Last year, over US$290 billion in America was donated to charities, but surprisingly, less than 10% was donated online. With 240 million Internet users in the U.S., accounting for approximately 77% of the American population, the amount of online donations is surprisingly small. The good news is this figure has also been steadily increasing in the last few years. The knock-on effect is that regions far away from the U.S., such as the Middle East and Africa, could potentially benefit if the Internet can help bring international causes closer to American donors.

“Reaching large numbers of potential donors is easier and less expensive using the Internet, whether through charity websites, social networking sites, or middleware platforms, such as Causes and Crowdrise,” said Jason Wingard, vice dean of Wharton Executive Education, which now has a special team dedicated to outreach in the nonprofit, economic development and foundation sector.

Katherina M. Rosqueta, Executive Director of the Center for High Impact Philanthropy at the University of Pennsylvania, agrees, adding, “The Internet, mobile technology, and social media have made it easier and faster for potential donors to understand the needs of communities faraway and to give to organizations serving those communities. However, the success of these tools in unlocking philanthropic capital will only be as great as their ability to give donors confidence that their funds are really making a difference.”

Social Media’s Role in Online Giving

Social media has greatly altered the landscape of online giving. The number of creative ways to harness the Internet to “do good” is infinite. When the earthquake in Haiti hit in January 2010, text messages became an instantaneous way to donate, leading to an unusual spike in donations early on in the year when most people tend to donate toward the end of the year. The American Red Cross raised US$32 million through text messages. Roger Lowe, Red Cross spokesman said in USA Today, explained, “It takes less time to click. You feel like you’ve made a difference immediately.”

The flamboyant, pretzel-shaped hat worn by Princess Beatrice to the royal wedding of Prince William and Kate Middletown was sold on eBay for an impressive US$131,652 and the money was donated to UNICEF and Children in Crisis, a British charity. The Napa Valley Vintners in California opened up their premier charity wine auction to online bidders for the first time in 31 years. The global e-auction raised nearly US$360,000 from oenophiles in China, Japan, Mexico and Europe for local charities.

GlobalGiving, a website organization, and Causes, a Facebook application, have also played major roles in using the Internet to raise funds. “Through Facebook, Twitter, and middleware platforms, [donors] can connect with one another online, discuss the merits of a cause, rally others to donate, and see how many other people are supporting their cause,” explained Wingard.

In 2010, GlobalGiving raised US$7.1 million online, more than double what they raised online in 2009, according to Alison Carlman, spokesperson for GlobalGiving Foundation. The foundation works with 1,414 organizations around the world, using multimedia platforms to connect donors directly with charities.

“We’ve found that people feel connected to faraway projects and organizations if they understand how their contribution is valuable and will have an impact,” Carlman says. “We enable individuals to search for projects on the site that match with their interests. When they donate to a project that resonates with them, they frequently receive a “thank you” email sent personally by the project leaders themselves. Every three months or so, donors receive quarterly project updates that inform them how their donations have been used. Updates frequently include personal stories and photographs of the beneficiaries.”

Professor Leonard Lodish, Wharton’s Vice Dean for the Program for Social Impact, agrees that the future of online giving has some real benefits. “The real potential is to make personal connections so people can see the result of their giving in very human terms, such as the Sponsor-a-Child campaigns. Internet can achieve that personal aspect and do it less expensively. The money can be going directly to the people who need it versus administrators, thereby reducing the operating costs,” said Lodish.

He warns, “It’s not easy to do and there will be a lot of challenges logistically. Getting people in rural Africa to develop relationships with people in the U.S. won’t be simple. A lot of people can’t read, can’t write, or sometimes don’t have any electricity. They’ve got to do some creative stuff.”

Carlman agrees that “basic things such as Internet connectivity and social networks in the country all play a part in whether or not projects are active on [GlobalGiving], and whether or not project leaders are successful in soliciting donations.”

However, Lodish remains optimistic. “Technology will change. It’ll get cheaper to get connected. Wireless will become more ubiquitous in that part of the world. Maybe there will be one iPhone or iPad in the village and people can take turns doing things on the Internet.”

Digital Giving Grows

Online fundraising rose an average of 35% in 2010, according to Blackbaud, a software company for nonprofits that published the 2010 Online Giving Report. International affairs organizations experienced the biggest jump of 131% in online giving, compared to 2009, partly due to the successful campaign to solicit donations for Haiti’s earthquake recovery in early 2010.

Digital giving is also more common with college graduates under the age of 40 who have higher household incomes, according to the Pew Internet and American Life Project. In the wake of Japan’s disaster relief campaign in 2011, college graduates were almost equally split between donating electronically or traditionally. This is an increase from the 2004 Indian Ocean Tsunami disaster, where 33 % of college graduates donated traditionally while 10% donated digitally.

Almost 75% of charitable organizations used online fundraising, and 58% of those groups saw an increase in donations. Una Osili, director of research at the Center on Philanthropy at Indiana University, explained in USA Today, “It does take some time for organizations to make the investment in online fundraising and to learn how best to integrate that” into their donor strategy.

