PayPal Nonprofit & Donations Guide: What You Need To Know About Fundraising & Accepting Donations Via PayPal

Nonprofit organizations have never had as many tools at their disposal for raising money as they do today. With all the options out there, you might not think of PayPal as a natural fit for your nonprofit organization, given PayPal’s close association with eCommerce and business enterprises such as eBay. Alternatively, while you might be aware that PayPal offers a Donate button, you may not know about the other PayPal features, policies, and third-party integrations that can facilitate nonprofit fundraising.

With this article, we’ve set out to highlight all aspects of using PayPal for nonprofits — and as it turns out, this encompasses quite a bit! We’ll also detail the main alternatives to using PayPal for nonprofit fundraising.

Recent Changes To Donations Via PayPal

PayPal’s new processing rates (enacted August 2021) have had a negative impact on everyone receiving small payments via PayPal. In particular, the fixed portion of the fee applied to each transaction has gone from $0.30 to $0.49. Nobody has been hit harder by this policy change than content creators (including many video game streamers) who receive lots of small donations — a $1 donation will now be mostly consumed by fees when processed by PayPal.

While nonprofits and other entities that tend to receive larger donations will not be as affected by these pricing changes (in fact, some may even save money in comparison to the old system), accepting donations of a few dollars or less via PayPal no longer makes financial sense. If you rely on small donations, I’d recommend looking for a different processing platform — one that does not disincentivize small transactions with its fee structure.

Why Use PayPal For Nonprofits?

PayPal presents nonprofit organizations with plenty of reasons to use its services to raise money. Beyond the concrete advantages, it’s important to remember that PayPal’s universally recognized and widely trusted brand can be a reassuring factor to donors when they consider the trustworthiness of your organization and the security of their transactions.

Let’s now go through the advantages that come with using PayPal as a nonprofit:

• Setting up PayPal nonprofit donation buttons to accept online payments is a swift and easy process.
• Accepting donations online — whether one-time or recurring — is incredibly easy once you have your Donate button set up.
• PayPal’s donation buttons are mobile-friendly, making it easy to accept donations from mobile internet users.
• PayPal fees for nonprofits are lower than standard PayPal fees for online transactions.
• Want to accept donations offline or in person? Maybe even sell nonprofit-related merchandise in person? PayPal facilitates this as well.
• Sell branded products and fundraiser merchandise online on your website using a customizable cart.
• Integrate your PayPal nonprofit account with countless third-party apps to facilitate charity events, such as auctions, fundraising galas, annual retreats, trivia tournaments — the options are endless!

PayPal’s universal brand recognition and features that specifically benefit charities make it a solid processing choice for most nonprofits. However, PayPal is far from a perfect processor for nonprofits (and everyone else).

Disadvantages To Using PayPal For Nonprofits

One major factor you’ll have to keep in mind is that PayPal is a third-party processor (also known as a Payment Service Provider (PSP) or an aggregator). As such, PayPal carries with it an inherent risk of account instability. Unlike a traditional merchant account wherein each organization or merchant has a separate account, third-party processors aggregate all their merchants and nonprofits under a single umbrella merchant account.

This arrangement means that the signup and approval process is nearly instantaneous. It also means that because merchants (and nonprofits) are not vetted before signing up, every transaction gets scrutinized much more heavily than transactions processed by a traditional merchant account provider. This increases the risk that an innocent transaction might trigger an account hold. Check out our article on how to avoid merchant account holds, freezes, and terminations to learn how you can minimize the chance of this happening.

Let’s go through some of the other downsides of using PayPal to receive donations as a nonprofit.

If you’re curious about your other options, read our article, Become A Hero & Save Your Charity Money With Discounted Credit Card Processing For Nonprofits, for information on other merchant services providers that cater to nonprofits.

PayPal Fees & Rates For Nonprofits

One nice perk of accepting donations via PayPal as a registered nonprofit is that you can pay a discounted payment processing fee when accepting online payments.

Under the new pricing scheme, PayPal’s processing fee for donations is 2.89% + $0.49 per transaction. However, registered 501(c)(3) charities are eligible to pay just 1.99% + $0.49 per transaction. Under the recent changes, while the fixed portion of PayPal’s donation fee for nonprofits has risen from $0.30 to $0.49, the percentage rate has decreased from 2.2% to 1.99%.

Additionally, payments from non-US credit cards are subject to an additional 1.5% transaction fee.

One thing you can do with PayPal’s donation buttons is to solicit recurring donations. Donors can select the monthly check box to give automatic monthly payments. These payments will process at the same rate as your one-time donations.

