Nonprofit Donation Processing: The Ultimate Guide for 2021

Nonprofit Donation Processing: The Ultimate Guide for 2021

donation processing As millions of people get checks from the government, many may have a few extra dollars they can give to their favorite nonprofit. As organizations send out appeals for donations, it is important to be prepared for the coming online donations.

The number of donors who give online grows every year. According to the Chronicle of Philanthropy, in 2020, “large organizations saw a 15% increase in online fundraising, mid-sized nonprofits saw an increase of 25%, and smaller organizations expanded online fundraising by 22.3%.” These numbers are just another example of online donations becoming the leading way to give.

If your nonprofit wants to be part of this growing field of fundraising, a donation processing service is necessary. As a fundraiser, you will want to know the ins and outs of how these services work and which processing service will work best for you.


What is Nonprofit Donation Processing?

Nonprofits raise funds through several different avenues. Collecting one-time and recurring donations, membership fees, event tickets, and selling products can all improve an organization’s bottom line. These fundraising types have their own tax rules and impacts on a nonprofit, but they can all be accepted with donation processing systems.


Important Donation Payment Processing Terms

Nonprofits are cautious when purchasing new fundraising tools and tend to look for systems that cost less. It is crucial to understand how a payment processing system works before deciding which one will work best for your organization. Below are a few terms that explain how these systems work and how they can impact your organization.


1. Merchant Account

A merchant account is a nonprofit bank account set up to receive online donations. Check with your bank to understand the process and fees included.


2. Card Association

nonprofit donation processing

A card association is a powerful group of banks like Visa, Mastercard, American Express, and Discover that sets the terms of all credit card transactions.

ACH Debit Payments

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 72 hours. They are also an excellent option for recurring donors or larger donors.


3. Third-party Processor

Third-party processors are software used by nonprofits to send payment requests. Some of the best-known processors are PayPal, Stripe, and Square.


4. Payment Gateway

A payment gateway is fraud prevention used by payment processors for online donations. Some donation processing services have their own payment gateway systems. Others use a third-party. Payment gateways encrypt credit card information and help reassure donors that their donations are safe.


5. Aggregator

Aggregators are large payment processors that support smaller businesses and nonprofits. PayPal is well-known and well-used by many small nonprofits.


6. Payment-enabled software

A payment-enabled software can send requests for donations through its own payment processor to the card association.


7. Virtual Private Network (VPN)

Virtual Private Networks or VPNs use data encryption to secure information and stop fraudulent payments.


How Does Nonprofit Donation Processing Work?

Donation processing can happen quickly. This swiftness can surprise many people since there are quite a few steps to the online donation process.

  1. An online donation is made with a credit or debit card or an e-check.
  2. The donation goes through the payment processor payment gateway and is checked for potential fraud.
  3. If the donation is by credit or debit card, your payment processor will contact the card association (MC, VISA, AMEX, Discover), and they will send the donor information to the donor’s bank.
  4. The donor’s bank will see if there are enough funds to cover the donation.
  5. The donor’s bank will send an acceptance or denial to the card association and then the nonprofit.
  6. If approved, the donation is taken from the donor’s account and deposited into the nonprofit merchant account.

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 does not include the large card association. The cost for these payments is also lower, with only flat fees from payment processors and no credit card processing fees. Donorbox offers a no-contract low-cost option for small nonprofits.


Why Do Nonprofits Need a Payment Processor?

donation processing

The answer to this question may seem obvious since a payment processor is necessary to accept online donations. Even with the rapid growth of online donations, some smaller nonprofits do not see the need for a payment processor. There are many ways a payment processor can increase funds for a nonprofit and help with donor outreach.


1. Donations

Nonprofits need a payment processor to accept online donations. Smaller nonprofits may opt to skip this because of cost, but there are payment processors that will not cost your organization an arm and a leg.


