Credit card processing is the general term for an organization accepting and processing an online purchase or donation via credit card.
As it relates to nonprofit entities, credit card processing deals with a donor making an online contribution and that donation being handled by a third party processor before making its way to the nonprofit’s bank account.
This guide will help your nonprofit understand the ins and outs of credit card processing and demystify some of the confusion that surrounds the backend process.
Credit cards make up a majority of the online payment processing world. Most donors are going to pull out a plastic card whenever they want to give to your nonprofit. The sheer universality of credit cards should be incentive enough for your organization to offer credit card processing as a giving option.
But just in case that isn’t benefit enough, it’s important to note that donations made with credit cards are quickly deposited into your nonprofit’s bank account, some as soon as a day after the donation is made. This easy access to funds means that your nonprofit can continue doing the great work that it does without having to wait for all of your donations to come through the mail!
Before you start accepting online donations, you’ll need to choose a payment processor.
There are two kinds of payment processors: aggregators and dedicated processors.
Keep reading to discover the difference between these two types!
An aggregator is a large payment processing company that handles the processing needs of businesses and nonprofits (and sometimes even individuals). These types of payment processors run all transactions through their own merchant account and payment gateway, neither of which the nonprofit or business gets to choose.
All of the money from all of these transactions is placed into a large “pool” that each client then draws funds from.
Additionally, funds from aggregators can take longer to get to your nonprofit. Stripe, for example, holds funds for 7 days before dispersing them. PayPal will hold funds indefinitely, but if you request them, it can take up to 5 business days for the money to be deposited into your nonprofit’s account.
A dedicated processor allows clients to choose their own merchant account and handles the payment processing needs for nonprofits and businesses through these various merchant accounts. A dedicated payment processor gives nonprofits much more control over their funds.
Moreover, nonprofits have almost immediate access to their funds. Most dedicated processors can have credit card donations to a nonprofit within 1 to 2 business days.
Additionally, some dedicated payment processors (like iATS) only work with nonprofits, making set up and maintenance of a payment processing system easy to understand. This exclusivity also makes it easy for your dedicated payment processor to integrate with the rest of your fundraising software.
Once you’ve found a payment processor that will work well with your nonprofit, it’s time to get your merchant account set up!
Generally, you’ll need to provide the following information to your payment processor to get started:
- A voided check from the account where the funds will be deposited.
- Official documentation of your nonprofit’s 501(c)(3) status.
- Bank statements from the past two months.
- Audited business financials or tax returns from the past two years.
These documents are used to ensure that your nonprofit is a financially trustworthy organization. Payment processors don’t want to take on clients that are unable to pay their bills.
An address verification system (AVS) is a fraud protection tool that compares the address a donor gives on an online giving form to the address that the credit card company has on file.
If the two don’t match up or raise a red flag for any reason, the payment processor alerts the nonprofit immediately.
Aggregators are large payment processors that process transactions for thousands if not millions of individuals, businesses, and nonprofits. Transactions pass through the aggregator’s merchant account and payment gateway. An aggregator might be easy to get started with, but they can cause problems down the road.
A card association is a network of bank that processes specific brands of credit cards.
A chargeback occurs when a donor disputes a charge on their credit card. It can cause a reversal of the donation, and the nonprofit might incur fees for the chargeback.
A dedicated payment processor is one that helps nonprofits or businesses process donations or transactions but allows those organizations to choose their own merchant account. They often provide merchant accounts and payment gateways to their customers, but also give them the option to choose their own merchant account.
Encryption is a fraud protection tool that scrambles sensitive information and makes it inaccessible unless the person has the “key” to unlock the encrypted data.
Encryption is used by payment processing companies to ensure that donor and customer data is not put at risk or stolen.
Interchange is the cost price set by card brands, and varies depending on which credit card type (basic, with points etc.) is being used. The interchange fee is typically the bulk of a merchant’s total effective rate.
A merchant account is essentially a bank account that helps your nonprofit process and accept donations. You must have a merchant account to accept contributions, but you can set it up with your payment processor!
The payment gateway is the first stop in the payment processing system. It completes the initial checks to determine whether a credit card is fraudulent. If the card is marked as suspicious in any way, the payment gateway will stop the transaction and notify the nonprofit.
The Payment Card Industry (PCI) has set up data security standards (DSS) that any company that processes donations or transactions must follow. These standards keep consumer and donor data safe. Failure to comply can result in fines, penalties, and loss of payment processing capabilities.
Credit card processing sounds very straightforward, but there are several backend processes (that we’ll cover later) that make it a bit more complicated than it may seem.
In essence, though, credit card processing involves transmitting credit card payment information through a variety of gateways and accounts to not only verify the validity of the card and its owner, but also, inevitably, to get the money from the donor’s bank account to the nonprofit’s bank account.
One of the most important distinctions between credit card processing and ACH payment processing is the fee structure. Most credit card companies will charge a flat fee plus a percentage per transaction (for example, 2.1% + $.30 per transaction).
ACH payment processing is a bit more straightforward than credit card processing, but it less common in the nonprofit fundraising world.
Most people use ACH payment processing for monthly online bill pay, but it’s just as useful and convenient for making recurring donations to nonprofits! ACH payment processing is essentially making a donation with an electronic check (also known as an e-check). Donors simply use the bank account number and routing number found on the bottom of their paper checks.
While ACH payment processing is an easy way to give to a nonprofit, many donors express hesitancy when giving out their personal bank information on the internet. In reality, the process is just as safe as credit card processing!
Flat fees are costs that occur once, monthly, or yearly. They usually don’t vary, but they may be based on a nonprofit’s payment processing volume needs.
