Become A Hero & Save Your Charity Money With Discounted Credit Card Processing For Nonprofits
Anyone who runs a nonprofit organization knows how important it is to cut costs at every turn. Funds are limited, as are resources. There are many ways to save money, but one that many not-for-profit organizations don’t think of is reducing their nonprofit credit card processing costs.
In our increasingly cashless society, most people prefer to pay through a credit or debit card. While accepting donations in-person or over the telephone continues to be a good way for nonprofits to bring in funds, donations are increasingly funneling through online payment portals. There, not only can donors pay with a credit or debit card, but they can also buy additional merchandise, such as t-shirts, mugs, or books.
In addition to taking payments, many of these nonprofit organizations often require flexible solutions that allow them to collect information about donors and sponsors for future fund drives. Some donors even prefer to set up automatic recurring payments. So the payment processing needs of a nonprofit can be unique and complex.
Fortunately, if you are a nonprofit organization, you can, in some cases, lower your credit card processing rates just by asking! (Note: You’ll have to provide proof of your 501(c)(3) status.) If you don’t already qualify for a nonprofit discount, and your current processor doesn’t want to offer you a lower rate, you should start looking around at some other options.
Read on to find out how to save credit card processing costs for a nonprofit.
Other Featured Options:
- Stripe Payments: Stripe does offer custom charity pricing for nonprofit organizations. In order to qualify, you have to be a 501(c)(3) organization and you must also raise at least 80% of your funds through donations.
Read more below to learn why we chose these options.
What Are Nonprofit Discounts For Credit Card Processing?
Many payment card processors offer lower processing rates for nonprofit organizations. That is true whether you work with a traditional merchant account provider or a third-party processor. All you need to get started is your 501(c)(3) nonprofit designation from the IRS, so you can show your tax-exemption status to the processor.
To understand how a nonprofit can get a discount in processing rates, you first have to understand the different pricing models used by the credit card processing industry because your discount can come from two places.
On the highest level, you can divide the industry into traditional merchant account providers and third-party processors. Traditional merchant account providers set you up with a dedicated account called a merchant account into which credit card funds can be deposited. The provider can draw all the fees from that account before forwarding the rest of the money to you. With a third-party processor, everything it processes goes into one big merchant account. The processor keeps track internally of how much is owed to each merchant and disburses money after it deducts its charges.
With nonprofits, how much of a discount you can get depends on whether you use a traditional merchant account provider or a third-party processor.
Using A Traditional Merchant Account For Nonprofit Credit Card Processing
Even within the category of traditional merchant account providers, credit card processing fees can still vary significantly, depending on both the company that does the processing and the general pricing model the processor follows. Most traditional processors offer either tiered or interchange-plus (sometimes called cost-plus) pricing models.
Tiered pricing essentially lumps certain types of transactions into broader groups and charges costs based on the group the payment falls into. Typically, you have a qualified tier with the lowest processing rate, a mid-qualified tier with a slightly higher rate, and a non-qualified tier with the highest rate. You pay a flat fee based on the tier grouping. It’s not always clear which tier a particular payment will fall into, so you can end up paying more than necessary because of it.
Interchange-plus is a much more transparent option. All card payments get assessed a mandatory interchange fee, which is the fee paid to the banks and credit card associations that run the card processing network. Interchange is non-negotiable. The plus comes from the markup that your processor charges per transaction. It may be a certain percentage; it may be a percentage plus a flat-rate fee; in some cases, it may even be just a flat-rate fee. Often, the processor will reduce the plus part to get your business. With interchange-plus, you always know what you’ll pay to your processor as a markup regardless of card type, so it is often a much better deal.
For nonprofits, there are typically two places where you can get a discount: the interchange costs can be lower for certain cards, and the processor can give an additional discount.
For discounts on interchange rates, note that the various types of cards charged through the distinct channels (e.g., online payments vs. over the phone) are subject to different rates. For example, debit cards have a much lower rate than credit cards, and Visa, Mastercard, American Express, and Discover all charge slightly different rates. Only Visa and Mastercard offer discounted interchange rates for what it deems Charitable and Social Service organizations.