2. Membership fees

Many small nonprofit organizations rely on membership fees to continue their work. Convenience is essential in collecting these fees. If your organization has an online payment processor, you can collect recurring fees with few extra steps.


3. Online merchandise

Many nonprofits have begun selling products to raise more funds. Selling these products online can reach larger audiences and bring in a larger amount to your budget. Payment processors will help nonprofits sell these products.


4. Event tickets

Few nonprofit organizations do not hold events to raise funds. One of the most frustrating parts of having events is selling enough tickets. Selling online tickets can limit some of this frustration. Payment Processors can make this process easy and safe.


Types of Payments Nonprofits Should Accept

There are a few different ways your donors will give online. As a nonprofit, you will need a processing system that can accept each type of payment.


Credit/Debit Card Payments

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.


ACH Payments

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.

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 do not have to type in their account numbers. Instead, they choose their bank and use the username and password they have with their bank.


Payment Aggregators

Payment aggregator is a name for 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, they use their own merchant account to accept and send payments.

There is a percentage and 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 a nonprofit cannot brand their donation pages if using PayPal.

This can be important because “nonprofits who brand their donation pages earn 38% more than those who use PayPal.” Sharing your mission on donation pages and adding a way to measure donations that come in for specific campaigns can entice more donations and excite donors.


Key Features to Look for in a Nonprofit Payment Processor

If your organization is ready to accept online donations and is looking for the right payment processor, there are several different options. Below are a few different features you should research when making this decision.


1. Created for Nonprofits

Payment processors created for nonprofits give organizations options others cannot. Features like recurring donations, company matching, and goal meters can increase nonprofits’ incomes and encourage donor retention.


2. Flexible payment processing options

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 for organizations with donors from different countries. A payment processor that offers flexible payment options will make the donation process easier.

All processors should accept credit cards, bank transfers, and PayPal or payments from other aggregators.


3. Easy Setup

A new payment processing system can be frustrating if it is not easy to setup. Most nonprofits have limited time to spend learning new programs and do not have technical support. The best payment processing systems are easy to set up and work with your existing website.


4. Low Processing Costs

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, contract, and processing fees, including flat rates and percentage fees. When researching payment processing systems, find one that costs less but covers all your organization’s 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.


5. Secure Data Processing

Hacking threats are real and prevalent in our society. Donors are aware of this and look for signs that their donation is safe. Ensure that your payment processor is PCI compliant and follows these 12 requirements:

  1. Install and maintain a firewall
  2. Does not use default passwords
  3. Protects cardholder data
  4. Encrypted cardholder data
  5. Uses and updates anti-virus software
  6. Maintains secure systems
  7. Restricts access to cardholder data
  8. Assigns a unique access ID to each user
  9. Restricts access to cardholder data
  10. Tracks all access to cardholder data
  11. Includes regular system testing
  12. Maintains a policy that addresses security


Frequently Asked Questions


1. Do nonprofits pay credit card fees?

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. Nonprofits must pay this fee unless your payment processor offers donors the opportunity to pay these fees themselves.


2. How do nonprofits accept credit cards?

Organizations must have a payment processing system or an aggregator like PayPal to accept credit card donations.


3. How do nonprofits accept online donations?

Nonprofits can accept credit card payments or ACH payments from donors’ banks through their payment processors.


4. What are the best payment gateways for nonprofits?

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.


Conclusion

When researching payment processors, nonprofits should find a system that is secure and easy to set up. They should also look for processors created for nonprofits and include features that encourage more donations.

Donorbox offers safe and affordable payment processing. No contracts are needed, and with the low platform fee of 1.5%, more money from your donation goes to your organization’s work. Payment processing fees are also lower with Donorbox with PayPal, Stripe, and ACH payments.

Our system includes branding options, customizable donor pages, and features like donation thermometers, recurring donations, and easy integration with your website. Learn more about Donorbox features to see if we are the right system for your nonprofit. Our blog also offers tips and tricks to help you with fundraising.

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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