Embedded Philanthropy: Does It Matter?

This blog post is part of the Embedded Philanthropy Blog Series, sponsored by Telecom for Charity. The blog series was launched in May 2009 to highlight expert thinking and encourage discussions on the state of embedded philanthropy in today’s economy.

“Embedded Giving” is a phrase coined by Lucy Bernholz in 2007. The phrase quickly caught on and was used by the New York Times, Washington Post and other major media outlets. Lucy was interviewed on ABC News and NPR.

According to Lucy:

Embedded giving is the (apparently) increasingly common practice of building a philanthropic gift into another, unrelated, financial transaction. For example, rounding up your phone bill to make a gift to charity. Or using your own grocery bag and donating the nickel that the store gives you to a local homeless shelter. Or using a specific search engine because it donates a small portion of its advertising revenue to charity.

Embedded giving proved to be a real trend and Lucy once again picked up on something far before anyone else.

The sponsor of this blog series, Telecom for Charity, has a business model based on embedded giving. From their website, “The Telecom for Charity Initiative puts forth five percent of your monthly telecom spend towards whatever cause you wish to support.”

But to tell you the truth, I just don’t think embedded giving is particularly important.

Let’s look at the example of a credit card company that donates 1% of your purchases to the charity of your choice. I’m not sure this is materially different from a card that rebates you 1% of your purchases back to you as a cash payment. From the standpoint of the credit card company it certainly doesn’t make a difference. For the credit card user, the cash means they can do what they want with the rebate (including give it to charity). So why would a consumer chose a card that donated to charity? My guess is that the major driver is that the charity linked card helps the consumer project (to themselves and others) their ideal self image.

That’s not a bad thing. Striving to be the person you want to be is a healthy human motivation.But at the end of the day, I think that embedded giving is basically just moving money around between artificially created “buckets”.

However, it may be that embedded giving actually is tapping into the non-rational, behavioral characteristics of how humans make choices. For instance, pioneering design firm IDEO worked with Bank of America to create their Keep the Change product that rounds up debit card purchases to the nearest dollar and shifts the excess charge to the customers savings account. IDEO designed this product to help people save.

Books like Nudge and Predictable Irrational, have recently highlighted the degree to which humans have certain behaviors, which if understood, can be harnessed to help people make better decisions. Maybe embedded giving will prove to increase the amount Americans donate to charity each year by presenting consumers with an option that makes them behaviorally more likely to donate. But for now, I have to say that I see embedded giving as an indicator that Americans have an increasing interest in philanthropy rather than as a driving force of that interest.


  1. Nathaniel says:

    I agree with your general conclusion but there’s one big piece I’m not sure about.

    You suggest that there’s not much difference between getting a percentage back vs. giving a percentage towards a cause.

    I think that, for the vast majority of purchases, 1% is not enough of a difference to motivate action. On the other hand, knowing that your Credit Card is churning a piece of your purchases back to causes provides a different motivation.

    What it allows for is for you to associate your credit card with your general do-gooder-ness. The value is not transactional, it’s emotional and psychological.

    And my instinct is that that associational power matters a lot more than the precise amount of moola.

    Still, like I said, the broader point that this is following rather than creating a trend towards philanthropy definitely resonates.

  2. I don’t mean to discount the “feel good” factor. Let’s assume that the only benefit is that consumers get an increased sense of “do-gooder-ness”. What do you think the public benefit of that outcome is?

  3. Nathaniel says:

    Well, I think a couple things..

    First, to assume that the only benefit is the sense of do-gooder-ness is to assume that the corporation donating those micro-chunks isn’t doing anything good with that money. That’s a huge assumption, and a very different argument (which could be debated endlessly).

    Second, I think that self-image is vitally important. The way we understand ourselves is the foundation for the way we understand our obligation to the world.

    One could argue that there is an unintentional negative consequence of the self-image boost of embedded philanthropy in that it might disincentivize other types of philanthropy by giving people an unrealistic sense that they “did something.” This is why online petitions have such a mixed reputation, right?

