Nonprofits understandably try to devote as much of their revenue to their mission as possible. This is why, when comparing different payment processors, nonprofits often prioritize price as the deciding factor in their decision-making process.
While this seems reasonable, nonprofits often miss delving deeper into the providers they consider. A significant number of clients of payment processors are for-profit companies. This influences how these providers frame policy, which ends up being applied to nonprofits as well.
Large corporations often use commonly used terms like 'risk' in a manner that is designed to serve their own financial interests. Customer service standards designed to serve for-profit companies often fall far short of the requirements of nonprofits. Companies that seem reliable and friendly during the sales process can often go missing once the deal is closed.
Your nonprofit has different needs than for-profit companies; you need to work with a payment processor that understands and empathizes with your organization. Here are things to consider when selecting the best payment processor for your nonprofit:
Hidden charges and fees
While some nonprofits have a good understanding of their merchant account, others may have difficulty keeping track of additional charges and fees on top of the base processing rate.
In some cases, even simple pricing structures often translate to higher rates overall and may be difficult to justify to your board. Many processors have a deceptively low base rate but levy additional charges and fees, which add up to a high total rate.
Some common charges on top of the base rate are interchange fees, surcharges, early termination and contract closure fees. These charges, especially the interchange fee (charged by card associations), can be very complicated. You may not realize the implications until a few months have passed, leading to unnecessarily lost revenue.
Indifferent customer service
The business models of many large payment processors tend to prioritize profit above all else and are indifferent to the wellbeing of clients beyond what it means to the bottom line. Relationships between these companies and their clients tend to be transactional and impersonal.
These payment processors often discourage customer service reps from spending more time on clients than necessary, leading to hasty service. In some cases, customer service is outsourced, and quality control is often lacking.
Indifferent customer service by payment processors is a common problem faced by nonprofits. In one instance, a nonprofit had its accounts frozen by a large payment aggregator in the middle of a fundraising campaign because the alert emails being sent to it were being sent to a former staff member's email and thus went unanswered. Fixing such an easily solvable issue was anything but, however. The situation was resolved only after weeks of the nonprofit getting scripted, copy-pasted replies from the payment aggregator involved.
Such customer service puts the burden of resolving issues on the customer. Unlike a for-profit business, your nonprofit may not have the resources to chase nameless customer service reps to resolve easily solvable, minor issues.
Customer service reps are supposed to take an interest in and understand the underlying root cause of your problem and provide sound advice to solve issues.
Difficult sign-up process
Payment processors that primarily work with for-profit companies generally have a more rigorous registration process for nonprofits, which can be a drain on your precious time and resources.
Amid Coronavirus, some processors have further tightened their registration requirements for nonprofits. These new requirements include such things as personal guarantees as security against risk.
Unreasonable requirements like these only add to the heavy workload that too many nonprofits are facing at this time and exclude many small nonprofits from the process. They also signal apathy about the challenges faced by nonprofits. Disproportionately stringent requirements for nonprofits indicate that these payment processors see nonprofits as inherently more of a risk to work with than their for-profit counterparts.
In uncertain economic times and with further disruption possible, can you be sure that your payment processor (which already regards your organization with suspicion) will devote much time to thinking about your best interests when formulating policy that directly affects you?
Unempathetic policies
Large payment processors can often change their policies with little or no notice and for minimal regard for their nonprofit and small business clients, especially if they make up a small portion of their client base. In the aftermath of the pandemic, we have seen some companies prioritizing their own financial wellbeing over their clients'.
Recently, thousands of small enterprises complained that their payment processor began holding back 20 to 30 percent of the money they collected from customers. The withholdings came with little warning, and the processor asserted the right to withhold the funds for the next four months.
Despite the company's claim that this was because of risky transactions and returns demanded by customers, the affected organizations provided proof that they had not had any returns or risk flags and said the company is unfairly keeping money from them to protect its own finances.
In fact, in May, while disclosing a financial loss for the previous quarter, this company said it planned on increasing cash on hand by 290 percent to hedge against future losses. This has thrown small organizations into financial difficulties, forcing them to lay off employees, cut expansion plans, take out loans and miss mortgage payments to keep their organizations in business.
To make matters worse, small business owners affected by this policy (with little explanation) had difficulty getting in touch with the company. They were told there was no appeals process or method for getting the money released and were blocked by the company on Twitter after complaining publicly.
You know that to retain donors, you must communicate effectively in a personal and targeted manner. Your nonprofit continually works to provide excellent service to your donors. Your organization deserves the same consideration and customer service when you're on the other side of the equation.
Lack of access to expert advice
Many nonprofits are stretched for resources and lack the business expertise needed to make optimal payment processing decisions. In such cases, it is natural for you to turn to your processor for advice.
However, customer service reps at some larger payment processors must stick to the provided script and focus on troubleshooting problems presented to them rather than on advising clients on the best options. Sometimes, they see your confusion as an opportunity to upsell and present more expensive options as optimal ones.
Even if they do try to offer advice, many do not have in-depth knowledge of payment processing. At best, they can offer to connect you to somebody else at their organization, with no guarantee of them getting back to you.
Lack of data portability
If you decide to stop using your payment processor, you need to be able to transfer your donors' credit card information to your new processor.
Some larger aggregators do not allow for such data portability, so it's essential to ensure upfront that you own your data, and it moves with your organization. Your donor's data is one of your nonprofit's most vital components; make sure you don't have to surrender it should you want to change payment processors.
Long hold periods
A hold period is the length of time your payment processor can retain your funds before disbursing them. Aggregators typically have hold periods of 30-45 days, and in some cases, as long as 90 days.
Payment processors set their hold periods based on their tolerance for risk and have different rules that determine how long they hold a payment. Large payment processors have their own algorithms, and some even use AI (artificial intelligence) to determine the risk factor of each merchant and transaction.
However, the inherent issues with such a model are that processors can arbitrarily determine what qualifies as risky transactions and can unilaterally extend their hold times. In fact, many large providers frame their risk policy based on for-profit clients and then apply the same standards to nonprofits.
Again, these decisions are often taken to serve the large processor's financial and accounting interests and don't consider the unique needs of a nonprofit. Longer hold periods mean that your donations stay in the processor's hands to indicate a healthy cash flow before they are transferred to you.
Every day your donations stay with the processor is a day in which you cannot use that money to serve your mission or otherwise bolster your organization.
What does reliability really mean?
When we refer to a provider's reliability, we tend to confine the discussion to the failure rate of the technology they offer. However, reliability is also about the support your nonprofit receives from your processor, especially in times of crisis.
The customer service and support provided by these companies are often lacking at the best of times. The emerging trend of large payment processors amending their policies at their clients' expense is troubling and signals that similar changes may follow in the future.
We may only be at the beginning of an extended crisis. Studies have already drawn a correlation between climate change and habitation loss contributing to the increasing incidences of pandemic viruses. A new virus with pandemic potential has been discovered in China. Analysts are now also warning about a looming financial crisis along similar lines as 2008 but on a much larger scale.
In such times, it is crucial to work with companies that can be relied upon to advocate on your behalf, and that consider your organization's interests their own. Working with impersonal, transactional payment processors can make your ability to fundraise vulnerable if it doesn't align with the financial interests of your payment processor.
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