Nonprofit Card Processing Discounts Can Mean Big Savings
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.
Being able to accept donations is the lifeblood of a nonprofit, but the days of cash donations are long past. Credit and debit cards are the preferred method of payment for many people, especially if those cards offer their owners some sort of reward for doing so. Plus, the automated nature of card payments can mean lighter administrative workloads (less time spent opening mail, making trips to the bank to deposit funds, etc), which has a positive effect on any organization’s bottom line.
Not only that, but many of these organizations often require flexible solutions that allow them to collect information about donors and sponsors, as well as payment data — not to mention sell merchandise or set up recurring donations.
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) status.) If your current processor doesn’t want to offer you a lower rate, you should start looking around at some of the other options. Some of our top-rated processors here at Merchant Maverick are particularly friendly to nonprofits.
But first, some background information.
Table of Contents
How Does Credit Card Processing Even Work?
Credit card processing fees can vary quite significantly depending on both the company that does the processing and how the company handles processing. Most companies offer either tiered pricing or interchange-plus (sometimes called cost-plus).
Tiered pricing essentially lumps certain types of transactions into broader groups and charges costs based on which 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.
Interchange-plus is a much more transparent option. All card payments are assessed a mandatory “interchange” fee. This includes all the fees paid to the banks and credit card associations. Interchange is non-negotiable; everyone pays interchange fees. The “plus” comes from a 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.
Tiered pricing tells you to pay a flat fee based on the tier grouping. Interchange is included in that cost, and anything above that is the markup. The trouble with this is it’s not always clear which tier a payment will fall into, and you can end up paying more than necessary because of it. With interchange-plus, you always know what you’ll pay based on the card type, so it is often a much better deal.
Here’s where things get complicated:
All the various types of cards are subject to different interchange rates. For example, debit cards have a much lower rate than credit cards. Both Visa and Mastercard offer discounted interchange rates for nonprofits. But commercial and rewards cards, as well as American Express and Discover cards, have a higher interchange rate.
On top of that, if you accept payments online or over the phone instead of in person, you’ll likely pay a higher rate. That’s because online/phone payments are processed as Card Not Present, which possesses a higher risk and therefore higher cost to process.
An additional concern is recurring payments. This is a great way to keep a steady cash flow, but it opens up a can of worms because you need to be sure that a.) the cardholder’s data is stored securely, and b.) the information gets updated in a cardholder’s data changes.
How Do You Get a Nonprofit Discount on Credit Card Processing?
If you already accept cards and want to start saving money, ask your processor about ways to lower your rates. It might be as simple as providing proof of your 501(c) status. In some cases, you may be asked to renew or extend your contract, if you have one.
If you want to maximize your savings, then be sure to ask for interchange-plus pricing while you’re at it.
Before you lock yourself into a new contract, however, you might want to shop around and see what some other processors are offering.
A few merchant service providers specialize in working with nonprofits and charitable organizations, including some of our top-rated processors.
All of these processors offer special discounts for nonprofits, though their suites of services vary somewhat. You can learn more about some of these options in our post detailing the best small business credit card processing options available today. Dharma is high on that list.
What Features Should You Look For in a Processor?
The best choice of nonprofit merchant account or credit card processor really depends on your organization and what features you need. You should look at how your organization raises funds now, as well as any future plans for expansion. Some basic questions to answer include:
Do you want to accept donations online? Make sure your merchant account provider gives you the tools to easily set up a “donate” button on your website.
Do you want to offer honorariums and memorials? If so, you need a customizable checkout option that lets you create fields for that data.
Do you want to accept regular monthly donations? If so, make sure your processor supports recurring billing.
Do you want to accept donations in person? A virtual terminal will come free from many traditional merchant accounts, but for PayPal, it’s an additional $30/monthly. In addition to accepting payments through your computer, this will also enable to you to accept payments over the phone. You may need a USB card swiper to plug into your computer as well.
Do you want to sell merchandise in person? Look for a processor that offers affordable terminals, or the ability to reprogram your existing equipment if you are already doing so. If your team travels a lot or a traditional register setup is too unwieldy, look for a merchant account that offers a mobile payments app. (Or consider using PayPal Here or Square.)
Do you want to sell merchandise online? You’ll need a gateway, which some merchant account providers offer for free, and e-commerce software (not often included with merchant accounts) that is compatible with your gateway.
How do you keep your financial records? If you use QuickBooks, look for a processor that offers QuickBooks integration as a selling point.
Finally, remember that in the online space, credibility is crucial. You need to make sure that your merchant gives you the tools to make your website look professional. (In one regard, this is definitely a major advantage to PayPal, which has pretty much universal recognition.)
Alternatives for Accepting Credit Card Donations
A merchant account isn’t the only way to go about collecting donations via credit card, though it’s certainly the one that puts the power in your hands. It also gives you the most flexibility, because many online donation platforms are exclusively for donations. That means you need to find other ways to accept cards for selling merchandise, etc. You should expect to do a bit more marketing to increase awareness and solicit donations, or pay a bit more for these services as a trade-off.
Capital One runs a giving site where cardholders can make donations. The donations are distributed via Network for good, while Capital One covers the cost of the processing fees.
Network for Good also offers custom tools for you to set up your fundraising. However, it’s worth noting these contracts start at $79/month plus 3% of all transactions. That’s notably higher than you’ll pay with a merchant account; however, the value-added tools provided may offset the cost, especially if you only plan to use it for short-term campaigns.
JustGive.org has one of the most robust donation sites for nonprofits. It even allows people to make gifts on behalf of others, and enables memorial gifts. However, it comes with a rather steep 4.5% processing fee; the company will waive the $0.35 flat fee on donations made directly through your JustGive link. There’s even an option where you can allow the donors to pick up the processing costs. However, it’s not something you can host on your own website.
Amazon Simple Pay is a way for nonprofits to accept donations on their websites. Users can contribute by logging in with their Amazon accounts. This is just an extension of Amazon Payments, focused on nonprofits, so you’ll be paying 2.9% per transaction, which is again a rather steep cost.
Facebook has a pilot program where 501(c)(3) nonprofits can set up donations directly through Facebook, and for now, there are absolutely no costs (but that may well change in time). Still, it can be a useful way to obtain donations if you have an active Facebook page.
PayPal Giving Fund is a less traditional option. While PayPal does have a nonprofit discount, this program delivers 100% of proceeds to the registered charity. The nonprofit organization just needs to sign up; PayPal handles all the administration and users can choose which cause the funds go to. This is not unlike Amazon Smile, where Amazon shoppers can direct a portion of the proceeds from sales to go to the charity of their choice.
American Express and Discover both have giving programs where cardholders can donate to Charity and opt to use their rewards points to cover the transaction cost, ensuring that 100% of the donation goes to the charity.
Ready to Start Saving Money on Card Processing Fees?
If you’re already accepting credit card payments for your nonprofit, it’s time to start checking those monthly statements and see what you are currently paying. (Check out our guide here for more information about fair credit card processing rates and how to accurately compare rates.)
Then, start shopping around. With interchange-plus, you should be able to directly compare processing rates. Be sure to look at the average size of your donation when comparing transaction costs. A flat per-transaction fee is most costly for small transactions than a straight percentage, which is something to consider. Don’t forget to factor in monthly fees, either.
Finally, 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.
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 really add up. And money saved on credit card processing fees can be directed to more worthwhile causes.
Got questions about nonprofit credit card processing rates? Leave a comment!
Dharma Merchant Services is our #1 choice for nonprofit payment processing