To get that discount from Visa and Mastercard, however, you must make sure that your merchant account provider sets you up with the correct MCC. MCC stands for Merchant Category Code. Each merchant has a code assigned to it to signal to the card association what kind of industry the merchant is in, and it is this MCC that determines your interchange rate. Both Visa and Mastercard use MCC 8398 for Charitable and Social Service organizations, and only transactions prefixed with this MCC will receive the lower interchange rates. However, it’s important to note that not all nonprofits will be eligible for this MCC, so you must talk to your merchant services provider.
In addition to receiving a discount from the credit card associations, the traditional processor might give nonprofits added discounts in its portion of the markup and/or provide additional tools or software for free.
Typically, interchange-plus pricing is the best way to get a discount for nonprofits. However, if you are a small outfit or just getting started, you might consider using a third-party processor. Third-party processors typically cost a bit more, but they offer other free services and conveniences that might turn out to be more beneficial.
Using A Third-Party Processor For Nonprofit Credit Card Processing
As already mentioned above, third-party processors aggregate all of their users into one big merchant account to receive all incoming card payments. There’s an MCC assigned to this big merchant account, but that MCC isn’t MCC 8398 because the third-party processor is not a nonprofit. So third-party processors can’t get the special nonprofit rates from Visa or Mastercard. Nevertheless, most third-party processors do offer special discounts for nonprofits. You may just have to dig a little to find them.
Because these discounts are processor-specific, they tend to vary a lot. Some, such as Stripe, offer discounts somewhat limited in scope (e.g., basically no selling products, tickets, membership fees, etc.), and you must contact Stripe for pricing. Others, such as PayPal, publish their discounted rates and have a page with extensive information on the discounts that are available for nonprofits.
Setting up an account with a third-party processor as a nonprofit is much like setting up an account as other regular businesses, except that you will have to prove your nonprofit status by showing your 501(c)(3) designation. In some cases, you might also need to request and then negotiate a discount on your processing specifically. (Check out our article on how to negotiate the perfect credit card processing deal for tips on the process.)
Processing payments through a third-party processor comes with the typical pluses and minuses of all entities processing through third-party processors. Benefits include quick setup, predictable flat-rate pricing, no monthly fees, no early termination fee, and fast payment. However, if your nonprofit experiences a high chargeback rate — an admittedly unlikely occurrence — or you suddenly exceed your stated monthly processing amount, you may experience the same account stability issues (frozen accounts, account terminations) as for-profit organizations.
Does Free Credit Card Processing For Nonprofits Exist?
In the strictest sense of the word, free — as in “at no cost to you” — yes, free credit card processing exists. However, this merely means that you pass your processing costs down to your donors.
In the credit card processing world, there is something called surcharging, and something else called a convenience fee. Surcharging means, in addition to the actual charge, the processing costs are added to the amount afterward, and the payment card user must pay this additional amount. For convenience fees, the net result is the same — the card user pays the processing costs — but you must have a “primary” way for the donor to pay if they do not wish to pay the convenience fee.
Both surcharges and convenience fees can be tricky to implement correctly. In fact, surcharges are not allowed in some states, and even in those states that do allow it, they are subject to various state laws. We do have articles on both surcharges and convenience fees, so if you’re seriously thinking about implementing either, we recommend you read the articles and proceed carefully. Our research suggests that some donors will voluntarily cover your processing fees, but others might object. It may be that the best way to implement a surcharge or convenience fee is to give your donor a choice instead of making the fee a mandatory part of the donation process.
What To Look For In A Nonprofit Credit Card Processor
Now that we’ve explained where typical nonprofit discounts for credit card processing can come from, below are a few characteristics of a good credit card processor for nonprofits. You might want to keep these attributes in mind as you shop around for a processor.
- Affordable Rates: Of course, the primary reason you’re shopping around is for the best-discounted rates for nonprofits. However, don’t forget that a processor often offers various other services as well. If you find one who provides other services you like for free or for a small fee but does not offer a nonprofit discount, don’t immediately rule them out. If their fees are reasonable and the additional services end up saving you time or money, then don’t be afraid to go with that processor.