Note that PayPal nonprofit rates do not apply when you accept in-person donations via the PayPal Zettle mPOS app, which charges a 2.29% + $0.09 per-transaction fee for all card-present transactions. You’ll also be able to process donations via QR code, paying 1.9% + $0.10 for each transaction over $10 and 2.4% + $0.05 for transactions of $10 or less. More on PayPal Zettle later.

PayPal also lets you accept contactless payments via Apple Pay. Though the PayPal nonprofit discount won’t apply, you can receive donations via Apple Pay at 2.59% + $0.49 per transaction, which is lower than PayPal’s standard donation rate (though not the nonprofit rate).

And if you’re curious about Venmo, know that even though PayPal owns Venmo, Venmo does not currently accommodate nonprofit organizations. With Venmo, there is no discounted nonprofit processing rate, and — crucially — Venmo is not able to issue tax-compliant receipts.

One additional note: PayPal has a Micropayments plan for those that typically process payments of less than $10. Under this plan, you pay 4.99% + $0.09 per online transaction instead of PayPal’s regular processing rate. When small payments are processed, the higher percentage rate is more than made up for by the lower fixed fee. However, since PayPal’s pricing change went into effect, I’ve seen reports of PayPal users being unable to use the Micropayments plan for donations. It may be that donations are not currently eligible for Micropayments pricing (though PayPal has no stated policy to this effect). However, if your organization processes lots of small amounts from donors, it can’t hurt to ask PayPal if you’d be eligible for Micropayments pricing.

See our article on PayPal pricing for the full story on PayPal’s fee structure.

How To Set Up A PayPal Account For Nonprofits

If you’re wondering how to set up PayPal for a nonprofit organization, here’s what you need to do.

• Sign up for a PayPal business account
• Select Nonprofit Organization as your business type
• Select Nonprofit as the category
• Enter your organization’s information to link it to your PayPal account and transfer funds to your bank account

You’ll need the following information handy during the registration process:

Organizational Details

• Registered name
• Registered address
• Phone number
• Email address
• Website URL
• Date established

Organization Bank Account Information

• Account number
• Routing number
• Online banking access

Account Holder Details

• Job title
• Date of birth
• Social security number
• Home address
• Email address

As for PayPal nonprofit requirements, you’ll need to provide the following to confirm your organization’s 501(c)(3) status and be eligible for the charity rate:

• EIN
• Estimated volume of monthly PayPal transactions
• PDF of your bank statement attached to your PayPal account (including full account name and number)

If your nonprofit organization does not yet have 501(c)(3) status (read Merchant Maverick’s guide to nonprofits to learn how to achieve 501(c)(3) status), you’ll have to pay the standard per-transaction processing fee. Lastly, large organizations that process more than $100,000/month will need to call PayPal to make special arrangements.

How To Use Your PayPal Nonprofit Account To Maximize Donations

Let’s go through all the ways PayPal can be a boon to your nonprofit fundraising.

Accept Online Donations Via PayPal

Adding a PayPal Donate button to your organization’s website and/or fundraising emails is quick and easy. To set up your Donate button, you’ll need to follow the steps outlined on PayPal’s developer page. You’ll be able to choose your button style, select the currency in which you receive donations, choose whether to let donors make recurring monthly donations, and more.

Another way to solicit online donations is to use PayPal.Me — PayPal’s peer-to-peer payment platform — to send personalized donation links to your donors. It’s a great way to approach your biggest supporters to ask for individual gifts.

Use PayPal To Accept Donations In Person

Nonprofits can accept in-person donations via the PayPal Zettle mobile POS system. With PayPal Zettle, you get a sleek chip + contactless + PIN card reader ($29 for the first reader, $79 for all subsequent readers). You’ll then be able to process in-person donations at big fundraising events, charity galas, etc.

Transactions processed by Zettle are subject to a 2.29% + $0.09 fee. Unfortunately, nonprofits cannot pay a discounted processing fee when using Zettle. Keyed-in transactions will be subject to a higher 3.49% + $0.09 fee.

You can also send out invoices via the PayPal Zettle app. Invoices are free to send, but when you get paid, you’ll be paying the 3.49% + $0.49 rate that PayPal charges for standard non-donation online transactions. What’s nice about the ability to send invoices is that for large donations (four figures or more), you can just send an invoice, thereby creating a paper trail. That can come in handy later!

Sell Merchandise With PayPal’s Mobile POS

Whether your nonprofit organization is conducting a charity auction or is selling branded merchandise at a gift shop or other “meet space” location, PayPal Zettle is a solid mobile processing option. And if you need a POS system with more feature depth than that of Zettle, PayPal integrates with more robust POS systems as well.

