Business of Fintech

A “plug adapter” for donations: Daffy repackages the donor-advised fund

  • Daffy is a fintech that wants to make donor-advised funds accessible to everyone.
  • The emergence of the app could be another example of how the industry is repackaging its services.

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A “plug adapter” for donations: Daffy repackages the donor-advised fund

Donor-advised funds have gotten a bad rep in the past. That's because the way these funds are set up, in all honesty, is a tad sketchy. Not quite a private foundation and not quite a public charity, DAFs contain pretty solid loopholes through their not-so-solid setup. 

In short, wealthy folks have been able to store their money in these funds, under the pretext of it going towards a future charitable donation. But the tax deduction comes before the donations are actually made. Meanwhile, there’s no timeline for the donation, which means the money can just sit back, relax, and grow. 

It may not be a surprise then that these funds have become more popular in recent years. To give you an idea, here are some stats pulled from a CNBC article back in August 2021:

  • During this past decade or so, total assets in donor-advised funds have reached $140 billion, more than quadrupling. 
  • One in eight dollars donated to charity in America goes to a DAF.

But times are changing: investing is no longer a rich person’s game, and donor-advised funds may not be, either.

Daffy wants to make donor-advised funds accessible to everyone.  

Co-founded in 2020 by fintech veteran and former Wealthfront CEO Adam Nash, Daffy’s app basically offers a way to automate the donation process. 

“What we've discovered is that most people want to give, and they have an idea of how much they should be giving. They just don't get around to it because life is busy,” said Nash. “We have work, we have our social life, we have family, et cetera. And so a lot of people don't find the time to actually give away the money that they want to give. Daffy sort of solves that.”

Source: Daffy

Daffy works like this: once the user has signed up and has plugged in her bank information, she is instructed to put in her giving goal – both in terms of how much she wants to give and how often. The app then automates the donations.

There’s also the investing portion of the app. Daffy offers nine portfolios that stem across three different categories, including standard, ESG, and crypto. Each portfolio has a different degree of risk and volatility, which are described as either conservative, moderate, or aggressive. 

The portfolios grow the money over time so that the user ends up donating more. The tax-deductible donation receipts are saved within the app. 

Daffy says it currently offers 1.5 million US nonprofits that consumers can choose from to direct their donations. 

In terms of how users can go about donating, they can link their bank account, use Apple Pay, credit cards, debit cards, stock, and around 120 different crypto coins.

“Our business model is fairly radical and disruptive for the industry. And so we had to quickly, in the first few weeks, implement the ability to transfer a donor-advised fund to us, which we now support. Same thing happened with crypto,” said Nash.

Source: Daffy

The company makes money by charging a monthly or yearly fee, depending on how much the user is contributing. If users are donating less than $100, the app is free. Otherwise it charges them with a monthly fee of either $3 or $20. The latter amount is for contributions that are over $25,000 and are made through a DAF transfer, crypto or stock.

One thing that’s interesting about Daffy’s app is that it acts as a kind of "donation plug adapter". One example Nash gives is of an early Daffy user who wanted to donate to his synagogue using crypto. Because the synagogue didn’t have the tools to accept a crypto donation, Daffy came in as a middleman.

“It's not practical for every synagogue, nonprofit, community center, zoo, or any other organization out there to figure out what's the latest in technology and how to support a new coin from Coinbase,” said Nash. Fintechs like Daffy can come in as a solution to that.

The emergence of Daffy speaks to where the financial ecosystem is at with fintech, said Nash. New tools have been emerging steadily throughout every aspect of the industry, with stock, crypto, and money movement as just some of the examples.

And if the first stage of fintech innovation was about laying out the fresh ingredients, Daffy speaks to the second stage, which is about testing new recipes. 

“I think one of the reasons we were able to launch Daffy as quickly as we were is just how robust the fintech ecosystem has become in the last decade, frankly,” said Nash.

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