    That said, I would probably argue that the movement we’re moving into is not one in which people are looking to check their “doing good” of the list of things they have to do. Instead, I think it’s a moment in which people do want to be able to see the fluid path of their values throughout their actions. And think the main obstacle is convenience, not cost. I think that if that is the case, making it easier to do that in one part of our lives builds the expectation that we should be able to do, be, or buy the “good” or “green” version of everything, prompting more (not less) action in the long-term.

    Given that, my point is that embedded philanthropy (or put another way a more collaborative corporate philanthropy) is one way to reinforce that desire to integrate good throughout.

  4. Manuel says:

    Great discussion so far! My worry is that embedded giving could be used as a form of greenwashing, where businesses make token gestures of social responsibility (donating a tiny percentage of profits to charity) as a marketing ploy, rather than developing an integrated sustainable model. Unlike the big greenwashing culprits, however, most of these embedded givers don’t seem to be bad corporate citizens to start out with, and as Nathaniel points out, it would be a great if people began demanding more opportunities to act upon their ideals through every action of the day. This fits into a larger cultural shift where commitment to social change is becoming a more and more important status symbol.

  5. Tony Wang says:

    I really enjoyed reading this post and the comments, so thanks again for being a platform for discussion.

    Nathaniel, your discussion of embedded philanthropy not being transactional actually made me think that sometimes, embedded philanthropy is transactional, by offering more efficient vehicles for giving. For the credit card user, it may be too difficult to vet out different charities and calculate how much 1% of consumption is each year. By bundling, credit card companies that embed philanthropy make philanthropy more accessible to the everyday person. Similarly, fair trade and other products seem to make the option of self-actualizing much easier.

    However, Manuel, your comment about greenwashing certainly rings true – something I’ve expressed my concern over as well (especially hybrid cars that are inefficient as environmental purchases). But I’m reminded of Sean’s comment to me, which is that the market will make greenwashing competitive, to the extent that authentic brands will have a competitive advantage over non-authentic brands. So hopefully, embedded philanthropy will also go through an evolution where brands compete to be more authentic and effective in their giving.

  6. Peter Deitz says:

    I thought I’d jump into this conversation with a few thoughts on embedded philanthropy.

    First of all, I’d make the point that embedded philanthropy is not just a consumer phenomenon.

    It has tremendous potential in the B2B marketplace — both as a way to vet business partners and as a way to embed added philanthropic value into the entire operations of a CSR-minded company.

    Imagine the kudos that would come from a company being able to say that all of their financial transactions have philanthropy baked into them (not just the consumer sales).

    My second point is that embedded philanthropy’s potential is actually quite large. Consider this math from a new platform called MiniDonations.com:

    “In 2008, Internet Retail was estimated at $146 Billion. The top 10 businesses in this market represented almost 30% of total revenues. MiniDonations estimates that converting 20% of customers into donors and integrating with one or two top-tier Internet Retailers will raise over $250 Million per year in donations!”

    If companies had an incentive to direct 1% to 10% of their consumer and B2B transactions into the charitable sector, I think most nonprofits would get very excited.

    The question then becomes who decides which nonprofits get the embedded philanthropy proceeds — and how do these nonprofits demonstrate the positive impact they are making.

  7. Muhammad At-Tauhidi says:

    Thanks for raising this topic. I have to say that am a bit surprised at your broad dismal of the entire idea of embedded philanthropy. I can certainly see what you are saying with respect to the credit card example – providing a choice between taking your 1% in the form of a donation to a charitable cause rather than in cash (which could of course simply be donated on your own) feels like little more than a gimmick.

    But that is not to say that there are not ways of using the idea of embedded philanthropy somewhat more productively. Nathaniel recently posted a write up about Good.ly on Change.org. In a nutshell, Good.ly takes a percentage of the money that they earn from referral fees and donates it to charity. Now, for me, using Good.ly instead of Bit.ly or Tinyurl is basically costless, so why wouldn’t I use it? Or going back the credit card example, what if I could choose between getting 1% cash back and giving 1.5% to charity? Ok, now I am getting interested!