The 2.29% + $0.09 PayPal rate for in-person transactions applies regardless of your POS partner, but you will incur additional software fees for the POS system itself.

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Track Your PayPal Donations & Improve Your Bookkeeping

PayPal’s reporting tools give you detailed information about your account activity and can assist your nonprofit with bookkeeping. Additionally, if your nonprofit processes $20,000 in gross payment volume from sales of goods or services in a single year and processes 200 payments for goods or services in the same year, PayPal will send Form 1099-K to both you and the IRS for that year early in the following year.

Furthermore, PayPal integrates with QuickBooks via the Connect to PayPal data integration app, available from your QuickBooks account. Check out our guide to QuickBooks For Nonprofits to see how QuickBooks can benefit your nonprofit, and for a look at some other options, see our rundown of our favorite nonprofit-friendly accounting programs.

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Alternatives To PayPal For Nonprofit Organizations

Let’s walk through the primary alternatives to using PayPal for nonprofit organizations. Here are some examples of online fundraising platforms:

• Fundly: Fundly is an online crowdfunding site with particular appeal for nonprofits as a PayPal alternative, as your fundraising page is completely customizable. You’ll have easy social sharing integrations, intuitive management tools, and the ability to offer perks to donors, depending on their level of support. However, there’s a 4.9% platform fee on top of the 2.9% + $0.30 fee charged to each transaction.
• Qgiv: Qgiv’s online fundraising platform is another PayPal alternative worth your consideration from a nonprofit standpoint. Qgiv’s donation forms are fully customizable (much more so than PayPal’s donation forms) and mobile-responsive. The platform allows for recurring gifts to encourage donors. Qgiv even provides an auction platform and event management capabilities from its app. Qgiv’s pricing and fees both vary depending on the level of service you need.
• GoFundMe: While GoFundMe is known as a platform for personal crowdfunding, it also supports nonprofit fundraising. With GoFundMe, you can launch an unlimited number of campaigns, access basic donor data, and set up team fundraising pages, all without paying a monthly fee or a platform fee (just a 2.9% + $0.30 processing fee). Alternatively, you can use the GoFundMe Charity’s CrowdRise software to enhance your fundraising capabilities further. CrowdRise’s Essential package offers more extensive donor data, ticketing and registration features, deductible email receipts, and more. Read our GoFundMe review to learn more.

Our article, 7 Platforms That Support Crowdfunding For Nonprofits, details some of your other nonprofit crowdfunding options.

When it comes to using third-party processors to process your donations, PayPal isn’t the only game in town. Let’s explore the other big third-party processor offering nonprofit-specific benefits:

• Square: Square has a lot to offer nonprofits as a payment processor. While Square doesn’t offer discounted processing for nonprofits, its 2.6% + $0.10 per-transaction rate for swiped, dipped, and tapped payments through the Square point of sale app is extremely competitive (Square’s online processing fee is 2.9% + $0.30). Capturing donor info is easily done right from the transaction screen of the Square POS app, automatically adding your donors to your Customer Directory. And that’s only the tip of the iceberg when it comes to Square’s nonprofit-friendly tools. Read our Square review for the full scoop, and check out our Square vs. PayPal piece for a direct comparison of the two.

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Now, what if you’d rather use a traditional merchant account than a PSP? While merchant accounts don’t normally come with as many add-on software options as a payment services provider, their laser-focus on payment processing means that you’re much less likely to experience an account hold or termination than with PayPal (or Square, for that matter). Here’s one example:

• Dharma Merchant Services: This merchant account provider is quite well-suited to nonprofits that take in more than $10,000 per month. Dharma features transparent interchange-plus pricing, which should see you saving money over the likes of PayPal. And, unlike some other merchant account providers, Dharma doesn’t charge account setup fees, annual fees, or early termination fees, nor are there any monthly minimums. Dharma also provides more comprehensive customer support than does PayPal. Read our full review of Dharma Merchant Services to get the full scoop.

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Should You Get A PayPal Nonprofit Account?

PayPal isn’t necessarily the right payment processing solution for every nonprofit. However, when it comes to accepting online donations, PayPal is the absolute simplest tool out there.

With support for in-person payments, invoicing, reporting, nonprofit-specific discounts, and a massive list of integrations that fills any functionality gaps left by PayPal’s in-house solutions, PayPal for nonprofits makes a lot of sense. Alternatively, PayPal makes for a solid supplementary payment option if you primarily accept donations via other means.

Our nonprofits hub is a great place from which to discover all our nonprofit-related content. And if you have experience working with PayPal as part of a nonprofit organization, drop us a comment and let us know about it!