While you’re probably aware that payment processing and online donations go hand-in-hand, the whole process of accepting payments may be a gray area in your extensive nonprofit knowledge.
Essentially, payment processing verifies your donors’ information to ensure that the transfer of funds between accounts goes smoothly and that sensitive data doesn’t get into the wrong hands.
Your nonprofit can’t raise money online without a secure payment processor. As such, it’s crucial that you understand the process so that you can keep both you and your donors safe.
To help you understand payment processing a little better, we have 5 tips:
- Understand payment processing terminology.
- Know how online donations work.
- Look for a payment processor that’s PCI-compliant.
- Get familiar with payment processing fees.
- Educate donors about the payment process.
Not only will these tips guide you through the payment process, but they should help resolve some of the concerns you and your donors might have about online donations.
1. Understand nonprofit payment processing terminology.
Before you can understand how payment processing works, you need to know the language that goes along with the process. Being familiar with these terms will ensure that you have a strong grasp on the different parts of the process.
We’ll go over a few payment processing terms that you should understand:
ACH Direct Debit
ACH direct debit is a form of online giving that allows a donor to give directly from their checking account.
For this process to work, donors must input their bank account information and routing number (the number that appears at the bottom of checks). There is usually a flat fee associated with processing an ACH direct debit.
This process is perfect for donors who are looking to have regular donations withdrawn because it takes minimal effort on the donor’s part. In fact, without a payment processor who accepts ACH payments, your nonprofit won’t be able to automate recurring gifts online.
Credit Card Processing
Another way for donors to give online is through credit card processing. This method is often preferred by donors because they believe it to be more secure (even though both processes — credit card and ACH direct debit — are safe!).
Additionally, most donors rely on credit cards for all their online donations (and purchases). Even when a donor uses their debit card, it’s processed as a credit card. Therefore, your supporters will probably prefer the familiarity of credit card transactions.
Unlike with ACH direct debit, most processors take a percentage of the donation and a flat processing fee per transaction.
Address Verification System
The address verification system (AVS) is a fraud protection method that compares the addresses donors fill out on their donation forms to the addresses on file with their credit card companies.
If the two don’t match, your nonprofit will receive an AVS decline that you can review.
A merchant account is a type of bank account where the money from credit card payments is deposited. Payment processing fees are subtracted from the money that gets deposited, and the remaining balance goes to your nonprofit.
A payment processor will create a separate merchant account for each organization they process payments for.
Paypal and Stripe are probably the most common payment aggregators, but there are many others out there. An aggregator is a payment processor that handles all of their clients in one account.
These transactions will be deposited in the the aggregator’s account and then given to the right nonprofit.
After donors confirm their donations, the payment gateway is the next step in the payment process. The payment gateway verifies that the numbers used are not fraudulent and that the donation is secure.
When a donation is flagged as suspicious, the nonprofit will be notified immediately.
To wrap up the section: each of the terms discussed plays a part in the payment process. Get familiar with their meanings so you can fully understand how online donations work.
2. Know how online donations work.
When a donor hits the “confirm” button on a donation form, that’s the end of the donation process for that individual, but there is a lot more that occurs.
Understanding what happens “behind the scenes,” so to speak, will help you get an idea of the type of payment processor you should look for and understand how sensitive information is kept secure.
That way, you can convey that information to your donors so they will feel more comfortable making contributions.
Let’s look at how an online donation makes its way through the credit card payment process after a donor has confirmed the gift:
- Information is sent to the payment gateway – This first step ensures that the credit card isn’t fraudulent. If a card is flagged as fraudulent, the nonprofit is notified, and they can reach out to donor. If the card passes, the information is sent to the payment processor.
- The processor sends the donation to the credit card company – After the information is sent to the credit card company, the processor can then send the transaction to the donor’s bank.
- The bank denies or approves the charge – The payment processor must request payment authorization from the issuing bank. Before the bank can approve the charge, it must verify the donor’s information using tools like AVS and check the amount of funds available in the donor’s account.
