Donation Processing: The Basics

The credit card and payment processing industry can seem needlessly complicated and impossible to navigate, especially to non-profit organizations, who generally have more important stuff on their minds.  There are two basic types of payment processing your organization can do on your website and I thought it would be helpful to draw some clear distinctions between them and explain why we chose to structure DonationPay’s service in the way we did.

There are lots of different options for fundraising and donor information management in the industry and for the purposes of this post, I’m going to focus strictly on the payment processing and data component of online fundraising, not the attendant options for donor info management, engagement and cultivation (which would include CRM’s, database tools and the like).

There are basically two schools of service providers: those that operate with ‘one big pot’ of all funds collected by their clients (PayPal, Network for Good) and those that operate by giving individual merchant accounts to each of their clients (us, Authorize.net).  There are some key differences in these methods of collecting funds for non-profit organizations and I thought it would be useful to break down the pros and cons of each and explain a little bit about why we chose to structure DonationPay around the latter option (individual merchant accounts).

The ‘One Big Pot’ Approach

Examples: PayPal, Network for Good

Pros:

– Can make for simpler accounting.  Generally services like PayPal or Network for Good send monthly checks.

-Can be less expensive

-Donor familiarity with organization.  Many organizations think that their donors will be comforted and reassured by a familiar organization name and many of the larger ‘one-pot’ payment processors have excellent name recognition in the industry (though not always great reputations, of course).

Cons:

-Long delay between when a donor makes a donation and when you receive it.  Typically, service providers that operate this way send out checks once a month or every six weeks.  With PayPal, individuals can withdraw money from their accounts at any time, but non-profit’s typically have to wait 4-6 weeks to see their donated funds.

-Donors often have to sign in using an account with the service provider.  See: PayPal, JustGive.

-Cardholder descriptor on donor bank statements says the name of the service provider, not the name of the organization.

-Less access to donor data.

-Less control and oversight of funds.

– Usually less options for customized payment processes.

Individual Merchant Accounts

Examples: Us, Authorize.net

An individual merchant account means that your organization has an account of your own, directly with a bank or payment processor and that your account can process payments or donations, which will then be funneled directly into your bank account.  Most individual Merchant Accounts can also come with a virtual terminal or online payment gateway where you’ll manage your incoming funds through a dashboard-type system.  In our case, our clients Merchant Accounts, processing and payment gateway is provided by Meritus Payment Solutions, our banking partner and we, DonationPay, provide the online payment pages.

Pros:

-You get your money faster

-On your donors credit card statement, your organization’s name will appear.

-Greater degree of control over your funds and donor information

-Great degree of accounting oversight

Cons:

-Accounting necessary.

-Application process for a merchant account is more intensive than signing up with a service that uses one merchant account for all clients.

– This option can be more expensive, as you’ll often have to buy each component of your system separately (though not with our service).

Why we chose to give our clients individual merchant accounts:

As we were conceiving and planning DonationPay as an online fundraising platform, we gave a lot of thought to how we’d like the service to function.  Our guiding principles were as follows:

-give non-profits greater control and more immediate access to their money.

-provide a multi-channel fundraising resource.  We want our clients to use our service to accomplish their fundraising goals any way they can- events, auctions, memberships, personal fundraising campaigns; all these and more are supported by our service.

-Keep pricing affordable for non-profits of all sizes.  We designed DonationPay to be adaptable for non-profits with extremely complex needs or simple ones- and affordable for all.

Once we really reviewed what we wanted DonationPay to be, we realized that individual merchant accounts were the way to go.  Through a carefully negotiated relationship with our banking partner, we’re able to offer a full-featured virtual terminal and donor information management system at no cost- this is the system our clients use to keep track of their their various streams of funds raised, as well as their donor information.  Through their merchant accounts, they get their money on the day it was donated, direct deposited into the bank account of their choice.

Another reason I’m personally opposed to the ‘one pot’ approach is because it allows companies to retain funds meant for the organization and draw interest on them.  Network For Good (a non-profit, though pretty much in name only) and PayPal both count interest drawn on payments made to their clients as a significant revenue source.  This is totally reasonable and expected in business, but it rubs me the wrong way, when it comes to funds that were meant for non-profits.

I honestly believe that complete oversight of money and donor information is crucial for fundraising success and engagement with your donor base, but every non-profit’s needs are different.  In choosing a donation processing service, it’s extremely important to carefully review your candidates and pick the one that meets all or most of the specific criteria your organization needs to achieve your fundraising goals.  I’ll be posting the second half of this post, on how to actually select an donation and payment processor, next week, so for now, happy fundraising!

-AJ

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