A payment processor is a company that handles all your online transactions. Payment processing handles donation transactions between your organization’s bank and your donor’s bank.
As you might expect, payment processor also have multiple security measures in place to protect your organization and your donors.
Why do you need a payment processor?
In order to accept donations through the web, you must have a payment processor.
With a payment processor your organization can accept donations online any time and from almost anywhere in the world.
In addition, you can use a payment processor to sell online merchandise like t-shirts, water bottles, and more.
A payment processor will come in handy when it comes to collecting membership fees, too. Your members can conveniently pay their monthly or yearly fees online, giving them a massive convenience.
Lastly, you sell event tickets. When donors register via your online event registration form, a payment processor will handle the ticket fees.
As you can see, each one of these transactions pass money from your donor to your bank.
What are the different types of payment processing?
Your payment processor should accept two types of payments: ACH debit and credit card.
1. ACH Debit Payments
ACH (Automated Clearing House) payments are made directly from a donor’s bank account. You can think of these payments as electronic checks that your donors can use to make contributions.
Debit payments, or ACH transactions, make up more than 50% of all non-cash payments! These transactions help nonprofit organizations minimize credit card transaction fees because the donated funds are directly transferred.
Typically, payment processor charge a flat fee for ACH debit payments.
2. Credit Card Payments
Payment processors usually accept the major credit cards: Visa, MasterCard, American Express, and Discover.
Nonprofit payment processing companies usually charge a flat fee and percentage of the monetary value for credit card donations.
How does payment processing work?
Payment processing takes a few steps because multiple parties are involved in any given transaction.
Step 1: Donor Makes a Donation
The payment process is initiated when your donor makes an online donation, purchases merchandise, or buys event tickets.
Any and every donation made from a debit or credit card must go through a payment processor to verify the account’s funds and make sure they’re accessible to the nonprofit.
Step 2: Information Goes to the Gateway
After the donor enters their card information, the payment goes through the payment gateway, which is used to test to authenticity of the card and to verify that the individual making the donation is, in fact, human and not a robot.
The payment gateway checks the credit card number and may look at names, addresses, and security codes to verify the card isn’t fraudulent.
If the card is rejected and not passed through the gateway, the donor and your nonprofit are alerted. If the card is accepted, the payment continues through the process.
Step 3: Contribution is Passed Along to the Merchant Account
Next, the payment gateway will begin the transfer from the credit card company to a merchant account.
A merchant account, which holds credit card donations or payments, is easy for most nonprofits to open through their regular banks. Just like any bank account, merchant accounts all have different rates which will determine how much your nonprofit pays per donation.
Some payment processors, however, use their own merchant accounts that nonprofits must use. These merchant accounts are typically shared across all the processor’s customers, aggregating all the funds into one shared pool.
On the other hand, if your donor is donating with a debit card, the funds are coming directly from their debit accounts, meaning a merchant account isn’t necessary to transfer the donation and complete the transaction.
Step 4: Donor Data is Inputted into Your Database
When a donor makes an online donation, there will be other information besides their credit card number that they’ll provide.
You’ll most likely receive the donor’s name, address, email address, and phone number. This information will then be logged into your donor database or CRM that integrates with your payment processor!
If your donor database doesn’t integrate with your payment processor, you can export the data and manually enter the information into your database.
Check out Qgiv’s Nonprofit Donation Page Best Practices to craft a stellar donation form and collect a plethora of donor data.
Step 5: Gift Is Deposited
At the end of the transaction, your donors’ gifts will be transferred to your bank!
If your merchant account is in your organization’s name, the funds should be automatically transferred to your account in just a few days.
If you’re using a payment processor that uses their own merchant account, it may take a few days.
What are the benefits of a payment processor?
Aside from safely processing donations, there are dozens of benefits of using a payment processor.
1. Collect Donor Data
As previously mentioned, your organization can collect all kinds of donor information depending on the fields included on your online donation form.
You’ll mostly likely end up with their basic contact information at the very least which is more than enough to start a constituent profile in your database!
Your payment processing tool can integrate with your database, transferring this data automatically. Remember that the more you know about your donors, the stronger your donor relationships will be.
2. Retain More Donors
Your donors will associate trust with your organization because you value your donors’ security and safety.
Payment processing improves your donor retention rates because the better your payment processor is, the more your donors will contribute!
Donor retention is a sore topic for many nonprofits because many donors inevitably lapse. But with a secure payment processor, donor retention – and especially monthly giving – will be a piece of cake.
3. Fundraising Features
Depending on your payment processor, you might have other fundraising features built into your software.
If your payment processor doesn’t offer any additional features, make sure it integrates with your fundraising software.
So now you know how critical payment processors are to your organization, not only for accepting donations online but also for improving your fundraising strategies and strengthening donor relationships.
Payment processing is not a nice-to-have feature for your nonprofit. It is a must!