Online payment processors reduce confusion and ensure your nonprofit is following state and federal regulations when processing donations. Read on to learn more about nonprofit donation processing and what to look out for.
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64% of donors prefer to give online – a compelling reason why your nonprofit should incorporate online fundraising and donation processing into your fundraising strategy.
In this article, we’ll explain what nonprofit donation processing is, how it works, and explore important nonprofit payment processing terms. We’ll also share more information on payment processors.
Let’s get started!
Nonprofit donation processing refers to when a supporter donates to your cause using a secure online payment method. It involves a series of steps, from the initial intent to donate to the point where funds are reflected in your bank account.
Collecting one-time and recurring donations, crowdfunding, peer-to-peer fundraising, membership fees, and event tickets can improve your organization’s bottom line.
These fundraising types have their own tax rules and impacts, but they can all be accepted with donation processing systems.
It’s natural to be cautious when purchasing new fundraising tools and to look for systems that are easy on the wallet. Understanding how a payment processing system works will help you decide which one is best for your nonprofit.
Let’s explore a few terms that explain how these systems work and how they can impact your organization.
A merchant account is an intermediary account that holds funds received through online donations before that money is transferred to your bank account.
A card association is a powerful network of banks – like Visa, Mastercard, American Express, and Discover – that sets the terms of all card transactions.
ACH stands for Automated Clearing House payments. Unlike credit card payments, these donations go directly from bank to bank. These payments are known as e-checks and can be completed in 1-3 business days.
They are also an excellent option for recurring donors or larger donors.
Dedicated third-party processors are software used by nonprofits to send payment requests. Third-party processors set up different merchant accounts for each customer. Some of the best-known processors are Stripe and PayPal.
A payment gateway is a fraud prevention tool used by payment processors for online donations. It transfers encrypted payment information (e.g., credit card information) from a customer, sends it to a payment processor in a secure way, and tells a website whether the payment was successful or not.
Encrypted credit card information helps reassure donors that their donations remain safe.
Aggregators are large payment processors that support smaller businesses and nonprofits. Aggregators collect multiple payments and process them through a single merchant account. Stripe is a well-known example of an aggregator used by many nonprofits.
A payment-enabled software can send requests for donations through its own payment processor to the card association.
Virtual Private Networks use data encryption to secure information like your IP address and stop fraudulent payment attempts over a public network, like the internet.
The Payment Card Industry (PCI) Security Council set up some security standards in 2007 to protect both the customer and merchant involved in a payment transaction.
Your nonprofit should comply with these standards to avoid being suspended and facing penalties. Choosing a PCI-compliant payment processor is essential.
A step above compliance, PCI certification entails a thorough process and audit by an authorized, third-party assessor to ensure that all the necessary security measures are in place for secure payment processing.
Tokenization is a mandatory requirement by PCI compliance standards. It takes sensitive information, such as a donor’s card details, and replaces it with a string of alphanumeric symbols as a part of its security measure. Payment processors create and issue these tokens themselves, and therefore, it is upon them to keep the information safe.
Encryption is another important security measure for payment processors to help convert sensitive information from plaintext to cyphertext. The cyphertext, in turn, can be read with a unique key. It is used to keep donor data private and secure.
Donation processing can happen quickly. This swiftness can surprise many people since there are quite a few steps to the online donation process. These include the following:
Credit and debit card transactions will include a flat rate and a small percentage to cover processing fees. ACH payments are simpler, since the process doesn’t include the large card association. But these days, what works the best with your Millennial and other newer generations of donors is the digital wallet payment option.
Donorbox offers a no-contract, low-cost donation processing option for all nonprofits. We use Stripe as our main payment processing system and offer a plethora of payment methods.
Our full list of available payment methods is detailed below:
All Donorbox campaigns come enabled with Donorbox UltraSwift™ Pay, which helps you use the power of digital wallets, including Apple Pay, Google Pay, and Venmo. This makes the donation process 4x faster for your donors.
A payment processor is necessary to accept online donations. It can also increase funds for your cause and boost donor outreach.
Smaller nonprofits may opt to skip a payment processor because of cost, but the good news is that there are many affordable payment processors out there.
A payment processor that doubles as an online giving tool helps you maximize donations with features like crowdfunding, text-to-give, and peer-to-peer fundraising campaigns while storing your donor information in a donor database.
Membership fees enable nonprofits like yours to continue your work, and convenience is key. An online payment processor will allow you to collect recurring fees in a few extra steps.
Donorbox lets you create simple membership campaigns, add unlimited membership tiers, manage your members and membership payment data on the backend, and highly benefit from a loyal supporter base through monthly and annual memberships.
Unlock all these benefits while processing membership fees with ease, maximum security, and high-end fraud protection measures. Check out this example of a membership campaign from Boom Saloon.
Accept Online Donations Securely with Donorbox
Selling products online is a great way for you to raise more funds! You can reach more people and bring in a larger revenue. Payment processors enable you to sell your products and accept payments securely.
One of the most frustrating parts of hosting events is securing enough attendees. Selling online tickets can lighten the load. Payment processors simplify this process while ensuring maximum security for you and your donors!
Donorbox Events lets you create an event page with unlimited ticket levels, manage ticket sales and purchasers’ information at the backend, and accept donations securely right from your event page. It also allows you to input the fair market values and tax rates to automatically calculate the tax-deductible values of tickets and share receipts with purchasers.
