Charity fundraisers tend to give premium-rate phone services a wide berth. Text-to-donate campaigns, premium-rate phone competitions and add-ons such as ringtones and updates have never been regarded as the most efficient forms of fundraising, because too many people get a slice of the pie. To make matters worse, the reputation of all premium-rate services plummeted to new levels last year during the great TV phone-in scandal.
The voluntary sector was quickly dragged into the controversy and did not emerge unscathed: some of the BBC charities at the forefront of phone fundraising suffered a public bashing when it emerged that Children in Need, Comic Relief and Sport Relief had all faked competition winners. Trust in all premium-rate phone services and the regulation of the industry was dented. Suddenly, those charities that had steered clear of fundraising in this way felt rather pleased with themselves.
A £1.25bn market
Almost a year on, the phone industry is fighting back. Today, at a half-day seminar in London, several big hitters in the telecommunications industry will be trying to convince the voluntary sector that charity fundraising using premium-rate phone services is not only a viable option, but a relatively safe and profitable one.
According to Paul Whiteing, director of policy and innovation at PhonepayPlus, the regulatory body for all premium-rate telephone services, the premium-rate industry is worth about £1.25bn a year and charities are taking only about 5 per cent of it. "The charity sector is a very small part of the market, but there is growing interest in it," he says. "The slice of cake available is quite a bit larger."
Last year's scandals have, in the short term at least, made the cake smaller. According to PhonePayPlus's 2008/09 annual plan, the premium rate market fell in 2006/07 and is forecast to fall by 17 per cent in 2007/08. But it is then predicted to rebound sharply and grow at 10 per cent a year until 2011, by which time it is estimated that it will be worth about £1.5bn. The regulator says the recent fall is "almost wholly attributable to public concern over problems with competition and voting services on mainstream television channels" and is confident of a sustained recovery.
But even if the sums add up for charities, perceptions linger. Has the telecommunications industry cleaned up its act sufficiently or does it pose too much of a risk to charities' reputations? Trust and confidence are the themes of today's seminar, which suggests these remain the key concerns. "Clearly there have been issues relating to trust," says Whiteing. "But people like to interact with TV shows and, if everyone sticks to the rules, there should not be any problems." He adds that the number of complaints to the regulator has fallen in the past year even though it has handed out £1.2m in fines.
The current market weakness could be a source of bargaining strength for charities. Phone companies are desperate to remove the stain of past indiscretions and see partnering with charities as the way to do it. "Corporates want to make amends, so it's a good time for charities to get involved, providing they do due diligence," says Rosamund McCarthy, a partner at charity law specialist Bates Wells & Braithwaite.
McCarthy says some charities will make lots of money from fundraising through premium-rate services. "People like to take part in competitions and they are a good way for charities to get new, younger donors," she says. She also thinks a repeat of last year's scandals is unlikely because the Gambling Commission is now more rigorously enforcing the law that says only not-for-profits and sporting or cultural bodies can lawfully run lotteries.
Many of last year's scandals, she says, happened because a lot of competitions that were, essentially, lotteries were not being run by not-for-profit organisations in accordance with the law. "The result of this was that charities lost out on millions that they could have received," says McCarthy.
She says that if companies and premium-rate service providers team up with charities to run lawful competitions or lotteries, and if the Gambling Commission - which, unlike the Gaming Board, does have powers to prosecute - takes action against illegal competitions, there is no reason why transparent, accountable promotions should not yield vast sums. "It will be a fantastic source of unrestricted income," she adds.
But not everyone is convinced the sums stack up. The fact remains that a sizeable chunk of revenue from text services - whether they're straightforward donations, TV votes or reverse billing schemes in which people agree to pay a set amount to receive information about a particular cause - goes elsewhere. Deals vary, but typically charities can expect to receive about 55p of the cost of a £1 text. Each text is subject to VAT, and the service providers and phone companies also take a portion.
The fact that so much money slips through the net is a major cause of concern. Megan Pacey, director of policy and campaigns at the Institute of Fundraising, says other forms of fundraising are more cost-effective. "There are benefits, but there are a huge number of issues around accountability and transparency," she says.
Delegation's what you need
On the other hand, Pacey agrees that text donations are relatively easy to set up because the technological work is outsourced.
Charities contract with mobile application service providers, some of which specialise in the voluntary sector, to handle the technology. These providers connect the service to a mobile transaction network, which have contracts with UK mobile phone operators such as Vodafone and Orange.
The Aspinall Foundation, an animal charity, pays a monthly fee to a provider, which in return provides it with a BT mobile platform that enables staff to set up premium-rate services on their own. "I can set up a mobile campaign on my laptop in three minutes sitting at home," says Sarah Tite, fundraising manager at the foundation. All it requires is a keyword and number for the campaign and a message to donors in no more than 160 characters.
Tite says the service costs hundreds of pounds a month and enables the charity, which has only six staff, to communicate with supporters in new ways. Because its two wildlife parks attract 450,000 visitors a year, it can advertise widely for free.
The charity uses premium-rate services to fundraise by asking supporters to agree to pay £1 to receive texts informing them of news at its wildlife parks. Gift Aid can easily be added. It also sells ringtones of animal noises. Texts are equally valuable for communicating. "I wouldn't say I'm making money from it yet, but I'm sure I can," says Tite. "The possibilities are endless."
Larger charities are also testing the water. Last month, Save the Children ran its first text fundraising campaign. "It's scary to take risks with fundraising investments, but the medium is mature enough now and people understand the technology well enough," says Joe Barrell, head of communications.
Trust, he says, remains the big issue, and charities have to make doubly sure that both they and the mobile companies they work with adhere to the law. PhonepayPlus offers a free compliance service for charities. "Text is an incredibly popular communication and I doubt in the long-term whether what happened last year will have a huge impact," says Barrell.
TEXT FUNDRAISING: WHERE DOES THE MONEY GO?
Fifty-one MPs have signed an early day motion calling for VAT on charity text message donations to be abolished. It says that donations through mobile phones should be subject to the same zero VAT rating that applies to cash donations.
Liberal Democrat MP Mark Oaten tabled the motion in December after lobbying by the mobile phone industry. Phil Hope, Minister for the Third Sector, is not among the signatories.
About 26p of the cost of a £1.50 text donation goes to the Treasury, which eats into the amount a charity receives even before the mobile application service providers, mobile transaction networks and mobile operators, such as T-Mobile, take their cut. As a result of this, charities usually receive little more than half the cost of a call.
Andrew Bud, chairman of mblox, a mobile transaction network that connects charities and their service providers to mobile operators, says the future of charity text fundraising hinges on whether VAT is abolished.
"Donors are unwittingly giving VAT on their donations to government," says Bud.
He says mobile transaction networks can be reluctant to work with charities because the profit margins are so small. "It still relies on the charity to ask rather than the industry to offer," he says.
"If the VAT issue goes away, there will be better margins in the system for everybody to make enough money to make it worthwhile. The future of charity phone fundraising depends on the VAT issue."