Credit Card Processing for Nonprofits
Best 2022 Guide to Credit Card Processing for Nonprofits
Many organizations want to accept credit card donations or payments for fundraising auctions online but don't know how. You can accept payments online in one of two ways: through a nonprofit credit card processing service, or by opening your own merchant account.
Why Nonprofits Need Reliable Payment Processing
Nonprofit and charitable organizations rely on monetary donations from their supporters to further their missions. While a nonprofit organization could theoretically rely on cash and paper checks for donations, much like a retail operation, this strategy would drastically limit the amount of money it will receive. The ability to accept non-cash donations is crucial.
The Federal Reserve Bank of San Francisco found in its 2021 Findings from the Diary of Consumer Payment Choice that cash use accounted for 19 percent of all payments. With the use of cash dwindling as a payment preference, debit and credit cards and ACH take over as the predominant payment methods. In recent years, consumer spending habits have drastically changed--primarily moving from in-person to online. If a nonprofit organization is unable to accept credit or debit card transactions or ACH transactions, it severely restricts its fundraising potential, and by extension, its ability to carry out its mission to their nonprofit clients.
There are a number of benefits that accompany utilizing a payment processor and donation button with an online donation form on your website, namely an increased opportunity to accept larger donations and monetary gifts and the ability to attract more potential donors--even international donations. Just like for-profit businesses, every nonprofit can also benefit from a reliable payment processing system to accept online transactions and credit card payments.
Common Terms to Understand When Considering a System for Online Payments
Before exploring payment processing and credit card donations, it will be helpful to understand common terms associated with collecting online donations and credit card processors.
A credit card payment processor allows nonprofit organizations to process credit card transactions online. The processing company then takes a small percentage of each transaction as compensation for its services. A number of credit card processing providers exist; be sure to inquire if they offer specific rates for nonprofits or offer nonprofit discounts.
A merchant account is an account that you open with a bank to accept credit card payments. In addition to online payments, if an organization wants to accept offline donations via credit cards, a merchant account is used alongside a hand-held credit card reader.
A card association is a group of banks that sets the terms for all credit card transactions. Some examples are credit card companies Visa, Mastercard and American Express.
ACH debit payments allow donors to give directly from their bank account. This is done by using an e-check, which is a payment that goes through the automated clearing house (ACH).
A third-party processor is a provider that allows a business to accept payments without opening its own merchant account. Typically, nonprofits that expect a low volume of transactions may want a third-party processor.
A payment gateway is technology that securely captures and encrypts sensitive credit card details from a donor and transmits that data to a payment processor to complete a transaction.
A payment aggregator is a third-party payment provider that uses one large merchant account to process payments for smaller businesses and donations for nonprofits.
How does a Merchant Account work?
After a nonprofit has secured a merchant account, it can accept card payments. It starts when a donor elects to give. They amount they select is relayed from the card processor to the credit card network (such as Visa or MasterCard). The credit card network then readies the transaction to the issuing bank, which then approves the transaction and allows funds to be sent to the merchant account. From there, the nonprofit can transfer the funds from their merchant account to its bank account. The entire process typically takes a few business days or up to a few weeks to complete the transaction.
A nonprofit should always compare merchant account providers, particularly for pricing.
How does a credit card processing service work?
Similar to how a merchant account works, it all begins when someone chooses to give a monetary gift. The donor begins the process by using an electronic device, a computer, smartphone or tablet. This triggers the payment processor to send the transaction through a payment gateway which verifies the validity of the card and checks if the donor is a human (not a robot) and the card is not fraudulent. When verified, from there, the payment gateway begins the transfer of funds, and the credit card company sends the donation to the merchant account. A nonprofit can later retrieve it's funds from the merchant account.
What type of payments should my nonprofit accept?
