Everything you need to know about donation processing for your nonprofit

by Sebastian Arciniega

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In the realm of nonprofit organizations, every dollar counts. Whether you’re running a local charity or an international NGO, the ability to efficiently process donations is paramount to sustaining your mission. As much as you may want to avoid thinking about them, embracing the nuances of payment processors can significantly save you time, money, and headaches.

Donors expect a seamless and secure experience when making contributions to your cause. Payment processors offer various options such as different types of card payments and Electronic Funds Transfer (or EFT) transactions. By understanding what these different payment methods are, nonprofits can cater to the preferences of their supporters, ultimately increasing donation rates.

Learning about payment processors is important for your nonprofits to optimize its financial management processes. From fee structures, transaction processing times, and payout schedules, each processor offers unique features and considerations. By comparing options and selecting the most suitable provider, organizations can minimize costs and maximize the impact of every donation received.

Let’s dive into some of the key terms you need to know to make more informed decisions about your gift processing solution, starting with perhaps the most confusing distinction in the payments space.

Processor or Gateway?

Out of all the terms used by the payments industry, perhaps none is as confusing as the difference between a payment gateway and a payment processor.

A Payment Gateway is what your donor sees when they make a contribution. Donors input their personal information, credit card, or banking details into the Payment Gateway, which securely transfers the information to and from a Payment Processor. Gateways also will show a Donor if their contribution was approved or denied.

A Payment Processor is the piece of technology that moves the secure (or “encrypted”) donor data to and from the bank. First, it checks the donor’s bank to see if there are sufficient funds for the transaction. If then facilitates the process known as settlement, meaning the funds are moved from the donor’s bank account to your bank account, usually within 1-3 business days.

Though they may sound similar, understanding the differences between gateways and processors will give you an advantage when speaking to vendors. Donation platforms or Constituent Relationship Systems (CRM) rarely use a proprietary payment gateway. Rather, they’ll work with a provider that sets the rates for each transaction. Do you know which gateway your tools use?

How to Choose

You may be wondering: what makes one gateway or processor different from another? Other than pricing, some questions you can ask should help you understand the following topics:

  • Customer Service: If you’re having issues accessing funds from your payment solution, how long will it take for them to answer an email or phone call? For many nonprofits, waiting for donations to be disbursed is not an option. Take note of how they treat their clients and how long they take to respond to your requests.
  • Domain Expertise: Credit card fraud, recurring donations, and tax receipting all have nuanced implications in the nonprofit space. How much time does your payment solution dedicate to understanding the unique needs of nonprofits? Find tools that don’t treat you as an afterthought, but rather genuinely care about the success of your mission.
  • Value-add tools: What additional tools does the payment facilitator provide? Some payment tools will offer online form solutions or other tools that help your clients process online payments. Understanding what additional tools they offer, and their pricing, will help you get the most out of any solution.
  • Integrations: Payment gateways rarely exist in isolation. Rather, they are embedded in contexts to enable fundraising activities – everything from taking payments at an auction to processing monthly membership dues. How easy is it to connect your payment solution to the tools you already have? Find providers with relationships in the nonprofit space, showing they adapt to your needs.

But What About Pricing?

Yes, there are many additional differences that can help you choose which payments solution you use. In the end, how much money you keep out of every dollar donated tends to be one of the strongest reasons nonprofit leaders choose one solution versus another.

Most of the time, you’ll see processing fees expressed as both a percentage and a per transaction flat rate. Though this can help compare apples-to-apples, there are many additional considerations to think about to truly understand the cost of your payment processing solution.

Here are some of the most important definitions to help you speak the payments language next time you need to decipher your bill:

Processing RatePercentage charged by the payment processor for each completed transaction. This typically ranges from around 2% on the lower end to about 3.5% on the higher end.

 

Authorization FeeFee incurred on each completed transaction. This usually ranges from about $0.20 to $0.45.

 

Return FeesFlat fee charged when a nonprofit returns funds to a donor at their request, equivalent to the authorization fee for credit cards.

 

ChargebacksFee for when the donor’s bank or credit card company (ie. Visa, Mastercard, AMEX) pulls funds from the nonprofit if the donor contests the charge.

 

Acquiring BankThe bank that holds the merchant account (MID) used to accept donations. You typically won’t interact with the acquirer, but it’s worth knowing who they are as their policies can sometimes be relevant.

 

Application ProcessThe underwriting process for opening the merchant account (MID) at the acquiring bank.

 

Set-up TimeLag time before a MID is opened after you submit an application. This can take up to two weeks for certain providers.

 

Payout ScheduleThe frequency at which the acquiring bank disburses funds to your nonprofit’s bank account. Processing fees can be charged either at the moment of payout (Net) or at the end of the month (Gross). This is typically daily for credit card donations and can be weekly for EFT.

 

Payout SpeedThe number of business days (X) after the completion of a donation (T) until the funds are available to be paid out by the acquiring bank, expressed as T + X.

 

Compliance LevelLevel of regulatory compliance held by the payment solution or, in the case of EFT, the governing body setting the security standards for any transaction. Make sure your provider is PCI Level 1 compliant.

 

Before wrapping up, there are a few more common costs you may encounter that are worth thinking about:

  • Platform Fees: On most websites, vendors that provide payment solutions will likely express the processing fees as % + $ (or, Processing Rate + Authorization Fee, as we’ve seen above.) Sometimes, they’ll list what’s called a ‘platform fee’ of a certain percentage (usually, around 1-2%). Keep an eye out for this as it will add additional charges on top of your existing Processing Rate and may add up to a lot in fees when you review your statements. Make sure that you can make the most out of any tool that charges a platform fee on top of what you’re already paying.
  • Monthly Fees: Some solutions will also charge monthly fees for their use. This can be tricky, especially if your contributions vary by season. Even if you’re not using the tool, you’ll still need to pay this amount. If you pick a solution that charges a monthly fee, make sure you can use a solution year-round.
  • Setup/Migration Fees: Setting up technology can be difficult, especially when you need to migrate your secure donor records from one system to another. Ideally, donors should notice no difference in the change and their recurring contributions should continue without a hitch. Organizations that migrate secure donor payment records (often called “tokens”) may charge additional fees based on the number of records you have. Keep an eye out for this as it could add significant up-front costs when changing solutions.

Closing Thoughts

Payments, unfortunately, aren’t simple. Taking the time to learn about the vocabulary used by providers that help you accept online or in-person donations can help you find the best tools for your nonprofit.

You may be thinking, “that’s great, but I need a solution now and I don’t have time to weigh the pros and cons of everything.” Fortunately, there are lots of practical approaches to finding the best solution for you. There are many lists, rankings, and reviews from reputable sources that can help you understand the landscape.

It’s also important to keep in mind that, like with any technology, there usually is no one perfect solution that addresses all your needs perfectly (despite what some clever marketing campaigns may claim). Every tool has its pros and cons. It may be expensive but could offer a lot of features that save your team time and effort. It may be affordable but could lack some key integrations that create more manual work and give room for error. That is to say, the best solution is always the solution you use best.

About Sebastian Arciniega

Sebastian Arciniega is the Consultant Partner Manager at iATS Payments. He says, “Through my current position at iATS Payments, I’m excited to help mission-driven organizations better serve their communities.

As iATS’ Consultant Partner Manager, my objective is to collaborate with consultants to help nonprofits succeed through technology. We’re dedicating resources to create a new partner program with the vision of long-term solutions, knowledge sharing, continuous improvement, and excellent client experiences.

Connect with me if you want to chat about nonprofit technology, partnership strategies, or if you just want to have a coffee!”

sebastian.arciniega@iatspayments.com