Online Fundraising
November 8, 2021

Payment Processors for Nonprofits: What Are They and Why You Need One

For any organization that depends on donations, having a secure and well-functioning payment processor is key. Asking for donations is already a lot of work. The last thing you want is a payment processor that makes the donation process complicated or insecure. 

Studies indicate that donation abandonment stands at 60%. That means that 6 in 10 potential donors get to your donation page and leave without completing the transaction. Having the right payment processor can go a long way in bringing this rate down. 

In this article, we will look at what a payment processor is and discuss some of the best payment processors you can work with.

What is a payment processor?

A payment processor is a tool that can help you accept donations, collect membership fees, sell merchandise and tickets. Payment processing refers to a series of steps aimed at processing the financial data of donors whenever they transfer funds from their accounts to yours.

Key terms to know in payment processing

  • Merchant account: This is a special type of bank account that allows a nonprofit or business to accept payments, usually card-based or electronic. 
  • Third-party processor: This refers to a company that enables nonprofits to receive payments or donations without the need to have a merchant account. Essentially, you use the third-party’s merchant account. 
  • Payment gateway: This is a tool that validates if the information the donor has provided is correct and ensures that they have the funds to make the transaction. Payment gateways prevent fraud and also protect credit card details. 
  • VPN: Since security is of paramount importance during online transactions, payment processors use VPNs (virtual private networks) to encrypt payment details (protecting data from being accessed by unauthorized users) and stop fraudulent payments. 
  • Aggregator: This is a company responsible for processing transactions and donations for several small nonprofits. Examples: PayPal and Stripe. 
  • ACH: Automate Clearing House (ACH) refers to a network that is used to electronically transfer funds between accounts. ACH is essentially an electronic check.

Importance of payment processors in virtual fundraising

Choosing a payment processor isn't a decision you should take lightly. 54% of donors prefer to give with a credit or debit card and 9% say they like PayPal. Offering familiar payment options to donors will help you increase the rate of donations. 

And remember that most virtual fundraisers, including events like raffles and sweepstakes, have a dedicated landing page that encourages visitors to donate or purchase tickets. For this to happen, it is essential to have a payment processor that’s intuitive and seamless to reduce drop-off rates.

Scale up your fundraising game.

Get all your questions answered and learn how it all works.

Difference between a payment processor and an online donation tool

Payment processors and donation tools have similar functions and hence, can get confusing. A payment processor is mainly responsible for helping you collect donations. It may also provide online donation forms. But mostly, it's there to facilitate the movement of money from the donor’s account into yours. An online donation tool, on the other hand, is a collection of tools designed to help you receive donations. It provides donation forms and the ability to connect with a payment processor, CRM software and other tools.

How does payment processing work?

As a nonprofit, you don’t need a deep understanding of this subject. However, it’s always a good idea to know what goes on every time a donor donates through your website. 

Here an overview of the process:

  • The donor visits your donation page and enters their financial details, usually their credit or debit card details.
  • This information is then transmitted to the payment gateway to ensure that it’s correct and that the card is not fraudulent. It involves looking up the donor’s name, address, and security codes. 
  • Upon completion of verification, the payment processor sends an authorization request to the card issuer (the donor's bank).
  • If the transaction is approved, money is transferred from the donor’s bank to your merchant account.
  • Lastly, donor information such as name and email address is saved in your donor database. Most payment processors facilitate integration with CRM systems. 

Popular payment processors for nonprofits

There are plenty of payment processors in the market that can help nonprofits receive donations. Here are seven popular ones for you to explore:

PayPal
PayPal works well for small nonprofits as it's easy to set up and start accepting donations. It enables you to accept payments from all the major cards, PayPal, Venmo and Apple Pay. The standard fee is 2.9% + $0.30 for each credit and debit card transaction. But nonprofits are offered a discounted rate of 2.2% + $0.30 per transaction. 

Stripe
This is a reliable payment processor that's used by nonprofits and businesses alike. It accepts payments from all the major credit and debit cards and ACH payments. Stripe supports more payment types and currencies than most payment processors. You pay 2.9% + $0.30 for each transaction. Nonprofits may qualify for discounted rates.

Donorbox
Not only does Donorbox offer payment processing, but also provides other features like online donation forms. It enables donation collection on a monthly, weekly, quarterly or annual basis. It accepts payments from all the major cards, PayPal, Google Pay, Apple Pay, ACH, and others. You pay a 1.5% Donorbox fee plus 2.9% + $0.30 for Stripe or 2.2% + $0.30 for PayPal or 0.8% (capped at $5) for ACH payments for each transaction.

iATS Payments
iATS Payments has over two decades of experience helping nonprofits raise money. It offers a variety of integrations. In addition, iATS Payments has maintained the highest level of PCI compliance, keeping transactions secure. The rate for credit card processing is between 2.49% to 3.2% depending on the card type. ACH transactions have a flat fee of $0.26 per transaction

Braintree
This is a PayPal company and donors can pay with credit or debit cards, and other methods like Venmo or Apple Pay. Choosing Braintree will mean keeping transactions PCI-compliant. Braintree charges a processing fee of 2.9% + $0.30 per transaction.

Authorize.Net
A wholly-owned subsidiary of Visa, this is a great option for nonprofits that want an advanced payment processor. You can accept payments from all the major debit and credit cards, ACH, PayPal, Apple Pay, e-checks, and others. If you want a merchant account and payment gateway, there is a $25 monthly fee and a 2.9% + $0.30 transaction fee.

Charity Engine
This is an all-in-one solution that offers payment processing, online forms and plenty of other features. Charity Engine is also PCI-compliant, meaning all transactions are secure. You can accept credit cards, ACH, and PayPal. Pricing starts from $149 per month.

A good payment processor is essential to the long-term success of a nonprofit. It will allow you to securely and easily receive payments on your website, thus increasing donor satisfaction. However, figuring out which payment processor might be the best option for your nonprofit can be confusing. A full-lifecycle provider like Ascend can help you save time and allow you to focus on high-priority strategic tasks rather than tactical ones such as shortlisting a payment processor.

Get a monthly update from Ascend