Jitasa Nonprofit Blog

Choosing a Credit Card Processor

In today’s modern world people rarely carry cash or checks, and the pressure to make your site possess mobile capabilities is increasing. This makes accepting credit and debit cards almost mandatory for nonprofit organizations. Picking a credit card processor may seem like an easy task, but in reality it is a decision that needs to be researched.

You have three options to choose from: merchant accounts, third party processors, and nonprofit specific providers. When choosing a provider, be sure to look closely at the fees and contracts of each company. Some may advertise a great rate, but the fine print contains stipulations that may have consequences for your organization. 

Merchant account

A merchant account is basically a bank account that allows the holder (you- the organization) to accept credit card payments. You will have an agreement with a bank/credit card company to be able to process, authorize, and deposit funds from a credit card. This option will:

  • Tie your nonprofit’s name to the account 
  • Ensure your name will show up on donor’s statements
  • Provide the funds directly to your nonprofit in the quickest manner
Be aware of the fees associated with merchant accounts before signing up. They can vary widely and are often confusing since different companies have different pricing structures. Be sure to look at the costs of initial setup fees, monthly fees, and transaction fees.

Merchant accounts also require a little more paperwork which can make setup lengthy. However, bank and credit card companies can aid you with the process of initiating this type of account. 

Third-party processors

By using a third party processor, you are basically paying a company to utilize their merchant account. Many smaller nonprofits choose this option due to the ease of use. PayPal is a well-known third party processor used by smaller nonprofits. 

If you choose a third party processor they accept the donation and then transfer to the funds to your nonprofit. A couple things to keep in mind, there will be:

  • A processing fee to use their merchant account. Typically there is a fixed rate for transactions ranging from 2.2% + $.30 to 5% + $.30 per transaction. (This fee can also be based on your total monthly volume of sales.) 
  • It will take longer for the funds to hit your account (around 5-7 business days) 
  • The name of the third party will appear on donor statements (make your donor aware of this prior to their donation to avoid confusion.)

Nonprofit specific merchant service provider

Some merchant service providers offer nonprofit specific programs. These programs are similar to a merchant account, but typically offer extended services. These services usually come with a higher fee. Larger nonprofits with high donation amounts tend to utilize these accounts. 

  • Transaction fees are around 5% +$.30, however they usually don’t charge monthly fees or setup fees.
  • They are straightforward and easy to use
  • Will display your nonprofits name on the statement

A few last considerations:

Remember that you often get what you pay for. The cheapest option is not always the best option. With a lower cost you may also get lower quality in terms of security, technology, and customer service. Always read the fine print to make sure that the price you’re quoted is the price you’ll receive. The fine print can include additional fees, and “strings attached” details, that you don’t want to find out about after you’ve signed up. 

Don’t just take the company’s word, ask around. Speak to other nonprofit organizations. They’ll tell you if they love or hate the service they receive with a company, and what their donors think of the process. In addition, do your due diligence and research multiple companies before picking one. 
Ask yourself the right questions so that you can make sure the services fit the needs of your organization.

How many transactions will we have? 

  • If you know you’ll have a large amount of transactions it may be better to pay the higher upfront costs then to have a lower transaction fee.
  • While those with fewer transactions may want to avoid any initial costs and just pay per fee transaction costs. 
Do we need our funds deposited quickly?

  • The answer to this question is will whittle down the type of processor your organization needs. If you can’t wait two weeks for funds, it might be a better option to go with the faster processor. 
  • Do we want donors to see our name on their statements? 
  • Donors lead busy lives as well, if you don’t want to deal with the hassle that could come with a donation that doesn’t list you as the receiver you may want to go the route of a merchant account. 

Extra credit

Joann Fritz of About.com offers a great article that further details the pros and cons of each processor

Renata Poe Massie, Content Creator for Jitasa

Do you have a nonprofit accounting question related to this blog post? Email your question to wecanhelp@jitasa.is, and have it answered by one of our nonprofit accounting specialist!

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