    What the latter examples have in common is that the company itself is assuming a least a portion of the cost. But, as suggested in earlier comments, I imagine that is the natural progression of this is that companies will start to compete in this area. One company will offer 1.5% cash back to charity, another will offer 2% and now we are off to the races.

    And what if the practice of embedded philanthropy became so widespread that a small percentage of almost every purchase you made was donated to a charitable cause? Don’t you think that would be a game changer?

  8. Muhammad, actually it doesn’t sound like a game changer, it sounds like a corporate tax to me. And I wonder if donors would begin feeling like they didn’t have to make donations anymore because, hey their shopping habits were already taking care of it.

    I’m not against embedded giving. I don’t think there is anything wrong with it. But the question has to be 1) will it increase funds flowing into the nonprofit sector and/or 2) make that money flow more effectively. It seems to me that it will almost certainly lead to less effective giving, but it could lead to more overall giving.

    If we got to a place where businesses were forced to give a % to charity to be competitive, it seems to me that replacing that amount with a tax might be a much more transparent way to do it.

    Here’s the thing. Let’s say you have two companies. One that gives 0% to charity and one that gives 5% to charity. Why doesn’t the one giving 5% to charity just lower their prices by 5% and let you decide what to do with the money? You could still give it to charity. What is better about a model where the corporation influences where your charitable giving goes?

  9. Muhammad At-Tauhidi says:

    “Here’s the thing. Let’s say you have two companies. One that gives 0% to charity and one that gives 5% to charity. Why doesn’t the one giving 5% to charity just lower their prices by 5% and let you decide what to do with the money? You could still give it to charity.”

    Your critique assumes that each person’s charitable giving is somehow laid out in advance for the year and that I will simply readjust my giving to account for whatever fails to come out in “embedded” forms. Sure Good.ly could just pay me to use their service and then I could save up all my Good.ly earnings and donate it to charity. While this makes sense in a certain theoretical economics sort of way (your argument is basically Coase’s Theorem writ large), in the real world, it is hard to believe that (a) making giving more convenient and (b) reminding people in small ways everday about how easy it is to give would not increase the overall level of giving.

    What I like about the idea of embedded giving is that it increases the opportunities for giving in ways that are nearly frictionless. At the drugstore near my house they will occassionally ask me if I want to donate $1 to some local charity (usually the Children’s Hospital) while I am checking out. This really a no-brainer – I already have my debit card out, and hey, its only a dollar. As much as I might say “Let me save this dollar and give it to my favorite charity instead,” reality dictates that is pretty unlikely to happen.

    It seems to be a maxim of chartiable fundraising that most people are unlikely to give until they are asked. By embedding giving into everday transactions we increase the number of asks in a way that it largely unobtrusive.

    “What is better about a model where the corporation influences where your charitable giving goes?”

    I think this is a separate important point, that harkens back to your overall level of giving vs. effectiveness of giving argument. But I guess what I am having a hard time with is why the idea of embedded giving is somehow *inherently* limited the narrow constraits you describe.

    What if the credit card company just cut a check and mailed to the 501(c)(3) of my choosing? What if Good.ly let me save up all my “earnings” and send it to the non-profit of my choice via Paypal? I dont see that there is anything inherent in the concept of embedded giving that requires the corporation to be the primary influencer.

    I guess I am not clear whether you believe that the very concept of embeded giving is fatally flawed in some way or that it is simply an area that needs more development and innovation to make it truly effective?

  10. Great questions Muhammad. I don’t mean to say that the concept of embedded giving is fatally flawed. I just don’t think it is particularly interesting or important.

    That’s why I wrote, “Does it matter?”, and “I just don’t think embedded giving is particularly important.”

    That being said, I also agreed that behavioral studies are showing us that framing things certain ways (especially changing the default decision, since most people go with the default) is very powerful. That’s why I said “Maybe embedded giving will prove to increase the amount Americans donate to charity each year by presenting consumers with an option that makes them behaviorally more likely to donate.”

    I’m not dismissing embedded giving. I just don’t think it is particularly special or interesting.