- Good Customer Support: These days, good customer support is pretty crucial. In credit card processing, you are dealing with technology as well as sometimes mysterious charges. When you have questions about the charges or when you need to fix technical issues, you need to be able to find someone who can help you right away, days, nights, or weekends. So keep in mind the processor’s customer support ratings as you look through your options.
- Free Payment Gateway: If you plan to accept donations or sell merchandise online, you will need a payment gateway. If you use a third-party processor who sets you up with mobile processing software, a gateway typically comes with it. If you use a merchant account provider, they may or may not provide one for free, so be sure to ask. Even if your merchant account provider does not offer one for free, they should be able to point you to a provider who has a gateway compatible with your merchant account provider’s processing software.
- Customizable Checkout: If you want to be able to offer honorariums and memorials, you need a processor that provides a customizable checkout, so you can create a place for your donors to leave that information.
- Support For A Variety Of Transaction Types: Before you decide on a processor, think first about where you expect to take payments. Will you be holding silent auctions or getting on-the-spot donations? Will you only be accepting donations online? Will you maybe set up a shop for your merchandise either as a booth at events or at a permanent physical location? Depending on how you plan to take donations, you might wish to invest in a credit card terminal, a virtual terminal (to accept donations by phone), or a mobile card reader (to be paired with a mobile payment app on a phone or a tablet). Different processors can provide you with different tools, some for free and others for a fee.
- Recurring Billing: Some patrons like to make regular donations to the nonprofit cause of their choice. If you have this type of patron, you will need software that can do recurring billing. Typically, this is a feature that is added on for an additional fee. With recurring payments, you’ll need to pay attention to the security features of the software so that your donor’s card data can be stored securely. An automatic account updater feature — that is, software that will automatically update a donor’s card number if it changes — is nice to have and can prevent disruptions in their donations.
- Customer Relationship Management (CRM) Features: Customer relationship management features often come with the free software provided by third-party processors. Merchant account providers might bundle such software with their services too. These features typically include a contacts list and may include mailing lists to send out newsletters about your nonprofit or donation/fund drives.
- Accounting Integrations: Keeping good records is essential for any business. Make sure that your payment processor works with your chosen accounting software. Support for QuickBooks is fairly common, but you should always double-check.
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1. Dharma Merchant Services
Dharma Merchant Services
Dharma is a merchant account provider who believes in giving good value for a fair price. It offers interchange-plus pricing, and its website clearly discloses the charges, so you know what you will pay and what you won’t pay. There’s no early termination fee with Dharma, so even if, after a while, you decide you don’t like them, you can leave without suffering a hefty penalty.
Dharma’s company values and culture align well with nonprofits. In fact, it has been working with nonprofits for a long time and knows to make sure your nonprofit is assigned the correct MCC. On top of that, it gives an additional discount to nonprofits. As of this writing, Dharma’s nonprofit rates are:
- Storefront: interchange + 0.15% + $0.07 per transaction
- Virtual: interchange + 0.20% + $0.10 per transaction
- Monthly Fee: $20 per month
Dharma has an entire page of information specially designed for nonprofits, so you know exactly what you will get if you sign up with them.
For additional information about Dharma, read our review here.
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2. National Processing
If you work with National Processing, not only will you get a nonprofit discount, but it makes additional donations to charities as well, so even your processing fees end up doing good. (Currently, its favorite charity is Success in Education.) National Processing is a merchant account provider who favors transparency in pricing and reasonableness in its contract and fees. We think highly of National Processing.
As to rates, National Processing offers a discounted rate to nonprofits of:
- Storefront: interchange + 0.15% + $0.07 per transaction
- Virtual: interchange + 0.20% + $0.10 per transaction
- Monthly Fee: $10 per month
In addition to the above, National Processing is developing some proprietary software that will help donors track their donations (as well as help nonprofits manage these donations with additional analytics). Given that donors like to know their money is being put to good use for the specific cause/disaster of their choice, the ability to track donations seems like a tool that can help a nonprofit raise more funds.
