Soapbox Engage Blog

You work hard to raise awareness for your cause, reach new donors, and solicit support for your fundraising campaigns. But how does a donor’s decision to make a gift translate into money in your organization’s account? That’s where payment processing and your donation tools come in.

Just like other organizations, nonprofits rely on a steady flow of revenue to keep up their operations. You almost certainly already use online donation tools of some kind, and nonprofit payment processing is essential for converting that online support into real revenue.

Online credit card processing is a huge part of our lives these days, so as consumers and donors, it can be easy for us to take it for granted. However, as a fundraising professional, you should be asking yourself (and ideally be able to answer) questions like:

• How does nonprofit payment processing work? Why is it important?
• Are there different types of processors?
• How are recurring donations processed online?
• What if I need to switch my payment processor?

If you’re new to online fundraising or just unfamiliar with the ins and outs of nonprofit payment processing, we’ve got you covered. We’ll start with this important question you might already be asking:

Why do I need to understand nonprofit credit card processing?

Because your organization relies on its ability to accept online donations!

When it comes to payment processing, your choices and tools can have significant impacts on your ability to fundraise — both in the present and in the long run.

Think about the complexities behind processing and tracking your organization’s recurring donations. Understanding how those transactions are recorded and processed will be crucial if you ever need to change your donation app or migrate to a new CRM platform.

Not to mention, safely processing your donors’ gifts and personal information is an absolutely essential part of proper stewardship practices today. You owe it to your donors to keep their payment information safe. Failing to do so could have very serious consequences for your organization. This might sound a little scary, but it’s true.

Remember, too, that your organization pays processing fees per online transaction! Understanding your options and how nonprofit payment processing works will give your organization more flexibility to find the processor that best serves your needs.

In this guide, we’ll walk through the essentials of nonprofit payment processing, covering these core topics and questions:

• Glossary of Common Nonprofit Payment Processing Terms
• How Does Nonprofit Payment Processing Work?
• Popular Payment Processors for Nonprofits
• What if I Need to Change My Payment Processor?
• What’s the Best Way to Collect Donations Online?

Use the list above to jump to a particular section, or follow along with us from the top. Understanding common terms around payment processing will be essential for getting a firm grip on the topic, so let’s get started with a quick glossary.

Glossary of Common Nonprofit Payment Processing Terms

Let’s start by walking through several common nonprofit payment processing terms that you’ll encounter when you’re researching new fundraising tools:

• Payment processor — the third-party service that acts as a mediator between a merchant (your organization) and financial institutions (your donors’ banks) by transmitting the relevant data to the issuing bank. The payment processor authorizes the transaction and flags it if any fraud is suspected.
• Donation tool or app — the tool your organization uses to accept donations online. Your donation app connects you to your payment processor in order to actually collect the donated funds from donors. Check out our complete guide to learn more about donation apps.
• Payment gateway — the part of your processing service that actually authorizes the transfer of funds from donors’ banks to your organization’s account. Payment gateways are an essential part of how online transactions and eCommerce work safely today. Learn more about gateways here.
• Merchant account — a specific type of bank account where collected and processed funds are deposited. You don’t have direct access to these funds, but they’ll be automatically transferred to your organization’s main banking account. Your payment processor or gateway service will typically provide a merchant account when you begin doing business with them.
• ACH payment — an online transaction made through the Automated Clearing House network. This essentially encompasses the actual intermediary process of electronically moving funds between accounts and keeping automatic records of those transactions. These are typically handled in batches and might take a day or two to be completed.
• Aggregator — an online payment processing service that does not require you to use an individual merchant account. They work instead by lumping multiple merchants together in a single merchant account and then tracking all of their transactions individually. This often makes them easier and faster to use, but there can be drawbacks, as well. PayPal, Stripe, and Square are all popular examples.
• Dedicated payment processor — basically the opposite of an aggregator, a dedicated processor allows you to handle the entire transaction as a more self-contained process hosted entirely on your organization’s website. They require a dedicated merchant account, which will be provided by the processor service.
• PCI compliance — compliance with the official safety protocols set by the Payment Card Industry group. These protocols help prevent fraud by setting standards for safe data storage, processing, and transmission. Any product or service that handles sensitive credit card data should be PCI-compliant, including your donation tools and payment processor. Learn more on the PCI Security Standards Council’s site.