- The approval (or denial) is sent to the processor – The nonprofit and donor will be notified of the bank’s decision by the payment gateway. The processor will then ensure that funds are transferred from the donor’s account to their merchant account. They will take out payment processing fees and send the remaining balance to the nonprofit.
The process for an ACH direct debit transaction is slightly different. After a donation has been made, the donor’s bank will be contacted directly and the donation will be sent to an ACH operator to complete the transaction.
To wrap up the section: the payment processor takes the lead to ensure that to donation is sent to the right place to help the transaction move forward.
3. Look for a nonprofit payment processor that’s PCI-compliant.
One of the biggest concerns with nonprofits and donors is whether or not online donations are secure. The truth: online donations are just as secure as any other method of giving.
However, when you search for a payment processor, some may offer different forms of protection. It’s important to understand what types of security measures each processor has in place so that you can pick the one that best fits your needs.
No matter what payment processor you decide to use, make sure that it’s PCI-compliant. PCI-compliance refers to a strict set of guidelines created by the Payment Card Industry.
The guidelines help dictate the type of security measures that payment processors need to have in place. The goal is to protect you and your donor’s data as it’s being transferred between every entity during the payment process.
In addition to PCI-compliance, payment processors offer other security measures to protect from fraud:
- Encryption uses special algorithms to mask sensitive data into “cyber text.” The text can only be read if the correct key is used to decipher the information.
- Often confused with encryption, tokenization is the process where sensitive information (the donor’s credit card information, for example) is transformed into a series numbers and symbols, also known as token.
- With 2-factor authentication, donors are required to confirm their account using two forms of authentication, which usually involves using their phone number or email. This type of security measure is used in conjunction with one of the two other methods and never used on its own.
Just like there are many types of fundraising software, there are multiple payment processors that use different methods to secure payments. Look for a payment processor that offers the level of security you’re most comfortable with.
To wrap up the section: make sure that your donors’ information stays protected by choosing a payment processor that is PCI-compliant and takes other security precautions.
4. Get familiar with payment processing fees.
As we mentioned earlier, there are fees associated with each transaction. How much you pay will depend on the type of donations that you accept and the processor that you choose.
It’s important to understand how much a processor will take out so that there are no surprises when you receive your donations.
For an ACH direct debit transaction, there is a flat fee (usually no more than $.30) regardless of the donation amount.
Credit card processing fees are slightly more complex, involving both a flat fee plus a percentage of each transaction. For example, your nonprofit might be charged 2.9% + $.30 per transaction. These fees can vary depending on the type of card used.
Generally, the deducted percentage per transaction ranges between 1.5%-3.5%, and the flat rate fee stays around $.30.
In addition to transaction fees, you might have to pay for set-up costs, monthly or yearly fees, or other charges.
Make sure to ask for information about fees before you decide on a payment processor so that you’re clear on all the costs associated with starting their services.
To wrap up this section: it’s important to understand what type of fees are associated with each type of online transaction. That way, you can determine what payment methods make the most sense for your nonprofit.
5. Educate donors about the payment process.
Once you understand how to accept donations, it’s important to help your donors understand the process as well.
As we mentioned earlier, donors are often hesitant about contributing online because they’re concerned about protecting their payment information. You can ease their concerns by explaining the process and showing them how information is protected.
Donors want to know that their information is protected, but that doesn’t mean that you have to go into all the technical details surrounding the payment process. You can provide donors with the basics so that they’ll feel confident giving your organization their payment information.
If you’re not sure what to share with your donors, here are a few suggestions:
- Explain the different security measures that your donors have in place.
- Share with donors what part payment processing plays in the donation process.
- Provide them with advice on how they can keep their online donations secure.
To wrap up the section: payment processing isn’t only a big unknown to many nonprofits, but it’s also unfamiliar to many donors. Once you understand the process, share your knowledge with your supporters so they can feel more at ease.
With these 6 pro-tips, you’ll have the right resources you need to get started with nonprofit payment processing. Now it’s time for you to find a payment processor that fits your nonprofit’s needs.