Per transaction fees occur each time a donor uses your online donation form to make a contribution.
These fees include the “interchange fee” which is the base cost set by the credit card companies depending on the card type being used.
Incidental fees are ones that occur whenever something unusual happens. There will be months where your nonprofit sees more of these fees, but there may be months where they aren’t present at all!
About 70% of American adults own at least one credit card, and many people have two or three or more!
Because of the widespread usage of credit cards, offering credit card processing options on an online donation form just makes sense for nonprofits.
And if you offer ACH direct debit alongside your credit card donation options, you can appeal to even more segments of supporters.
Key takeaway: A large portion of the US population owns one or more credit cards. If you don’t offer credit card options on your donation form, you’re missing out on tons of donations!
Many individuals use their credit cards to purchase items and pay bills online all the time. Why wouldn’t they feel comfortable giving to a nonprofit with a credit card?
It’s now become second nature to whip out a credit card to make a purchase or donation online. Some people even have their credit card numbers memorized!
This comfort with using credit cards online is a major plus for nonprofits looking to accept online donations.
Key takeaway: Because many of your donors are using their credit cards online on a regular basis anyway, it makes sense for them to use those same credit cards when donating online.
While there are risks associated with any online payment method, credit card payment processing is held to strict payment card industry data security standards (PCI DSS).
These standards mandate fraud protection measures like encryption and tokenization to ensure that donor and consumer data are kept safe and secure.
Key takeaway: Credit card payment processing is one of the safest and easiest ways to give online (especially if you choose a payment processor that adheres to the payment card industry’s data security standards!).
With credit card payment processing, the donated funds can be in your nonprofit’s bank account in as little as one business day.
Most processes take around 48 hours, and even though some can take as long as 5 business days, it’s a lot faster than waiting for a check to arrive from halfway across the country!
Key takeaway: While donations made with credit cards are not immediately available for nonprofit use, the processing time is much quicker than traditional or offline giving methods.
ACH direct debit payment processing usually only takes a flat fee per transaction (usually less than $.30).
Credit card payment processing is not only more expensive, but the rates vary depending on the type of card that the donor used.
For example, it costs more to process an American Express card than a Visa or MasterCard.
The rates are usually a percentage of the donation amount plus a flat fee (i.e., 2.1% + $.30 per transaction).
Even though online credit card purchases and donations are made by the millions every day, there are some individuals who prefer not to give out their personal information on the internet.
Fortunately, there are still offline ways to give (namely, via a mailed check).
This drawback can also be remedied by selecting an online donation form that is branded just like the rest of your nonprofit’s site and not taking your supporters to another third-party site during the donation process.
If you’ve read any part of this guide, then you understand the complexity and the uncertainty that comes with dealing with a payment processor for the first time. Your nonprofit may not be as technologically literate as your payment processor, making it easy to feel frustrated and confused when shopping around.
Your nonprofit can do something similar and create a “Terms of Donating” page.
This page should explain how donations are processed and will help to ease any nervous donors’ fears about making a contribution online.
However you choose to explain credit card processing to your donors, make sure that you are upfront and truthful about any data security and safety.
Chargeback fees occur whenever a supporter disputes a transaction or wants to reverse a donation for whatever reason. It is very rare for an organization to win a chargeback dispute, so your nonprofit will probably have to pay a chargeback fee at some point.
Of course, these fees are not exorbitant, but the process of sending a chargeback and retrieving the donor’s money is a hassle (and you might even lose that supporter!).
An easy way to fix this is to make sure that your nonprofit’s name shows up on your donors’ credit card statements. One of the main reasons that donors request chargebacks is because they see the payment processor’s name (not the nonprofit’s) on their credit card statement. This leads to confusion and ultimately, a chargeback fee.
Luckily, iATS allows nonprofits to use their own name on credit card statements, reducing the frequency of cumbersome chargeback fees.
When a credit card account is hacked, the fraudster can use the stolen credit card information to buy large purchases using the victim’s identity.
However, hackers must test that the card will actually work. Since nonprofit donation pages are less complicated and more static than online retailer shopping carts, many of these fraudsters will test the stolen credit card by making a small, often random donation (i.e., $2.17).
Online credit card has always been a concern for retailers and nonprofits. But the recent move to chipped cards has caused online credit card fraud to become more common.
Previously, credit card thieves could easily steal credit card data during in-person transactions. Chipped cards have made it more difficult for these in-person thefts. Therefore, online credit card fraud has hackers have moved to online credit card fraud as an alternative.
Nonprofits that regularly deal with credit card fraud may have their reputations tarnished by the repeated attacks.
Individuals are less likely to give to a nonprofit with insufficient fraud protection tools. A nonprofit’s past experiences with fraud can impact supporters’ perceptions of the organization and limit contributions down the road.
Additionally, fraudulent credit card donations can lead to fees and costs for nonprofits.
Individuals whose credit cards have been used to make fraudulent donations and purchases rightfully dispute the charges; however, the nonprofit then has to refund the money and pay a chargeback fee to process the refund.
iATS only works with nonprofit organizations. We understand the distinct demands and anxieties that nonprofit organizations have about credit card processing.
Our understanding of nonprofits enables us to answer any and all questions you might have about accepting online donations with credit cards.
iATS Payments integrates with various nonprofit fundraising software providers. Whether you're using CRM software, a P2P platform, or anything in between, we probably integrate with it! Our network of integration channel partners allows us to give you the best service regardless of your other software.
Our integrations with fundraising software companies also help consolidate your credit card processing reports. With iATS, you’ll have everything in one place, making life a little easier for your nonprofit’s various departments.