Most nonprofits organizations accept a variety of donation types. To maximize the potential for donations, nonprofits are encouraged to accept a number of payment options in addition to cash and checks:
Payments by Card: These donations include those made via credit card or debit card. Be sure to consider if your nonprofit will accept all major credit cards (Visa, MasterCard, Discover and American Express) or only some. Keep in mind, fees will vary based on the type of credit card.
ACH Debit payments: Payments made via ACH debit are particularly useful for donors who want to set-up recurring donations. Donors must submit their bank account and routing numbers so funds can be directly transferred from their bank account to a nonprofits bank account. In addition to the ease and convenience of setting up recurring donations, ACH debits also allow nonprofits to avoid the credit card processing fees that typically accompany card payments. A payment processor may only charge a flat fee for an ACH debit.
Additional Tools & Features of Online Payment Processors for Nonprofits
Before exploring your processor options, it will be helpful to know what features you need from a card processor. Consider the ways you primarily hope to accept donations, for example at in-person fundraisers and events, online or through memberships. Know your budget as well as the anticipated volume of donations your nonprofit expects to receive on a monthly basis.
The number one reason that motivates charitable organizations to seek a payment processing company is to give their donors payment options--the ability to donate via major credit cards, debit card and ACH payment type. Beyond acting as a credit card processor and online donation tool, an online payment processing system also offers a number of other valuable features:
Accept Donations Online: With a reliable payment processor, it’s easier than ever before to accept donations online right on your website. With a "donate now" option on your website, you can easily collect immediate payments from anyone who wants to support your organization.
Set-up Recurring Donations: Setting up recurring payments usually involves using an automated payment system through banks. Nonprofits can use payment processing services to accept regular donations via direct deposit (also called ACH) instead of credit cards. A recurring donation feature can turn one-time or annual donations into ongoing, repeat gifts and impact donor retention rates.
Ecommerce: If your non-profit sells items online to support its cause, such as t-shirts or mugs, payment processors may be able to help you create an online store.
Sell tickets for nonprofit events: Event ticketing platforms allow non-profits to more easily sell event tickets and track event registration, enabling eventgoers to buy them right away when they're announced online.
Collect membership fees: For nonprofits who rely on memberships to fuel their missions, online payment processors can seamlessly facilitate collecting membership fees.
Other Mobile Giving Options: Your nonprofit may also want to look into text-to-give donations and other mobile giving options, particularly if you want to appeal to or expand to a younger donor base. The goal is to make giving as easy as possible.
If donors can do all of these things from the convenience of their personal electronic devices, they’ll be more likely to follow through with their donations and will positively affect donor retention rates.
With a thorough understanding of your nonprofits needs, you're ready to compare options.
How to Choose the Best Payment Processor for a Nonprofit
There are a number of online payment processing options, but which are best designed for nonprofits to accept various types of donations? Each comes with its own set of pros and cons that you’ll want to carefully consider as they relate to your organization.
Most, if not all charitable organizations are challenged to keep costs low so it's important to identify an affordable payment processor. Be sure to investigate various fees, including platform fee, transaction fees, and termination fees, and to explore a nonprofit discount. In addition to cost, ease of use and customer service should also be investigated.
Regardless of size, small or larger nonprofits should consider these common questions around security, convenience and affordability when considering a credit card processor:
- What payment methods is the processor able to accept?
- What are all the fees associated with processing online donations? Does the company offer a nonprofit rate, or other special rates for credit card processing fees? Is the processor transparent with its pricing?
- If your nonprofit hosts in-person events, do you need mobile card readers with EMV chip technology or a receipt printer? If yes, does the payment processor company offer them so your nonprofit can accommodate in-person transactions and print receipts, or is hardware an additional investment?
- What level of customer service is available? If I need help, when is customer support available and how do I reach support?
- Will the processor integrate with your existing online fundraising tools or donation software?
- Does the payment processors provide custom donation form tools that can be branded to your nonprofit organization?
- What security measures does the processor offer that protect transactions and sensitive donor information?
- Does the processor help with Payment Card Industry (PCI) compliance requirements?
