This week I was invited to take a look at GiveLoop, a new software platform for processing online donations.  Inspired by sites such as Kiva and DonorsChoose, GiveLoop allows nonprofits to empower constituents to decide exactly how their donations will be used by ‘voting with their money.’  Benefits for the nonprofit are to increase donation size, increase donor loyalty and increase donor volume, as well as providing more transparency.  If you’ve looked at direct mail appeals you’ve received lately, you will probably notice how donation levels are often associated with what each amount will allow the nonprofit to do, but doesn’t obligate the organization to use the funds for that purpose.

While GiveLoop offers an interesting new way to do online fundraising, most organizations I’ve worked with have been wary of collecting restricted funds, partially due to the accounting requirements and partially because they really don’t want to give constituents this level of control.  But this reminds me of the difficulty some nonprofits have had in embracing social media because they want to control the messaging.  But as Clay Shirky pointed out at last year’s Nonprofit Technology Conference, ‘you’ve already lost control.’

However, I like the idea of GiveLoop as continuing the recent trend of giving donors more information about what their money will be used for, and then reporting back on how the donations were actually used.  GiveLoop also tries into social networking, although co-founder Todd Spitz told me that it was too early to tell whether constituents who have given through GiveLoop have been successful in becoming fundraisers for the causes they support.

For a nonprofit that is considering using a product like GiveLoop, a question to ask is whether the organization is really interested in listening to their supporters, or if they are doing it simply to raise more money.  If it’s the latter, then the effort is less likely to be successful as constituents will eventually realize that their input is not welcome.  There also needs to be full transparency about what will happen if the requested funds for a specific project are not raised;  will the balance be made up by another donation source or will the donor be asked to consider supporting another initiative?

Interestingly, GiveLoop’s FAQ clearly states that the nonprofit is not obligated to use the money in the way donors select.  But to make the most of this type of program, an organization clearly has to be willing to give constituents a much greater role in how funds are spent, similar to why it’s so important to listen first in social media and not simply treat it as another way to send out nonprofit updates.