A Complete Guide to Credit Card Processing for Nonprofits
If you have yet to establish your nonprofit’s payment processor yet, today is the day to learn how. A payment processor is a must-have for any nonprofit that intends to raise money for their cause online. You have probably heard all about the importance of credit card processing for nonprofit organizations, but do you know exactly what you are missing out on? This payment solution can be a huge game-changer when it comes to meeting fundraising goals for your nonprofit.
In this article, we will break it all down into digestible chunks so you can leave with a crystal-clear understanding of what payment processing is, how it works, and whether or not it is a must-have for your organization. As the world introduces more and more technology, it becomes increasingly important to have a few different payment platforms for nonprofit work.
- What Is a Credit Card Processor?
- Do You Need a Credit Card Processor?
- How Does Credit Card Processing Work?
- Pros of Credit Card Processors
- Cons of Credit Card Processors
What Is a Credit Card Processor?
Credit card processing is the process by which third-party organizations handle the financial transactions that take place on your website. There are many nonprofit payment solutions available. The technologies that allow for the seamless transfer of funds happen behind the scenes once your customer enters their credit card information into the designated space on your website. As long as the funds are available in the account used, the transaction is approved, and in seconds, the fund's transfer.
Your credit card payment processor gives you the tools to acquire more online donations and payments for any merchandise you sell than you would be able to obtain in-person with only cash payments. To name a few, you might use Square, Paypal, Dharma, Stripe, Google pay for nonprofits, or even Venmo for nonprofits. Each platform functions a little differently, but they all provide the same payment gateway.
Do You Need a Credit Card Processor?
Maybe not; however, when you choose to use a third-party processing organization, you utilize the most reliable way to keep all your online transactions secure without much involvement on your behalf.
Does Trish need a credit card processor? Hopefully, she's about to find out!
In the event that your organization is not ready to create an online presence yet, and you are focusing more on cash payments, you will not need a credit card processor. When you deal mostly in cash, obviously the transfer of funds goes mainly from hand-to-hand, person-to-person, rather than account-to-terminal.
There are alternatives to payment processors, but they often require you to personally handle each of the security compliance aspects of payments made to you. This can include a long list of tasks with lots of technical information to understand since there must be a serious degree of care taken to protect the sensitive information people share.
If you choose to handle the security compliance aspects yourself and you make a mistake, you set yourself up for a serious data leak or other non-compliant behavior. However, if most of your donors prefer to come out in person and your community is strong, more power to you! You might not be in need of Paypal, Dharma, or any other platform to process credit card payments at all.
How Does Credit Card Processing Work?
When a user wants to purchase something, they often seek it out online. Through a series of google searches and scrolling, they arrive at a decision regarding how their money will be spent. (In this event, that "something" will be from someone who supports your organization!)
Once the user navigates to the checkout page, they enter all of their credit card information into the online donation payment gateway. This method applies to absolutely any kind of online store payment: a membership, a product, or, as previously stated, a valuable donation in support of the work you do with your nonprofit.
Assuming the funds are present in the account and all of the information is inputted correctly, the information is sent to a credit card processing company to process the transaction. More often than not, this happens instantaneously.
The third-party processor validates all of the information with the help of their extensive databases, which is an important measure in terms of privacy and security.
The payment is then either rejected or accepted based on the information the credit card processing company receives.
The decision is then communicated to the person making the purchase, usually in a matter of seconds. That way, they know immediately whether or not their transaction has been processed.
Once the transaction is approved, the money is sent to the nonprofit’s processor account, which serves as a pitstop for all the funds they accept online. Keep in mind: this is when a processing company deducts some of the money from the transaction in the form of a small handling fee, or sometimes a monthly fee. These fees and pricing vary depending on which company you choose, although many often have discounts for nonprofits.
Within a few business days, the money transfers from your processor’s account to your nonprofit’s bank account. Obviously, this amount will exclude the handling fees, as they were deducted in the last step.