2. How does nonprofit payment processing work?

Here’s an overview of how payment processing works for your organization when fundraising online. Be sure to refer back to the glossary above if needed.

 

1. Your donor makes a donation via your online tool or app. If you’re using a donation app that directly integrates with your CRM, this valuable transaction data will be automatically saved to your database.
2. Your donation tool relays the request through the gateway of your processing service. Your payment gateway will verify the validity of the transaction and flag it if any fraud is detected.
3. Once the transaction is approved, it’s processed through the main payment processor service.
4. Your nonprofit’s payment processor submits the fund transfer request through the ACH network.
5. The ACH payment request is then relayed to your donor’s credit card company. The transaction might also be processed as an ACH debit payment directly with your donor’s bank account if they made the donation with a debit card.
6. Your donor’s credit card company or bank then approves the transaction and sends the donated funds back through the ACH network.
7. The donated funds are deposited in the merchant account that your nonprofit payment processor has provided. If you use a payment aggregator, the funds are deposited in the shared account to be distributed out. (If your donation tool doesn't integrate with your CRM, this is likely also the point where your payment processor will provide you with the transaction data that you’ll need to save in your database.)
8. Your merchant account then automatically begins the process of transferring the donation to your nonprofit’s banking account.

The entire digital transaction process can look complicated at first, but it’s fairly straightforward when you break it down into its core steps. Think of it like this:

• The donor makes an initial request to move their money.
• Your tools verify and then initiate that request.
• The donor’s credit card approves the transaction.
• The money is moved into a safe, intermediary account.

In addition, a few points and considerations should jump out to you as you review the steps of nonprofit payment processing:

Your donation tool is an extremely important part of this process.

Your donation app or other tool serves as the donor-facing element of the process, bringing together your donors, their payment information, your payment processor, and your nonprofit. As the crucial link in the process, your donation tool must be able to provide flexible options, intuitive data features, and a customizable, streamlined user experience.

An ideal donation tool will work seamlessly with your CRM to automatically report key transaction data to your database. This data includes donor names, contact information, donation date and amount, and payment information (if the donor has chosen to save it with you). Salesforce apps for nonprofits are good examples of tools that will boost your ability to generate and record this valuable data.

Make sure you choose the right nonprofit payment processor.

When choosing which payment processor service to use for your nonprofit (or if you’re switching from one to another), there are a few key elements to consider:

• Safety. Any tools and services you use that handle sensitive donor data must be PCI compliant. Ideally, they’ll include even more safety and anti-fraud features. Remember, providing a safe payment processing experience for donors is an essential part of properly stewarding their gifts and respecting their support.
• Fee structures. The cost of a nonprofit payment processor will be an important consideration, and each has a slightly different fee structure. You’ll typically be charged a per-transaction and/or a percentage fee, which will be deducted from each donation as it enters your nonprofit’s merchant account. Your processor is the primary outlet through which your organization receives money online, so the fees you’re charged can really add up.
• Additional options. Be on the lookout for any additional options or features that would benefit your nonprofit. Stronger security features are a good example. Or, if you’re already switching to a new donation tool, you might simply need to find a new processor that’s supported by it. More intuitive administrator interfaces and easier subscription management (for recurring donations) are also common priorities for nonprofits.

Many nonprofits will simply go with the most popular payment processing options rather than put significant thought into the choice. While large aggregators like PayPal can certainly be a convenient choice to provide a quick user experience, you should still weigh your options. Oftentimes, third-party aggregators will require a donor to be redirected away from your website to complete their donation, which can throw a wrench into the positive user experience you’ve worked hard to provide.

To be safe, look for donation tools and apps that support multiple payment processors and give you the flexibility to choose the one best suited to your needs.

How does my payment processor handle recurring donations?

