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Crowdfunding for a Good Cause Gets Cheaper

The week before Christmas, a fire gutted the Beverly, Massachusetts home shared by Kevin Wagner, his fiancée and their four young children. Most of their basic possessions were destroyed along with their Christmas presents.

While insurance will cover much of the rebuilding, friends stepped in right away with cash to fill the gap until the claim is settled. As is becoming more common these days, they started crowdfunding campaigns on popular sites—one on DreamFund.com, which holds money in an FDIC-insured savings account, and another on GoFundMe.com, which is linked to a personal bank account. Both sites collect a 5% fee from the donations and pass along a credit card processing fee of about 3%.

For the $25,000 Wagner's friends raised on DreamFund, that amounts to $2,000, and another $800 went to GoFundMe and its credit card processors for the $10,000 raised on that platform.

A few people were put off after learning about the fees, Wagner says, and simply handed him checks, which added another $10,000 to the effort.

Nevertheless, raising money for personal causes through crowdfunding sites is a skyrocketing business—GoFundMe says such fundraising campaigns increased by 291% between 2013 and 2014, after rising by more than 500% the year before. But the fees make it clear the platforms themselves are, indeed, businesses rather than purely charitable efforts.

More than 2,000 crowdfunding sites have sprung up to try to catch the wave of this rapidly growing industry, says Howard Orloff, vice president of Zacks CF Research and founder of Crowdfunding-Website-Reviews.com. Of those, many are start-ups with little staying power and many are aimed at businesses seeking capital rather than personal causes. Some, like Kickstarter, one of the best known sites, don't allow personal fundraising.

Regardless of type, the sites make money by taking a percentage of pledges, which results in either a donation being reduced when it reaches the recipient or a surcharge added to the donor so the recipient gets the net amount pledged.

But when it comes to raising money for charity, that may be changing.

On Dec. 15, popular crowdfunding site Indiegogo, which typically charges 4% to 9% (plus fees for PayPal or credit card processing), decided to drop the fee for personal fundraisers. Users of its new IndiegogoLife service only have to sacrifice the 3% taken by the credit card processors.

Indiegogo co-founder Danae Ringelmann says the company didn't want those who were in need of charity to be subject to the same charges as those trying to launch a business.

"Every dollar counts—we've heard that again and again and again," she says.

Dropping that platform fee is a "game-changer" in the world of crowdfunding, Orloff says. "Smaller sites [like YouCaring.com and Tilt.com] have offered no-fee crowdfunding for a while but none with website traffic, and public trust, anywhere near Indiegogo."

By contrast, collecting the old-fashioned way—by accepting cash in person or checks to be deposited in a bank—usually involves no extra costs, although some banking fees may apply depending on the kind of account you choose.

But real-world collecting like that has limitations of reach, and not much possibility of the campaign going viral.

With crowdfunding, if the cause is popular enough to land on the home page of one of the more popular sites "it can go pretty wild," Orloff says. "It can change somebody's life."

Indeed, the campaign to raise money for Wagner and his family went far beyond the $5,000 he imagined—the $50,000 raised so far may actually be more than they need.

"We didn't expect this at all," Wagner says. "If there is extra , we want to help others. We hope to pay it forward."

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