'Shocking' charity direct debit cancellations rates could get worse 3

Fundraising | Celina Ribeiro | 8 Sep 2011

Donors are cutting back on their regular giving to charities as new figures show direct debit cancellation rates in August reached record highs and experts warn there could be worse to come.

Figures released today by Rapidata show that the direct debit cancellation rate for August reached 4.58 per cent – the highest rate for August since such records began (in 2003) and worse even than in the middle of the recession in 2008 when rates hit 4.4 per cent. A year ago, cancellation rates were significantly lower with August figures levelling out at 3.49 per cent.

August figures suggest a worrying trend on the back of a dramatic increase in direct debit cancellations in the second quarter of 2011. After cancellations settled down in the 2010 calendar year, Rapidata recorded an unexpected spike in May 2011 (reaching 4.1 per cent compared to 2.8 per cent in May 2010) followed by June and July cancellation rates which were slightly lower than May’s but still significantly worse than the previous year. August was the fourth consecutive month that direct debit cancellation rates were above 2010 levels.

The August numbers were classed as “shocking” by Rapidata managing director Scott Gray, who warned that an upward trend for cancellations could be emerging.

“I am deeply concerned to see charity direct debit cancellations increasing again to recession levels and higher. I wouldn’t be surprised to see the rate exceed 5 per cent in September with the trend continuing,” he said.

“Although I was hoping we were seeing a temporary blip it is becoming clear that the trend has shifted once more with our figures reflecting the recent sharp economic downturn and threat of a double-dip recession.”

General increased economic uncertainty may have contributed to the increased tendency of donors to cancel their regular gifts to charities, Rapidata suggested. A survey for the European Commission found that consumer confidence fell in August while the CBI’s regular figures showed retail sales – including on food – fell over the month.

On top of that, concern about the UK’s general growth prospects (the economy grew below expectation at only 0.2 per cent in the second quarter of 2011) might have encouraged donors to look for ways to cut back.

Charities must act to stem the tide

With an apparent negative trend emerging, Gray called on charities to take action.

“Charities should be looking at their current activities and asking whether they are doing everything they can to minimise cancellations and attrition. The increases we’re seeing represent many thousands of pounds of lost donations each month, but also the loss of regular donors. Now is the time to be as proactive as possible.”

Directory: Rapidata Services PLC
Who's Who: Scott Gray

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Tania Cohen
Freelance Consultant
Various Charities
16 Sep 2011

The point that Bethan makes about proportions is an important one. Ian - even if attrition rates for donors recruited through Door-to-Door and Face-to-Face has decreased, if a higher proportion of new donors have been recruited through these mechanisms, then the overall attrition rates increase because new donors tend to have higher attrition rates initially than existing donors. The figures presented are too simplistic without the context of the volume of donations that it applies to and the proportions which are from new donors. For example, without this context I could argue that the increase in attrition is positive as it may be that there is an increase in charity recruitment and this is skewing the overall figures. Increased recruitment, something I'd like to see, could have this same impact on the figures as problems with retention.

Another factor to note is that Rapidata clients only represent a small proportion of Direct Debits overall so we need to be careful about assuming these statistics across the sector. In their annual report, Rapidata report processing 3.5m transactions against 49,425m total BACS charity transactions. If this is correct then this is only 0.01% of all charity transactions. The monthly figures that we are looking at in this article also may have been skewed by changes in Rapidata clients.

This is not to say that charities shouldn't be doing all that they can to reduce attrition, or that there isn't an increase in attrition that we should be worried about, but just that we need to see more intelligent reporting and use of statistics to understand the position. I'd hate to see charities reducing recruitment because they are worried about attrition without a better understanding of what is going on - for Rapidata client and non -Rapidata charities.

[Reply]

Ian MacQuillin
PFRA
16 Sep 2011

It would seem unlikely that the increase in cancellations was due to F2F donors as PFRA's annual Donor Attrition and Retention Survey (DARS) shows that attrition for donors recruited through street and doorstep fell last year to pre-recession levels.

You can see the findings here – http://bit.ly/rkAZd3

[Reply]

Bethan
Group Account Director
Pell & Bales
12 Sep 2011

It would be interesting to know if this trend is seen across all recruitment channels, or whether the numbers are skewed due to a shift in channel mix (e.g. greater proportions of donors recruited via Door-to-Door and Face-to-Face)?

[Reply]

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