There are two ways that donation apps will generally handle recurring donations:

1. The donation app saves the donation schedule locally (on your server) and then sends requests to your payment processor each scheduled date. This is essentially like making fully separate transactions each time.
2. Your donation app might be able to create a transaction schedule with the payment processor, which is then able to handle all of the donations independently in the future. This way, your donation tool only manages the schedule, not each and every transaction.

We’ve written about this exact topic in an article on the Salesforce.org blog, so check it out for more context around how recurring donations are processed. This is important because recurring donations generate a ton of engagement and transaction data and then require all of that data to flow smoothly.

Although strong donation tools, payment processors, and data management protocols can handle either of the methods described above, the second tends to be easier to manage. That’s because the data flow is more direct and gives you a little more flexibility in how you want to manage recurring giving data.

3. Popular Payment Processors for Nonprofits

There are a few payment processing services that work well for nonprofits. Some are reliable aggregators for any type of online transaction, while others specifically focus on offering intuitive, secure services for nonprofits:

Explore these top picks, or simply keep their names in mind as you research your nonprofit’s next move:

• iATS
• PayPal
• Authorize.net
• Braintree
• Cybersource
• Stripe
• Touchnet

Keep in mind that not all donation apps or tools will be able to work with every payment processor right out of the box. Oftentimes, your choices will be limited to just one or two of the most popular payment processors.

Instead, look for donation tools that give you greater flexibility to choose the processor best suited to your needs based on their safety features, fee structures, and additional options.

4. What if I Need to Change My Payment Processor?

Here’s another reason why it’s important to look for donation tools that offer more flexible options — they make it much easier to switch over to a new payment processor if you’ve decided that you want a better fee structure or security features.

Here’s how we handle that process for our own nonprofit customers using the Soapbox Engage donations app:

1. Encrypt and export your existing transaction data from the administrator interface of your old payment processor.
2. Ensure that your new processor is able to import and decrypt the transaction data file. This is essential to make sure no crucial data (including donors’ payment information) falls through the cracks.
3. Share a few details (usually donor name, amount, frequency, and ID number) about each recurring donation subscription. Your donation app provider will use this information to help fully onboard the new processor.
4. Your provider then safely migrates the data and checks that all of your subscriptions have properly synced.

Again, it’s important to think about how your payment processor handles recurring donation data. With more transaction data being handled in a more complex way, there’s an increased chance of something going wrong when moving those subscription records from one processor to another. Make sure your donation app provider will be able to help support this process before getting started.

If you’re switching your payment processor and moving to a new donation tool, you’ll follow essentially the same process outlined above but with additional precautions and planning around safely encrypting, migrating, and onboarding your data into your new platforms.

5. What’s the Best Way to Collect Donations Online?

The best choice for your nonprofit’s needs will be determined by a number of factors, and you’ll need to consider both the payment processor and the donation tool:

• When choosing a payment processor, pay attention to its safety features, fee structures, and additional options.
• When choosing a donation app or tool, pay attention to the flexibility it gives you to choose your payment processor and how easily it will be able to report transaction data to your CRM.

This is why we recommend working with donation tools that 1) let you choose your ideal payment processor from several options, 2) can integrate directly with your CRM platform, and 3) come with comprehensive support to guide you through making the move.

Check out this demo video of our own donations app for an example of what these characteristics look like in action.

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 Nonprofit payment processing can certainly seem complicated if you’re new to managing online transactions, but it’s not as overwhelming as you might initially think. After all, as a modern fundraising professional, it’s important to understand the nuts and bolts of this crucial process that your nonprofit relies on to generate support.

As you start building and improving your nonprofit’s digital toolkit, be sure to continue your research with a few additional resources:

• Nonprofit Fundraising Software: 6 Awesome Tools. You can find effective fundraising software to help handle nearly any aspect of your nonprofit’s online campaigns.
• Increasing Your Donation Page Conversion Rate: 9 Smart Tips. Converting visitors into donors is the entire purpose of your online donation page, so make sure it’s working in high gear!
• Best Salesforce Apps for Nonprofits: 7 Essential Tools. If you’re using the world’s leading CRM platform, make sure you’re also using nonprofit-specific apps designed to handle your needs.