Why Credit Card Processing Matters for Your Business
Improve Efficiency for Your Customers
While going with a quick-fix payment processor might seem like the most efficient move, you'll actually save your nonprofit customers time (and a lot of headaches!) by helping them understand the nuances of credit card processing so that they can find a processor who will actually fit their needs.
Boost Your Customer Retention
When you provide your nonprofit customers with a positive payment processing experience, you'll deepen their trust for your business and improve customer retention overall. Show your customers you care by working with them to process credit card donations in the most effective way.
Help Your Nonprofit Customers Grow
Credit card donations aren't going anywhere, so your customers need to have a way to manage these transactions. By carefully advising your customers on the right credit card processing solution, you'll help them grow their fundraising potential and expand their organization.
Aggregators vs. Dedicated Processors: How They Impact Your Business
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.
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 customers' fundraising software.
Advantages of Processing Credit Cards
About 70% of American adults own at least one credit card, and many people have two, three, or more!
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!
The accessibility and comfort associated with using credit cards online is a major plus for nonprofits looking to accept online donations.
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.
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!
Drawbacks to Processing Credit Cards
Credit card payment processing is more expensive than ACH processing, though the rates vary depending on your processor and the donor's card type.
There are two fee structures your payment processor might use: flat fee and interchange plus.
Under a flat fee structure, your payment processor charges a single processing fee per month, with no additional costs—no surprises for your business or your customers!
An interchange plus structure, however, is somewhat more complicated. Under this pricing model, your business would be subject to a flat rate as well as a transaction fee, i.e. 2.1% + $.30 per transaction.
In addition to processor and transaction fees, you or your nonprofit customers may also be subject to chargeback fees, which occur whenever a supporter disputes a transaction or wants to reverse a donation for whatever reason.
Perception of Insecurity
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.
This drawback can be remedied by encouraging your customers to select an online donation form that is branded just like the rest of their site, rather than taking supporters to a third-party site during the donation process.
Complex or Confusing 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 customers may not be as technologically literate as your payment processor, making it easy for them to feel frustrated and confused when shopping around.
How to Protect Your Customers From Fraud
1. Help your customers understand credit card fraud.
What is credit card fraud?
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, most fraudulent activity has moved online, a much easier alternative to in-person fraud.
How does fraud occur?
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).
2. Explain how credit card fraud affects nonprofits.
Limited Donor Acquisition and Retention
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.
Increased Fees and Costs
Fraudulent credit card donations can lead to additional expenses 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.
3. Educate customers on the prevention methods they can take.
Require Security Codes
A security code is the 3 or 4 digit number found on the back or top right corner of a credit card. To minimize fraud, encourage your customers to require that donors input the security code on their donation forms.
Set a Minimum Donation Amount
Requiring donors to give a minimum amount (like $15) will discourage fraudsters from using your donation form to test stolen credit cards.
Be Wary of Small, Random Donations
Many hackers will try to make a random or small donation (i.e., $1.73). If you see a string of these types of donations, it could signal that a stolen credit card is being used.
Work with a PCI-Compliant Processor
A payment processor held to PCI standards must maintain the highest level of security. Working with a trusted processor will help your customers reduce risk of fraud.
Common Terms That May Come Up With Customers
Address Verification System
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.
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.
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.
Dedicated Payment Processor
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.
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.
Interchange is the cost set by card brands, and varies depending on which credit card type 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.