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3. Payline Data
Payline Data is another merchant account provider that we at Merchant Maverick like. While it doesn’t have nonprofit-specific information on its website, we contacted a few folks for you and confirmed that, indeed, Payline does have special rates for nonprofits.
Basically, nonprofits get Payline’s retail pricing. Typically, retail (card-present) transactions have the lowest rates. Even though nonprofits tend to get donations through the web (i.e., card-not-present transactions), Payline Data is giving its best pricing to nonprofits. To be more specific, the charges are:
- Processing Fee: interchange + 0.20% + $0.10 per transaction
- Monthly Fee: $10 per month
It also works with you to set up the payment processing portion of your website to make it a better client experience, including adding a Donate Now button for easy payments. Contact Payline Data for more specifics.
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PayPal has a lot of resources designed especially for nonprofits. That includes special transaction rates for 501(c)(3) charities. Even if your organization doesn’t qualify as such, PayPal might still have reduced rates for you. There are no extra fees for setup, statements, withdrawals, or cancellation. PayPal charges 2.2% + $0.30 per transaction (except for in-person transactions via mobile POS, in which case it is a flat 2.7% per swipe for US transactions).
In addition to special rates, PayPal offers a dedicated Donate button that allows quick donations via payment card or PayPal account, and the donor can even set up recurring payments from there. You can also prompt your donors to pay the promised amount with a PaPal.Me link, for secure one-button payments.
If you already have a CRM software, PayPal integrates with quite a few of them, so be sure to visit the PayPal nonprofits page to see if your software can be used with PayPal. Lastly, you’ll automatically be included in the PayPal Giving Fund, where donors seeking to do good can find you.
Be sure to look at our complete PayPal review if you’re considering using them.
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Square has a dedicated page for nonprofits, but, at this writing, it does not give a special discount rate to most nonprofits. If your nonprofit takes in more than $250,000 per year in donations, however, you might be able to negotiate a custom discounted rate. Otherwise, Square charges its standard 2.6% + $0.10 per transaction, with keyed-in transactions costing 3.5% + 0.15%.
While Square doesn’t exactly give a discount for nonprofits, a lot of Square’s processing, business management, and payment analytics software come free after signing up. One feature that might benefit nonprofits is Square’s customer management software, where contact information and donation history can be automatically saved. Square also offers various analytics, so you can quickly see multiple aspects of your donation drives.
If you need to integrate Square payments to other software, Square supports a large number of those. Be sure to read our full review of Square and to investigate the specifics on its website.
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6. Stripe Payments
Stripe does offer custom charity pricing for nonprofit organizations. To qualify, you have to be a 501(c)(3) organization, and you must also raise at least 80% of your funds through donations. That means if your organization raises more than 20% of funds through membership fees, tuition payments, ticket sales, auction payments, or similar, then your organization can’t qualify for this discounted rate. You must contact Stripe to find out your specific discount.
Once you are set up as a nonprofit with Stripe, you can create a custom website experience, accept payments on desktop and mobile devices in any currency, and generate and download custom reports. Some very large charities/nonprofits use Stripe, including Unicef, Oxfam, NPR, and Habitat for Humanity, so if you go with Stripe, you’d be in good company.
Read our complete review of Stripe here before you make a final decision.
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Alternatives To Conventional Credit Card Processors For Nonprofits
Being able to take credit card payments in the traditional way isn’t the only avenue for a nonprofit to accept donations. There are other programs that you can join where being able to accept donations through payment cards is part of a broader suite of services provided by the platform.
Third-Party Or Social Media Platforms
Just like regular merchants who can sign up to be an Amazon merchant, nonprofit organizations can also sign up with Amazon to take donations. Once you sign up, your donors can donate to your cause by using their payment information already stored with Amazon. Amazon provides a special reduced rate of 2.2% + $0.30 per transaction if the donor is in the US and 3.2% + $0.30 per transaction if the donor is outside the US.
With Amazon Pay, donors can donate through Alexa devices or a Donate with Amazon button on your website. To enable paying through Alexa, all you have to do is to sign up with Amazon Pay and enable the Alexa Donations functionality. If you wish to add a button on your website, you can copy and paste a simple code provided by Amazon, use a plug-in from your eCommerce software provider, or integrate the button by hiring a developer and using APIs provided by Amazon. Donors can set up recurring payments if they wish.
