Aug 22, 2016
Every day we swipe credit cards at the grocery store, gas station and coffee shop without putting much thought into it. Do you know what happens next? Can you trust that your personal account information will get where it must go to pay for your latte without ending up in the hands of someone with bad intentions? How do credit cards even work? Donors and nonprofits should understand credit card processing so they can choose to provide funds to nonprofits built on integrity. Here is some information to get you started:
What is a payment gateway?
When a donor swipes his or her credit card at a fundraising event for your organization, they use a payment gateway. It's like a point-of-sale, or the device where they use the card. This machine encrypts their financial information and sends it from a payment portal, like a phone or website, to a front end processor or bank. That same information also goes to the card association, like Visa or Discover. The bank associated with the card receives and replies to a request to authorize funds. It uses code to create a response to send to the payment processor. This goes through the payment gateway which says "approved" on the device interface. All of this information transferring takes several seconds.
What is a merchant account?
In order for a nonprofit or any business to accept money, they must have a merchant account. This is a bank account used for business purposes. You can open a merchant account at any bank so long as you have a business bank account. This will be the destination for any funds that go through your merchant account, unless you note otherwise. You can open one merchant account for your entire business with the help of your business license and social security number. Employees can use their employer identification number to establish ownership over accounts in the same manner. Keep in mind that any transaction fees associated with charges that transfer to your account will be charged to your business account. You can, however, create two accounts with the same merchant account if you want to separate where credit and debit funds go to track transaction fees.
Why does your credit card processor matter?
It's crucial for nonprofit organizations to partner with credit card processors that offer full service. Keeping all your financial transactions in one place will make managing your money so much easier. If you work with a limited payment processor, you may only be able to receive electronic funds transfer or work with specific major credit cards. This restricts fundraising opportunities as many people will be unable to donate, and it can cause unnecessary amounts of work for you to try to keep track of everything. Turn to a payment processor that can handle all types of payment and grow as you do. You'll see donations rise and reduce the amount of time you spend managing your money.