company

Charity Charge is a new public-benefit corporation (as Kickstarter is) with headquarters in Austin, Texas that allows cardholders to donate one percent cash-back to charities of their choice. The charity pays no processing fees.

Other bank-charity tie-ups offer 0.5% or less of the cash-back amount, or they involve high processing fees. For example, American Express charges 2.25% to process donations, reducing what recipients actually get.

Charity Charge World MasterCard, issued by Missouri-based Commerce Bank, works like other rewards credit cards, but instead of earning miles or bonus points, every transaction earns contributions to causes designated by the cardholders, including K–12 schools, colleges, and religious organizations. There is no annual fee, yet all the benefits of World MasterCard remain. Added warranty on purchased products and an identity theft protection service are included.

Applicants for the card designate beneficiary charities (which can be adjusted at any time) at the Charity Charge website. Charity Charge does not charge consumers or the beneficiary nonprofits; instead, it receives fees paid by Commerce Bank and MasterCard. Network For Good handles the processing of all cash-back donations.

Will this new offering become a movement? Americans permit $16 billion worth of credit card reward points to expire annually. A survey found that 51 percent of card users would continue to use their credit cards in the same manner as before if the rewards feature was eliminated. The Charity Charge rewards process is automatic.

Credit card consumers earn airline miles, cash back and other rewards that can either be used by the cardholders or “donated” to family, friends, or to a charity. Airline miles donated to a charity are not considered tax deductible, but cash-back donations are. Some credit cards encourage their customers to give to a vetted charity such as Capital One’s No Hassle Giving and American Express’s Members Give. Capital One’s site absorbs the transaction. Discover and American Express use a third party, JustGive, to process donations, and deduct a 2.25 percent transaction fee from the donation.

On balance, it is better to donate cash back rewards than to use an affinity card. Affinity cards appear helpful until it’s realized that 0.08 percent of, say, $10,000 worth of purchases in a year amounts to a mere $8 to the affiliated charity. Better to actually collect two percent in cash back rewards ($200) and donate that amount to the charity of choice. Also, you are giving this donation rather than the bank, so it is tax-deductible, and the donor’s action is known to the charity.

There are questions not addressed by the Charity Charge website. Will the beneficiary charities know the names and contact information of their credit card donors? In other words, will the charities be able to thank their donors and deepen the relationship? Are these cash-back gifts tax-deductible for the cardholders?

Regardless of the answers to these questions, this appears to be a very creative and worthwhile offering.

CEO and founder Stephen Garten says affinity arrangements—like Bank of America’s deal with the World Wildlife Fund—also reduce consumer choice. “People care about multiple causes, and what they care about changes over time,” he says. “We’ve worked out a way to scale it, so it’s one card that gives to them all.”

Charity Charge World MasterCard appears to be a positive, though not revolutionary, contribution to the nonprofit sector. The decision to choose a credit card, however, should depend simply on the terms of the card. Credit cards represent personal debt. Therefore, cardholders should strive to pay off the balance of the card in full each month; otherwise the finance charges will far surpass the value of any good the cardholder hopes to achieve through the credit card reward points program.

One question possibly worth investigating is whether charities can find a way to treat some of that $16 billion in abandoned credit card reward points as “found money” for their causes, as many charities have done by identifying unclaimed money from the government!—James Schaffer