The Importance of Nonprofit PCI Compliance
If your organization accepts donations from credit cards, it's required to abide by PCI standards. This set of security standards helps ensure that an organization has done its due diligence to protect the sensitive nature of electronic transactions and donor information. Online donations are not automatically secure. Nonprofits must abide by these rules to help ensure that payment data is secure and cardholder data is kept unavailable from cybercriminals.
PCI compliance is rigorous and a necessary component of a nonprofits overall security plan. Maintaining compliance is a signal to your donors that you are taking the necessary steps to secure their information and prevent fraud. Noncompliance could make it very difficult to retain or attract donor, which will have a direct impact on a nonprofit's ability to perform its mission. Additionally, noncompliance can result in hefty fines starting at $5,000.
PCI compliance varies by organization and number of transactions processed each year.
The good news is, most online payment processors are PCI compliant. Nevertheless, when conducting the research to select a processor, it's highly recommended that you review PCI compliance as part of the vetting process. You may want to ask the processor you select if there' are any additional things your nonprofit should or should not do to contribute to PCI compliance. They may suggest some best practices, such as don't store account verification data and don't collect or send card information via email.
In addition to PCI compliance, quality processors will also have the following security features:
- Point-to-point encryption: instantaneously converts donor confidential payment card data into indecipherable code at the time the card is swiped, in order to prevent hacking and fraud. When card data is encrypted, even if its compromised in a breach, it's basically worthless because it cannot be decrypted.
- Tokenization: the process of protecting sensitive data by replacing it with an algorithmically generated number called a token. This token can be securely passed through the internet without exposing real credit card data.
These added security features and fraud prevention measures will provide your donors with additional peace of mind and may even contribute to their ongoing support. Ultimately, the responsibility to be PCI compliant lands on the nonprofit.
Nonprofit Organizations and Credit Card Processing Fees
The only types of donations that are not subject to processing or transactions fees are cash and checks. It's common for payment processors to take a small portion of each transaction as compensation for the ability to accept electronic payment. So, if your nonprofit chooses to accept credit card payments from your donors, expect transaction fees. Most processors charge between 2-3% per transaction, but this varies based on processor and credit card. It's always worth asking a processor for a special rate, reduced fee or waived fee for eligible nonprofits.
Most businesses simply incur transaction fees as a cost of doing business, but some nonprofit organizations have found relief from fees by asking their donors to pay the fees associated with giving with cards so the full donation amount will truly benefit their mission.
Many donors are unaware of credit card fees for electronic donations. When asked, many are happy to contribute an additional, small amount to cover the cost of the transaction. Keep in mind, these donors have already invested in the nonprofit because they believe in the mission. Simply making it optional for them to cover the additional nominal fee could cover a large portion of a nonprofits total transaction fees. Many nonprofits will ask donors to consider covering the transaction fee right on the online donation form.
Nonprofit Donor Software and Payment Processors
Many established nonprofits utilize specific donor software to keep track of donor information in a database. These databases often include a variety of fundraising tools to help organizations improve donor engagement and fundraising opportunities, in addition to storing contact information. They can also keep track of donor giving habits and history, interests, preferred communication style, and more. For example, fundraising software may keep track of which appeals for donations have resulted in donations, how a donation was received, the amount of the donation, and if the donor would like to be thanked via a phone call, mail or email, or remain anonymous.
If your nonprofit relies on software like this, it may be beneficial to integrate your donation software with a payment processor. An integration like this will save time and effort and eliminate manual data transfer.
Accepting Credit Card Donations is Easy with BNG Payments
Selecting a payment processor for your nonprofit is a big decision. BNG Payments can help you raise money for your cause with no monthly fees and low cost-per-transaction. Whether your nonprofit is a small, local organization or a national association, we make it easy to accept gifts in a number of ways and offer donation kiosks, credit card and ACH Processing, online giving, recurring donations, text giving, and more.
Contact BNG Payments to learn how credit card processing can be easily integrated into your fundraising efforts.