Most nonprofits accept donations through their website. If you don’t, you are missing out on many potential donations. Donors motivated to respond to an online solicitation, email, or news articles about the cause your work supports may wish to donate immediately rather than write a paper check and drop it in the mail. Accepting online donations provides a simple, easy pathway for people to give when they are able and motivated to do so.
Yet with so many choices of online payment processors, credit card payment gateways, bank payment systems, third party payment processors, and now even cryptocurrencies, what’s a nonprofit to do?
We’ve tried to make it as easy as possible for you to understand the many possible methods of accepting payments and help you sort through both the pros and cons of each. When you’re ready to proceed, if you still have questions, please call Welter Consulting at 206-605-3113. We are happy to help.
How Online Payment Systems Work
Nearly everyone reading this has purchased something online, so you should be familiar with how online payments work from the consumer end. The consumer end is called the “front end” or the “interface.” The shopping cart system is fairly straightforward, with variations to allow for different goods or services purchased. An online clothing retailer may have a spot for discount or coupon codes; a nonprofit may have a spot to share a message if the donation is in honor of someone.
Behind the interface or shopping cart is a complex network of information shared by multiple parties to complete a credit card transaction online.
Encryption means coding the information sent over the internet so that it cannot be ready unless someone has the key to decode it. After clicking “pay” or “order”, your credit card information is encrypted for security purposes. It then goes to an aggregator or a bank processor.
An aggregator is a company that processes payments. As the name implies, aggregators collect payments from multiple entities such as merchants, nonprofits, and others to accept credit card payments and bank transfers without the need to set up a special merchant account. The aggregator makes an agreement with the merchant bank and batches multiple companies under their account for processing. In return, they assume a greater risk since they are dealing with multiple entities and may charge more for their services.
Merchant accounts are created by a merchant bank (called an acquirer). The bank settles and deposits the funds from the transaction into your bank account. They are responsible for ensuring that payment is rendered to your account once the transaction is approved.
Yet a third payment method available to nonprofits today is cryptocurrency. Bitcoin, Ether, LiteCoin and many other alternative payment methods are all potential forms of donation. Accepting donations in such coins is a slightly different process than accepting direct payments.
Cryptocurrencies are sent via the blockchain. An exchange facilitates sending and receiving cryptocurrencies. Senders can transmit their currency to the receiver’s wallet, a unique address that can be shared on your site to accept payments.
To set up a wallet, you’ll need to create an account with an exchange and submit information to pass KYC (know your customer). Cryptocurrencies received through the exchange can be changed into dollars or other government-backed currencies and deposited into your bank account. The exchange subtracts a fee for the transfer, which varies according to the exchange.
Pros and Cons of Each Payment Method
There is no clear-cut, single answer about which payment method is best for a nonprofit. You’ll need to weigh each factor in your decision.
- Easier and faster to set up an account since aggregators tend to accept all types of businesses including new nonprofits.
- Aggregators tend to be on the alert for fraud even more readily than banks because they accept riskier clients.
- Better for small nonprofits with lower volume of monthly transactions.
- Charge a higher fee than banks.
- Less customer support and service.
- Better for established nonprofits.
- Better if you have higher volume of monthly transactions.
- Better customer service than aggregators.
- Higher fees.
- Pickier about who they accept, so if your nonprofit is new, banks may turn you away.
- Tends to be better for high or steady volume, so if you can’t predict donation volume yet, may be costly.
- Adds a new donation method to your nonprofit.
- High appeal to young donors – millennials, Generation Z, etc.
- Extremely high level of security through the blockchain.
- Transactions cannot be reversed by the donor.
- Transparency on both ends – donor can see that you received the money through blockchain confirmation.
- Fees can be high on some exchanges.
- Nonprofit must pass KYC.
Clearly, there’s no “one size fits all” when it comes to processing donations. Thankfully, there are plenty of choices, and you can use what suits your nonprofit the best. Sorting through your choices may be the most complex part of the process, but if you need help, please contact us.
Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.