Amazon offers various reports to help you manage and analyze your donation sources and volume. Your donated funds will be available after a 14-day hold but disbursed in a seven-day rolling disbursement period.
If your 501(c)(3) nonprofit has a Facebook page, you can accept donations through Facebook Payments. Facebook charges zero fees for nonprofit organization fundraisers. Facebook offers a Donate button that you can place on a page and allows your supporters to set up dedicated fundraising pages on your behalf to receive donations through the Donate button. You can also set up a dedicated custom link for specific fundraisers.
In addition to getting your donations through Facebook Payments, your fundraiser on Facebook can also receive funds through Network for Good or PayPal Giving Fund (both will be discussed below). Disbursement times vary, with Facebook Payments having the shortest hold time of two weeks.
You can get some analytics of your donors through Facebook Payments and can build a mailing list for those donors who opt-in. You can’t get similar donor information if your organization comes to Facebook through Network for Good or PayPal Giving Fund. However, if you’re signed up with those two organizations, you can get your analytics through them.
PayPal Giving Fund
For nonprofits enrolled in the PayPal Giving Fund, supporters can donate on PayPal, eBay, and other online partner platforms. The fund receives the donations, provides receipts to donors, and sends the donations to the nonprofit’s PayPal account.
There are no fees associated with the PayPal Giving Fund (note the fund is not the same as taking card payments via PayPal, for which there is a charge). Once you enroll, your charity can be accessible to a vast online audience, including users of PayPal, eBay for Charity, Humble Bundle, GoFundMe, and Airbnb. You can receive donations and donor reports, issue receipts, and receive disbursements into your PayPal account every month.
Donation Management Software For Nonprofits
There are certain CRM software packages designed especially for nonprofits. These services sometimes run behind the scenes. However, even if the names of these organizations aren’t household names, if you’ve ever donated your extra airline miles or your cash rewards from credit cards, you have probably worked through them.
From a nonprofit’s standpoint, these software options can be expensive. However, some might find the higher cost worth it because of the convenience that they bring to fundraising.
About a year ago, there was an organization in the US called JustGive and an organization in the UK called JustGiving. The two organizations had been collaborating since 2016. Recently, the JustGive accounts are being phased out, and all new accounts are going through JustGiving.
JustGiving is a software platform that helps a nonprofit set up everything it needs to raise funds online. It allows your organization to set up custom fundraising pages to tell your organization’s story and gives you tools, such as donate buttons, widgets, and mailing lists, to help you raise funds. You can also set up a crowdfunding page and use the power of the crowd to help you raise money for your cause. You can keep track of your organization’s fundraising efforts using a web browser or through an iPhone or Android app. Donors can send money in nine currencies via credit/debit card or PayPal. Some reporting analytics tools are available from JustGiving.
With JustGiving, US and UK charities are subject to slightly different rules when it comes to processing donations. If you’re in the US and sign up through JustGiving to process payment cards, the donations are processed by Blackbaud because Blackbaud owns JustGiving. You pay a service fee of 5% and 2.9% + $0.30 per payment card transaction. Note, you can get a better deal if you sign up with Blackbaud directly and then link your merchant account to JustGiving. See our review of Blackbaud for details.
JustGiving is a membership-based service, but its starter account is free. Once your donations reach a higher volume, you’ll have to pay to continue your account with JustGiving. However, before you reach that donation threshold, you won’t have to pay. JustGiving recoups the cost of running its platform through the payment card processing fees for donations to your organization. It takes out its processing and service fees before releasing the rest of the money to you.
Network For Good
Network for Good, like JustGiving, is a donor management software where you can build your nonprofit’s page, initiate and manage campaigns (including email campaigns), and accept one-time or recurring donations. It offers reports and donor relationship management software for keeping in touch with your donors. It also allows your fundraisers to link to your page for fundraising. Note, you can use Network for Good inside Facebook for fund drives.