Pro Tip: When you choose a payment processor, be sure to have total clarity about their rates, including whether or not they are subject to change. Each debit and credit card processing company will keep a different percentage of the transaction as a fee for their services, and the difference can sometimes be quite large. Get a few different quotes and weigh the information against the benefits they offer, and make your final decision based on the highest value for the lowest fee. For example, the PayPal processing fees for nonprofits are 2.2% + $.30 per domestic transaction, whereas Dharma allows you to pass the fees to the customer, including it in their total cost as a surcharge.
Pros of Credit Card Processors
Using a credit card processor can potentially create access to larger sums of funds. The average credit card user spends 12-18% more than folks who use cash. The reason is simple: the card is right there in your pocket, and the internet is so diverse. Many people have their credit card information saved on their devices, so it is often entered automatically when they want to purchase something.
It also allows for the diversification of your revenue sources. Your community can purchase products from your online merchandise store for nonprofits, like keychains, t-shirts, or anything else you would like to provide. This can also increase your brand awareness, as people are walking around with your logo on their shirts. Also, that additional channel to acquire donations (and more donors) is an extremely powerful tool for your overall income.
When you are able to advertise your services and make them directly available for purchase through your website through an online payment system for nonprofits, you increase the visibility of your products, services, and mission. More people will have access to your information, and they will not have to physically show up to your organization’s location to donate, since they can now do so from their living room couch (which is pretty neat!).
Taking payments online increases your credibility as an organization. Many nonprofits already provide this service, and the world becomes increasingly technologically based all the time. When you go without, you run the risk of missing out on reaching people who are already proudly a part of the worldwide humanitarian community.
Finally, managing payments and donations online is in fact safer than dealing exclusively with cash: cash can get stolen, miscounted, and misreported, which can increase issues for your treasurer (that may prove unsolvable if the paper trail is convoluted enough), and the IRS if they happen enough.
Pro Tip: Most payment processors accept the major credit cards, such as Visa, MasterCard, American Express, and Discover. This means whatever credit card company your donors have chosen, they will most likely be compatible with your software. It is a good idea to have this information listed somewhere in the checkout process just in case one of your supporters is using a card that is not included in the list.
Cons of Credit Card Processors
There are a few main drawbacks to using these online payment gateways. Firstly, they can often be quite complicated. The need for compatibility is often highly specific, and there are so many little moving parts that go into the creation of your website. Your payment processor must be compatible with all the other software you have powering your site, and it can be a lot of work to make sure everything is functioning the way you want it to.
Tristan is feeling well-versed on the pros and cons of credit card processors.
In addition to the relatively confusing nature of the installation, there is often a high cost associated with the processing. There are a lot of numbers to keep track of, and it is important to have a complete understanding of any predetermined fees. It can be a lot of work! There are sometimes hidden fees or additional fees that you are not made aware of until the final transaction period, which can sometimes be at the end of each payable month. These fees can add up to a relatively high figure.
There is also the issue of fraud. Even with all the security measures you have in place with a credit card processor, you can still potentially be liable for any case of fraud associated with your organization. You cannot control the external factors associated with this circumstance; all you can do is double-check the security features of your processor, and hopefully, you do not become a target.
Finally, there is the potentiality that you could be subject to a chargeback. This could happen as a result of the individual who owns the card simply changing their mind, canceling the card, and refuting the charge. They could also do this to get a refund on merchandise they purchased through your store, which is more common than the canceling of a donation.
You should now have everything you need to make an educated decision on what kind of payment gateway you wish to use for your nonprofit. The option that will work best for your organization is going to depend on a variety of different factors, including the size of your operation, the amount of income you expect to receive through online methods, and how simple you need the platform to be.
It also should be noted that it is extremely important to communicate with your team about all the factors associated with the payment processor you choose. All key players should know how to reach customer service, what kinds of red flags to look out for, and how to guide potential donors through the process in the event that there is any trouble.
In conclusion, your payment processor will ultimately create a highly traveled highway on the internet between you and your donors. If you feel it is right for you, use this information as a guide as you make a decision, and be open to revising in the future if it does not pan out the way you had hoped. Take your time as you take in all of this information, and ask as many questions as you can as you survey prospective providers for your payment platform. Good luck, and happy collecting!
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