Integrating Online and Offline

Due to the recent economic recession, the years 2008 and 2009 saw the lowest amount of donations in more than 40 years, according to Giving USA. That figure is slowly starting to climb though. In 2010, the amount rose 3.5% and that figure is expected to rise for 2011. “But the sobering reality is that many nonprofits are still hurting, and if giving continues to grow at that rate, it will take five to six more years just to return to the level of giving we saw before the Great Recession,” said Patrick Rooney, executive director of the Center on Philanthropy at Indiana University, in a press release.

Personal giving accounts for the majority of donations last year, with USUS$212 billion contributed from individuals. That showed a 2.7% increase from the previous year. The statistic also exemplifies the huge, untapped potential of Internet giving since the bulk of donations come from the proverbial wallets of ordinary people.

The Nonprofit Research Collaborative, of which the Center on Philanthropy is a member, found that there wasn’t a single fundraising vehicle more effective than another. Typical methods to raise money are telephone, direct mail or email, foundation grants, special events, board members, corporate gifts, payroll contributions, planned gifts, and online.

While there is an increase in online donors, research has found that direct mail is the best method to retain donors. “The Internet is becoming an increasingly important acquisition channel but has not proven to be as effective for retention. It is the ability of online-acquired donors to use another channel — that is, to start giving through direct mail — that significantly boosts the long-term value of this group of donators. The most successful organizations have integrated online and offline marketing teams and CRM systems to develop effective multichannel communication strategies that can maximize donor value,” said Rob Harris, director of analytic products at Blackbaud, in a press release.

However, the Internet is also valuable for donors to acquire information even if they don’t directly donate online. More than 65 % of donors used online or offline Internet information to research charities, according to the Kintera Luth Nonprofit Trend Report.

Carlman at GlobalGiving also found that though they were a website, some donations, especially if they were high amounts, were sent in by check. Last year, they received an additional US$3.7 million through traditional means.

Global Charity Flows

Giving to international affairs, which encompasses aid, relief, development and public policy projects, reached almost US$16 billion in 2010, according to Giving USA, a research foundation that studies philanthropy. That figure was only 5 % of the total in U.S. charitable donations, though that number has increased 15.3% from the previous year.

In spite of the rise of online giving, the Internet may never becoming the primary vehicle for fundraising in the U.S. Wingard notes that “about half of the US$290 billion raised last year was given to religious and educational institutions, which are less likely to take donations online.” Religious contributions comprise of less than 5 % of all online donations. “Electronic tithing and offerings are relatively new. Colleges and universities also continue to direct the majority of their development efforts through traditional means,” said Wingard. “Until churches and schools increase online giving, that gap will remain,” he added.

Before the Great Recession, from 1987 to 2006, donations to international affairs organizations were steadily increasing at a rate of 9.1% annually. On average, households gave approximately US$18 annually to international affairs in 1988. Ten years later in 2008, the average household contribution rose to US$114 annually, according to Giving USA’s estimate. The recent financial recession shook that trend to the core.

In the international affairs sector, organizations devoted to ending global poverty seem to be benefitting the most. This initiative is carried out through causes that support agriculture, microfinance, as well as women’s health and education. The Alliance for a Green Revolution in Africa (AGRA), a public-private partnership organization in Africa devoted to helping small farmers increase their yield and adapt to climate change, has received a substantial amount of funding from the Bill & Melinda Gates Foundation and the Rockefeller Foundation. Recent conflicts in the Democratic Republic of the Congo and Sudan have spurred celebrities like George Clooney, Ben Affleck and Mick Jagger to create media campaigns to raise money for people affected by the violence.

GlobalGiving found that approximately a quarter of their online donations went to projects in Africa in the last three years. Though the percentage has stayed roughly the same, the amount of dollars has grown from US$530,000 in 2008 to US$1.6 million in 2010, illustrating that more and more funds can be funneled directly to Africa as digital giving becomes more accepted.

The Middle East received only 1% of the online donations through GlobalGiving as charities in Israel and Palestine were the three most popular charities, according to Carlman.

That was the same in the case of corporate giving where the Middle East was the region least likely to benefit, according to the 2008 Corporate Contributions Report. Only 1% was donated to that region, while Europe benefitted the most, receiving 26% of corporate international giving.

However, Carlman cautions that GlobalGiving’s statistics may not be a “solid indicator of global or philanthropic trends. They could be attributed to changes in our business model.” For instance, their chief project officer is in Nigeria, signing up new organizations to GlobalGiving. So in 2012, there might be more donations going to Africa but “it wouldn’t necessarily be accurate to say that there are changes in donor attitudes toward Nigerian projects because the change would actually be attributed to a change in the number of projects available on our site,” explained Carlman.

Continued Growth Expected

“Transparency and individual empowerment are two key factors in building and maintaining meaningful relationships via the Internet,” said Wingard. Both of these aspects could increase online giving to Africa and the Middle East. “Whether online donations will ever account for the majority of donations remains to be seen, but evidence points to continued, robust growth,” said Wingard.

Though the Center on Philanthropy notes that 80% of American donations go to local communities and churches, Wingard notes that the response to foreign disasters, such as the Japan tsunami and the Haitian earthquake, “reflect American generosity in the face of international crises.”

He added, “The keys to tapping into that generosity are the same as they are for any other Internet fundraising effort: appealing to values and beliefs, and providing a relationship between the donor and the cause.”