Network for Good is a subscription service, and it charges a monthly fee (billed annually) based on the number of contacts you keep in its system. The lowest tier you can sign up for is for 0-1,000 contacts, which costs $200 per month. The highest tier is for up to 10,000 contacts at $400 per month.
To take donations made with a credit or debit card, you can let Network for Good handle the processing, or you can link your merchant account provider. Whichever route you take, Network for Good charges a fee of 3% on top of the payment card processor’s charges, but your donor has the option of paying this 3% for you. If you use Network for Good’s payment processor, it is a little unclear how much the processor charges, but it could be about 2% because there is a page on its website that states:
The 3%-5% additional grant to the Network for Good Donor Advised Fund helps cover the costs of processing transactions, providing customer support, disbursing funds to charities and maintaining our technology.
Given that Network for Good charges 3% if you use your merchant account provider, the logical conclusion is that its card processor charges 2% to process every transaction.
Donor Box is yet another donation management software. It offers about the same suite of services as the others already mentioned above, except you can’t simply sign up and let it handle the payment card processing. You must set up separate accounts with its back-end processors — either Stripe or PayPal — and then connect up to Donor Box for the rest of the fundraising. Donor Box’s website lists PayPal’s published nonprofit rate of 2.2% + $0.30 per transaction and Stripe’s standard rate of 2.9% + $0.30 per transaction. It also provides a contact email to get specific nonprofit rates.
You can sign up with Donor Box for free, and it doesn’t charge you unless you raise $1,000 or more per month. Anything at or above $1,000 will cost you a 1.5% processing fee. While the lower fees might sound like a bargain, Donor Box does charge additional monthly fees for integrating with certain software, such as email campaign software (through Mailchimp) and Salesforce NPSP.
Start Saving On Credit Card Processing Fees With Nonprofit Discounts
Now that you have some idea on payment card processing options for nonprofits and the discounts you might be able to get, it’s time to look at your nonprofit’s needs. You might want to read our other article on How To Accept Donations Online. If you’re already accepting credit card payments, check your monthly statements and see what you’re currently paying. (Check out our guide here for more information about fair credit card processing rates and how to make accurate comparisons.)
Then, start shopping around. With interchange-plus, you should be able to compare processing rates directly. Be sure to look at the average size of your donations when comparing transaction costs. A flat per-transaction fee is more costly for small transactions than a straight percentage, which is something to consider. Don’t forget to factor in monthly fees, either.
Beware of locking yourself into a long-term contract or one that includes an early termination fee (ETF). Many processors have now moved to month-to-month packages or at least waive your ETFs. Beware of independent sales agents and deal directly with a company when you can. And, finally, make sure you get everything in writing.
Check out our articles on tax deductions for small businesses — you might be able to write off your credit card processing fees as tax deductions. While a percentage point here or there might sound like pocket change, in the long run, the savings from your lower credit card processing fees can add up. And the money saved on credit card processing fees can be directed to more worthwhile causes.
Do you have questions about nonprofit credit card processing rates? Leave a comment.
A Last Look At Our Top Picks
- Dharma Merchant Services
Summary - Dharma's company values and culture align well with nonprofits. In fact, it has been working with nonprofits for a long time and knows to make sure your nonprofit is assigned the correct MCC. On top of that, it gives an additional discount to nonprofits.
- National Processing
Summary - If you work with National Processing, not only will you get a nonprofit discount, it makes additional donations to charities as well, so even your processing fees end up doing well.
Summary - While Payline doesn't have nonprofit-specific information on its website, we contacted a few folks for you and confirmed that indeed Payline does have special rates for nonprofits.
Summary - PayPal has a lot of resources designed especially for nonprofits. It has special transaction rates for 501(c)(3) charities, but even if your organization doesn't qualify as such, PayPal might still have reduced rates for you.
Summary - Square has a dedicated page for nonprofits, but, at this writing, it does not give a special discount rate to most nonprofits. If your nonprofit takes in more than $250,000 per year in donations, however, you might be able to negotiate a custom discounted rate.
- Stripe Payments
Summary - Stripe does offer custom charity pricing for nonprofit organizations. In order to qualify, you have to be a 501(c)(3) organization and you must also raise at least 80% of your funds through donations.