Did anyone ask the wireless carriers if they would support text-to-donate political donations before the FEC made their ruling? It appears not.
Last week the CTIA, the carriers’ trade association (basically Verizon, AT&T, Sprint and T-Mobile), stated—and I paraphrase: "Hold your horses. There are a lot of campaign finance details that have not been figured out. We need more guidance from the FEC."
I can't say I’m surprised. First of all, the individuals who requested an FEC ruling on the text-to-donate plan did not get the CTIA's buy-in before submitting their proposal. My guess is that they assumed the carriers would see an opportunity for a quick buck and jump right in. The carriers’ marketing departments certainly did, as there were prices floating around within a week of the FEC's ruling.
What the filers did not consider is that wireless carriers are almost like banks. They have vast investments in their infrastructure and see risks everywhere. They want to control all aspects of the data that flows through their networks and avoid risks at all costs.
My first risk concern for the carriers is liability. If a dodgy donation comes in, who is responsible for making sure it is compliant with FEC regulations? Is it the wireless carrier? Carriers have absolutely no systems in place to verify that a cell phone owner is eligible to make a donation. An aggregator is the company go-between between the wireless carrier and the campaign for the text-to-donate service. Do aggregators provide the fundraising compliance services or is compliance in the campaign's hands? The FEC is going to have to make the call on this one.
One of Verizon's biggest concerns, according to an industry insider, is support call volume. Verizon will do all they can to reduce the number of customers who call in with support issues. As with any financial transaction, it’s not hard to imagine a percentage of donors making requests to the carriers for explanations of items on their bills, charge backs, or removing accidental donations. Carriers probably have some solid data on support rates from their Haiti text-to-donate experience.
Another industry expert expects at least a 10 percent charge back rate for text-to-donate transactions. That could add up to a lot of support calls. A 10 percent charge back rate opens a can of worms for the FEC and for the aggregator. According to the FEC ruling, the aggregator has to provide the donation funds from the donor to the campaign within 10 days of the donor sending their text.
The kicker is that it takes three to five months for the funds to move from the donor to the company providing the funds to the campaigns. That means that the aggregator provides a "factoring" service. Factoring means that the aggregator will assess the text-to-donate transactions and project how many dollars will eventually be paid out by the wireless carriers. The aggregator then fronts this money to the campaign.
Eventually the aggregator will pay out "trailing payments" to make up any differences between their projections and the actual funds that are paid out by the carrier. Good luck with this model if it takes three to five months for the funds to move from the donor to the aggregator. Until there is solid data on the model, the aggregators will be taking a gamble.
What happens if the donor doesn’t pay their cell bill, cancels their cell contract, dies, or asks for a charge back? The funds have already been moved to the campaign, but there isn't a valid donor behind the funds. The bookkeeping could get very difficult.
Another interesting case is what happens if the campaign implodes or, more likely, loses. The aggregator provides funds to the campaign. Donors won’t want to fulfill their donation-a-month or more after a campaign has closed its doors.
The other big issue is that gifts generated from text donations could come from individuals or organizations that are not allowed to make political donations, such as foreign nationals, minors or federal contractors. I don't know about you, but my employer pays for my work cell phone service. If I make a text donation from my work cell phone, then my employer is actually making the donation—yet another FEC no-no. An extra layer of compliance confirmation will be required at this point.
Carriers are only committing to providing campaigns the phone numbers of the donor and no other personal information. What if I have multiple cell phones? Guess that’s another question for the FEC.
A carrier might worry about campaigns using the cell numbers collected from donations to spam supporters. Campaigns do have a tradition of being trigger-happy with outbound communications.
Lastly, there is the strategy behind text donations. In the world of political fundraising, a $10 gift is much less than the average gift size. If I am a finance director, would I want to raise a large number of donations from supporters via text, which has a very high cost, or would I rather drive those same donors to a web page or 800 number—where my fundraising costs are significantly less, and the size of the gift isn't limited to $10.
Another interesting question is, if a donor makes a small gift via text, are they less likely to make a larger follow-up gift? The thought process is that a donor has mentally checked off the box that they've made a donation to the candidate, even if it’s just a $10 one, so they won't consider giving a second.
Strategically speaking, if text-to-donate gifts become permissible, I might only recommend using them at the very end of a campaign to sweep up the donors who didn’t respond to other forms of solicitation. I would only use text-to-donate if I believed there was no other way to collect a contribution from a particular donor.
Erik currently runs sales and marketing for CMDI, the largest Republican fundraising technology platform. Prior to joining CMDI, Erik founded numerous fundraising technology companies whose products have raised over $300 million for hundreds of political and cause-based organizations.