A Guide to Credit Card Processing For Nonprofits

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Looking to raise money by hosting a special event, running a donor drive, or seeking corporate sponsors, chances are you'll need a reliable way to process credit and debit card payments for your nonprofit event. Here's how you can improve the donor experience, increase donation size and create recurring revenue by accepting credit card contributions. Whether you choose a merchant account, third-party card processor, or credit card processor specifically for non-profit organizations, secure the option that's right for you and your organization.

What is a credit card processing account?

A non-profit can register for a merchant account with any bank or credit card company. A merchant account is a bank account that allows businesses to accept payments by debit or credit cards. How much the processor or the bank charges a non-profit organization for set-up fees and per-transaction fees can vary. It's wise to look for programs with some experience with non-profits as their needs differ from a traditional retail or business account. Non-profits with a merchant account will benefit by having their name on the donor's credit card statements, and funds will go directly into the non-profit organization's bank account without much lag time. Some disadvantages of a merchant account include credit checks and paperwork involved, just like any other business. There can also be complicated fee structures, long set-up times, and a wide range of costs depending on the processor.

Can I use a third-party card processor?

Yes, third-party processors use their own merchant accounts to accept donations for other organizations. A third-party processor passes the contributions to the non-profit, minus a processing fee. There may be some delay in getting the funds into the non-profit's account. Some third-party processors specialize in nonprofit credit card processing, offering perks such as hosting a centralized website that donors can review, sending acknowledgment messages, and offering website pages that can be branded for the non-profit. Disadvantages to third-party processors include a lag time in getting funds deposited into a non-profit's bank account. It's also worth noting that the name of the third-party processor, not the non-profit, is often the name that shows up on the donor's credit card statement. In this case, a donor can mistake the charge as fraud and dispute the charge, resulting in a chargeback. Non-profits should consider whether the possibility of confusion outweighs the ease of setting up and managing the account.

Is there a customizable credit card processing option?

Processing programs specifically for non-profits work like a merchant account but come with extras. Other services include customer relationship management and integration with the non-profit organization's website and financial systems. The cost of such a program depends on the level of service a non-profit is seeking. The benefit is that the non-profit has control of the donor transaction, the donor is never aware of the processor, and these systems are typically turnkey operations. Using this option, many large non-profits process thousands of donations that amount to millions of dollars per year. The downsides include cost, a limited number of companies to choose from, and programs not scaled to non-profit needs.

Do nonprofits pay credit card processing fees?

Yes.  However, payment card processors, including merchant account providers and third-party processors, offer lower processing rates for non-profit organizations. A non-profit will need a 501(c)(3) nonprofit designation from the IRS to prove its tax-exemption status to the processor. For a non-profit to get a discount in processing rates, there are different pricing models used by the credit card processing industry to be considered. Traditional merchant account providers will set up a non-profit with a dedicated account called a merchant account, in 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 your organization. Meanwhile, with a third-party processor, everything it processes goes into one main merchant account. The processor keeps track internally of how much is owed to each merchant and disburses money after deducting its charges.

How much do credit card companies charge nonprofits?

When it comes to non-profits, the amount of the processing discount depends on whether an organization uses a traditional merchant account provider or a third-party processor. For non-profits, 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, online vs. phone, are subject to different rates. Debit cards have a much lower rate than credit cards, and Visa, Mastercard, American Express, and Discover charge slightly different rates. Only Visa and Mastercard offer discounted interchange rates for what it deems Charitable and Social Service organizations. To receive a discount from Visa and Mastercard, a non-profit's merchant account provider must set them up with the correct Merchant Category Code (MCC), which determines the 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. Not all non-profits will be eligible for this MCC, so it's important to talk to a merchant services provider to be sure. Typically, interchange-plus pricing is the best way to get a discount for non-profits. However, if a non-profit is just getting started or is a small organization, it should consider using a third-party processor. Third-party processors typically cost a bit more, but they offer other free services and conveniences that could be beneficial. Also, third-party processors can't get the special non-profit rates from Visa or Mastercard but do offer special discounts for non-profits. Setting up credit card processing for non-profits involves shopping around, and things like cost, customer service, donor needs, and more need to be considered. By modernizing your payments infrastructure and accepting credit cards, your organization will be seen as credible and trustworthy. Sekure is proud to provide our services to several non-profits and charities throughout the United States. Give our experienced Payment Experts a call, and we'll be happy to help you set your non-profit organization up for success.

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