Ideal Cost Reacts: Politico’s “How Bernie’s Small Donors Are Making Credit Card Companies Rich?”
Ideal Cost in no way endorses or disparages any political candidates. The author notes, however, it would be ironic that Bernie Sanders is the candidate indirectly benefiting the big banks and credit card processors more than anyone else in the 2020 race.
“Bernie Sanders and Elizabeth Warren have eschewed big-dollar fundraising events to support their 2020 campaigns, instead turning to their grassroots supporters for small-dollar contributions. It’s central to both candidates’ appeal: the idea that everyday people, not big financial institutions or wealthy and powerful interests, are financing—and benefiting from—their efforts.
Donors have responded in droves— donating tens, hundreds, or even thousands of times, in amounts as small as $1. But what these grassroots supporters may not realize is that in making small repeated contributions, they have, in aggregate, delivered a huge payday for the middlemen. These middlemen are often large banks and financial institutions that process those payments.
It’s important that people realize that the more transactions they engage in, the more credit card companies are making money,” said Jonathan Zucker, the co-founder of Democracy Engine and former CEO of ActBlue, the nonprofit payment-processing behemoth catering to Democratic campaigns. “While it may only be a matter of cents, those pennies pile up.”
Without getting into the political calculations, it is true that certain Democratic primary candidates have more aggressively pushed individual or recurring micro-donations as low as $1 per month. We aren’t sure that it is exclusive to Bernie Sanders or Elizabeth Warren due to the individual donor threshold requires to appear on the debate stage. Candidates are routinely spending far more than $1 to acquire a $1 donation strictly to participate in the debates.
A fixed transaction fee will indeed eat more of smaller transactions. However, the article mentions that ActBlue is a nonprofit credit card processor. Nonprofit status is irrelevant to how much ActBlue may be charging the political candidates for processing services. There are plenty of price-gouging nonprofit service companies in the U.S.
“When you give a dollar to a political campaign using your credit card, a portion of that money is paid to a range of companies—the bank that issues a donor’s credit card, the campaign’s bank, the credit card company, etc.—and is generally taken as a percentage of the donation, plus a fixed amount per transaction. Even ActBlue, which advertises a flat fee of 3.95 percent, gets charged a per-transaction fee behind the scenes, though the organization would not give exact amounts.
And as contributors make smaller but more frequent contributions, those per-transaction costs have a disproportionate impact.
To illustrate the point, Zucker gave a commercially reasonable rate—similar to Stripe’s or PayPal’s—of 3 percent plus 30 cents per transaction. Imagine a single donor makes a $1,000 contribution to a candidate under that scenario: The campaign would get $969.70, and the processing middlemen (Visa, Wells Fargo, and so on) would take $30.30. But that balance changes radically if the campaign has a thousand different supporters make tiny online donations of a $1 apiece. In that case, the existence of per-transaction fees means the credit card processors would take $330, while the campaign would get only $670 — even as it would be able to tout a low average donation size.”
It is correct that several players are paid on each credit card transaction, including the issuing bank, credit card brands such as Visa and Mastercard, as well as the processing side.
It is interesting to note that Zucker mentions ActBlue’s advertised rate of 3.95%. If all campaigns are charged 3.95% without any transaction fee, then the average donation size is irrelevant to the candidate. 1 $1000 donation would cost the same in processing fees as 1000 $1 donations, which is $39.50. While 3.95% is a very high flat-rate processing fee, if many $1 donations are processed, then it is very reasonable. Strangely, Zucker shares a scenario where the campaigns are charged differently based on their average-sized donation, which would conflict with the advertised 3.95% flat fee. If micro-donations are such a significant chunk of all political donations, then ActBlue would be paying the fee rather than the campaigns. Furthermore, younger contributors and micro-donations would be more likely to use debit cards, which carry a higher per-transaction fee. Therefore, with these micro-donations, Bernie Sanders would actually be sticking it to the credit card processors rather than creating a windfall for them.
The author illustrates the fact that credit card processing fees are significant when it comes to political contributions. However, the author doesn’t reconcile the premise of micro-donations with the fact that ActBlue doesn’t advertise charging a per-transaction fee. The article almost feels like a puff-piece for ActBlue to increase its donation base, or perhaps it serves as a pretext for ActBlue to start charging a per-transaction fee.
The article is informative to the average political donor but does not dig deep and ask important questions. We give this article a B-.
Don’t Take On The Credit Card Processors By Yourself
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