How Non Profit Organizations and Pilot Programs can think about Card Restrictions

How are Non Profit Organizations Distributing Money Today?

In short, the answer depends on a handful of factors- mainly donor relations, alignment with the program’s mission, and protecting the benefits of the participants.

In the current landscape of direct giving, one of the biggest challenges is to figure out the best way to distribute funds. 

Organizations public and private, big and small have all approached this differently- oftentimes, they arrive at different conclusions as a result of a balancing act between making donors happy and designing a program that properly serves their target population. 

Not to mention, there’s a third contributing factor in protecting federal benefits of individuals that further complicates the program design.

The sentiment from smaller, private organizations running direct giving programs is wildly varied on this topic. There are some community run programs who have wealthy donors that want their donations to be distributed in certain ways. 

In those cases, it may make more sense to set restrictions on the funds they distribute. 

Having all this in mind, approaching the issue of spending restrictions in these programs becomes a fascinating subject. 

Does preventing a participant from buying cigarettes and alcohol with their funds go against the mission of the program, or is it a necessary precaution to take preventative measures like this?

What are the Current Capabilities of Card Restrictions?

In terms of restricting prepaid cards, you can currently only go as far as restricting them from being spent at the store level. 

The Givecard team has explored the capability of card restrictions within our platform, and we are eager to share some findings on the current state of functionality from the card issuer’s perspective.

It is currently possible for programs to set restrictions by card, or assign restrictions to batches of cards at a time, or even set them program wide. These restrictions are set at the Merchant Category Code (MCC) level, meaning that programs can only restrict cards from being used at certain “types” of stores (examples of MCC codes shown below.) 

It is currently not possible to restrict cards from purchasing individual items, as those identification numbers vary widely from store to store.

There have been some interesting trends in terms of what use cases we are seeing for restrictions. 

One interesting example is the use of restrictions on cards for programs who distribute funds to youth under 18 years of age. In many cases like student stipends or work-study programs, there are very valid reasons to restrict cards from being used anywhere, in order to conform with the values of the schools themselves.

How Guaranteed Income Programs Approach Spending Restrictions

In the guaranteed income space, the position of many pilots is to give without restrictions. The reasoning behind that is rooted in the concept of “a basic income”, where pilots are simply providing a safety net, not dictating what individuals can or can’t buy with their funds.

GiveDirectly has run a handful of programs both in the US and internationally demonstrating the power of giving unconditionally. 

With a high efficiency that ensures approximately 90 cents of every dollar donated goes directly to recipients  (and in some cases even higher), they have been able to generate significant evidence on the positive impact of unrestricted cash. 

Compiled together with over a hundred other studies, the consensus has been that cash giving programs found spending on food and other goods increased while not reducing the willingness to work of the participants.

What’s even more compelling, however, is the data that has come out of these programs who are serving hundreds of thousands of people, distributing hundreds of millions of dollars.

The Economic Security Project ran a basic income pilot in Stockton, California that gave participants $500 a month for 18 months, without setting any spending restrictions. They found through analysis of the results that participants are mostly spending their money on food, clothes, and utility bills, instead of on drugs, alcohol and tobacco as argued by many critics of the guaranteed income approach. 

After the program concluded, data provided by the Stockton Economic Empowerment Demonstration (SEED) shows that of their basic income, recipients spent 37 percent on food, 22 percent on home goods, clothes and shoes, 11 percent on utilities, and 10 percent on auto costs, leaving less than 1 percent actually being spent on alcohol or tobacco. 

This is promising news, and only gets better when SEED’s findings also noted that the program created new opportunities for participants, empowered them with choice, and encouraged them to set and achieve other life goals using their funds.

There are also other cases where restrictions are counterproductive to its intended use. Insights from GiveDirectly’s disaster relief programs after Hurricanes Ian and Fiona actually support giving cash without restrictions, in the sense that it makes providing emergency relief and securing supplies way easier than sending in-kind donations that survivors of natural disaster may or may not need at that particular moment. 

It seems from GiveDirectly’s disaster relief efforts that while specific product donations help, empowering survivors to decide what they need in a time of crisis is more important, as it eliminates barriers to necessities.

How to Preserve the Dignity of Program Participants

The Magnolia Mother’s Trust program touches more on the idea of unconditional giving, and specifically how it impacts the mindset of the participant mothers. Not only did giving without restrictions set the tone of trust and empower vulnerable populations, but it actually increased their participation in this pilot because there was no “shame” and empowered them to spend the money as they saw fit. 

In fact, many anecdotes were recorded where even though receiving funds from the MMT program made some participants lose some other government benefits, the mothers still felt better off because of the program.

The Verdict on Giving without Restrictions

It seems that as the current direct giving landscape continues, more and more positive data points are emerging, particularly from the guaranteed income space. 

It still remains to be seen whether this model of unconditional giving can be applied more broadly to other types of programs, however the anecdotal and data-driven evidence from dozens of studies are showing that the mechanism of giving without restrictions, at least, has some real-world merit and can make significant, tangible impact on the lives of participants.

Learn more about the future of card issuing and the current evidence on giving unrestricted cash here.