Learn more about Donorbox Events here. Check out this example of a Donorbox event ticketing form.
There are a few different ways your donors will give online. You’ll need a processing system that can accept each of these payment types.
Donating by credit or debit card is easy and convenient. Most payment processors will accept credit and debit card payments from Mastercard, Visa, American Express, and Discover.
There are two separate fees for this type of payment. Any credit or debit card payment will include a flat processing fee. There is also a percentage fee for credit card processing.
Automated Clearing House payments, or ACH, are payments that move from one bank to another. This type of donation only includes the flat processing fee.
Your donors generally type their bank account and routing numbers into an online form, and that donation will be moved automatically. With Donorbox ACH Payments, donors don’t have to type in their account numbers. All they have to do is select their bank and use the username and password they have with their bank.
With direct debit payments (e.g., U.K. Direct Debit and Canadian PADs), donors will authorize your nonprofit to debit money directly from their bank account, either on a one-time or recurring basis. This is done through a “mandate email” process.
With Donorbox, most of the steps are automated, and you only click a few checkboxes/buttons to enable direct debit payments.
Digital wallet payments are the third most popular method among donors, after credit/debit cards and cash.
If your nonprofit is not providing options such as Apple Pay, Google Pay, and Venmo, you’re missing out on a large chunk of donations. Donorbox makes it easy for you to offer supporters quick and convenient digital payment methods, including digital wallets.
“Payment aggregator” is a term used to describe a few large processing systems that help small businesses and nonprofits collect online payments.
PayPal is the largest of these aggregators. PayPal does not use individuals’ bank accounts. Instead, it uses its own merchant account to accept and send payments. There is a percentage and a flat fee for all payments processed. They do have a lower percentage fee for nonprofit organizations.
The difference between PayPal and other payment processors is that you cannot brand your donation page if using PayPal. This is especially important considering the average completed transactions via online donation pages increased by 50% since last year.
If your customization and branding options are limited and you’re only focusing on using a tool to process payments, you have fewer chances of increasing donations. Your payment processor should adapt to emerging trends and let you optimize your donors’ experience.
Bonus resource: Check out this video to explore the best donation payment options nonprofits like yours need to maximize donations, and why!
If you’re ready to accept online donations and are looking for the right payment processor, there are plenty of options on the market! Here are a few different features you should research before you make your decision.
Payment processors created for nonprofits like yours unlock benefits that others cannot. Features like robust donations with recurring donation intervals, company donation matching, donor management, event ticketing, crowdfunding, and goal meters can boost your income and donor retention.
Not every online donor wants to give in the same way. Thanks to advances in technology, there are several ways to make a payment. This is especially helpful if you have donors from different countries.
A payment processor that offers flexible payment options will streamline the donation process. Look for a processor that accepts credit cards, bank transfers, direct debits, digital wallet payments, and PayPal or payments from other aggregators.
You probably have limited time to spend learning new programs and minimal technical support on hand. The best payment processing systems are easy to set up and work with your existing website.
Like time, money is limited for most nonprofits. Cost is the first thing boards look at when approving budget increases.
Many payment processing programs will include a sign-up fee, along with contract and processing fees – including flat rates and percentage fees. When researching payment processing systems, find one that costs less but covers all your needs.
Some payment processing programs also offer the chance for donors to pay processing fees when donating. This is a great way to decrease the cost of your payment processor and ensure most of the funds from donations go straight to your cause!
Hacking threats are real and prevalent in our society. Donors are aware of this and look for signs that their donations are safe. Ensure that your payment processor is PCI-compliant and follows these 12 requirements:
Here are some best practices to keep in mind when searching for a payment processor for your nonprofit:
Payment processors should be affordable, secure, and easy for nonprofits like yours to set up. Look for one created for nonprofits that includes features that accelerate donations to your cause.
Donorbox offers safe and affordable payment processing – no contracts or startup fees included! Our platform fee starts at 2.95% for the Standard plan. The platform fee can be reduced to 1.75% for most features, and 2% for Events, Memberships, and Peer-to-Peer when you upgrade to our Pro or Premium plans – with additional add-ons available!
Payment processing fees are also lower with Donorbox through Stripe, PayPal, and ACH payments. Explore our plans and pricing here.
Check out the rest of our Nonprofit Blog for insightful tips and tricks to help you fundraise smarter. Sign up for our monthly newsletter to receive exclusive fundraising ideas and insights sent to your inbox.
We’ve answered some frequently asked questions about nonprofit payment processing below.
Yes. Each time a donor uses a credit or debit card to give online, there is a flat-rate processing fee and a percentage fee for credit cards. You must pay this fee, unless your payment processor offers donors the opportunity to pay these fees themselves.
Nonprofit organizations must have a payment processing system or an aggregator like PayPal to accept credit card donations.
Nonprofits can accept credit card payments, ACH payments, direct debits, and digital wallet payments from donors’ banks through their payment processors.
A payment gateway is a secure pathway from your online donation form to the credit card processing company. Online donation systems require a payment gateway to protect donors’ credit card information. Many nonprofits work through their merchant account provider to set up a payment gateway. Others use third-party providers like Authorize.net.
Kristine Ensor is a freelance writer with over a decade of experience working with local and international nonprofits. As a nonprofit professional she has specialized in fundraising, marketing, event planning, volunteer management, and board development.
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Kristine Ensor