The hallmark of a successful nonprofit organization is the ability to seamlessly collect donations for its mission. With a 77% increase in online donations for nonprofits in the past 5 years alone, it is important to give donors a pleasant and easy experience, so chances of a recurring donation are high. Optimizing the donation process while reducing fees and charges is essential to creating and maintaining a strong donor base.
Which is the Best Method to Use for Payment Processing?
There are two ways that a charity can collect funds. Each has its own set of pros and cons.
Route #1: A government recognized nonprofit organization (such as a 501c3 in the USA) as a destination for funds
As a general rule, it is always a good idea to make donations to government backed organizations. This will ensure that all transfers of funds are documented and legitimate, and will prevent the IRS from becoming suspicious at the sudden influx of funds into or out of a personal account.
Pros:
Tax deductible: Any donation made to a registered 501c3 organization is tax deductible, making it a tempting location for donors to give charity and get a tax break.
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Security: Typically, funds donated through an NPO are safer, as they are held in a separate and protected account, not subject to the efforts of scammers.
Cons:
Fees: Often, payment processors linked to an organization command a percentage of each donation as their fee.
Time: Any funds that are being held in an organizational account will likely take some time to transfer to a third-party account if need be (such as a Go Fund Me campaign transferring funds to your organization).
Route #2: Person to person transfer
Although it is advisable to use a government-registered NPO as a location for donations, there are some advantages to using payment services that link directly to a personal account if this is the final destination of the funds:
Pros:
Immediate access: If you are in need of the money right away, many services such as Zelle, Apple Pay, and the like deposit the funds into your account immediately.
No fees: Most personal transactions are free. This could be beneficial if you are trying to make the most out of every dollar you receive.
Cons:
Not tax deductible: Although those donating are giving charity, a personal account holder cannot write a receipt to prove that the money was used for charity. Therefore the donation is not considered tax deductible.
Safety: Per Venmo, there have been numerous reports recently where a scammer may, for example, send money to an unsuspecting recipient’s Venmo account and claim it was an accident, prompting the recipient to return the money. The scammer then calls the bank and cancels the initial money sent, thus gaining an identical sum of money.
With the above in mind, here is a list of our top 3 payment processors for each route:
Donating Through a Nonprofit Organization
1. GoFundMe
Features: GoFundMe, the world’s largest social fundraising service, boasts a sleek and visually pleasing donation user platform, which gives users a pleasant donation experience.
They also possess a Trust and Safety team that works around the clock to ensure that funds are going to the right place. Additionally, GoFundMe has customer care specialists who are dedicated to helping campaign organizations through the journey of fundraising. Finally, GoFundMe has incredible social reach, given its share-ability on social media and brand recognition. All of these factors contribute towards making GoFundMe a top payment processor for your cause.
Fees: Each donation is subject to a transaction fee of 2.9% + $.30. This fee has become standard within the fundraising industry, and you would be hard-pressed to find a reputable platform that offers services for less.
Cons: While it takes only 2-5 business days to receive funds from GoFundMe, the platform does require a verification process that takes another 10 days at the outset. While this measure may seem burdensome for someone who wants to quickly begin the fundraising process, it also ensures that the money raised goes to the right place.
2. Stripe
Features: One of the major benefits of using Stripe as a payment processor is its best- in-class Application program interface (API) integration between your content management system (CMS) and payment processor. What this means is that Stripe will allow your organization to accept online payments directly on-site instead of redirecting to a third-party website like GoFundMe. This seamless user experience builds trust among your donors and effectively keeps them on your site for longer.
Fees: 2.9% + $0.30 for Visa, MasterCard and Discover, 3.5% for American Express.
Cons: Stripe has steeper fees than most other payment processors.
3. PayPal
Features: Although PayPal offers personal money transfers, the platform has become the most widely known and trusted payment processor for businesses and charities alike.
With the ability to place a convenient donation button directly on your website, PayPal is one of the most versatile payment processors for nonprofits around. Additionally, they offer a discounted rate when registering with a recognized charity.
Fees: For confirmed charities, Paypal charges only 1.99% + $0.49 per transaction and no monthly fee.
Cons: Nonprofit websites using PayPal as their payment processor will redirect to PayPal’s checkout to complete their donation. This redirection can hurt your brand consistency. Additionally, donors who do not already have a PayPal account will have to register, leading to a lengthy donation process and ire of potential donors.
Donating Through a Personal Account
1. Apple Pay
Features: Arguably the most convenient and hassle-free private payment method to date, sending money with Apple pay is as easy as sending a text message.
Additionally, Apple Pay uses a device-specific number so your card number is never stored on your device or Apple servers. When you pay, your card numbers are never shared by Apple with merchants.
Fees: There are no fees to send money with Apple pay.
Cons: Apple pay is not accepted at all retailers nor does every individual have apple pay on their mobile, thus limiting its usage for receiving and sending donations. Additionally, while the apple pay transaction is safe in and of itself, one who loses their phone also risks losing their credit card information as well. Finally, as with all donations not sent through a government-registered charity, the donation will not be tax deductible.
2. Zelle
Features: Compatible with most U.S banks, Zelle offers easy and immediate transfer of funds between bank accounts. One of the main advantages of Zelle is that it is a service that is already offered by your bank. There are no extra downloads or applications necessary.
Fees: There are no fees to send money with Zelle.
Cons: As with all private transfers, the money sent as a donation with Zelle is not tax deductible. Furthermore, unlike funds sent through a registered nonprofit, it is on the user to verify the merits and legitimacy of the recipient of Zelle. Once money is sent, it cannot be taken back.
Furthermore, Zelle carries daily and monthly limits on how much money one can send. Limits vary by bank, the most restrictive being $500 a day and $5000 a month and the most permissive being $2500 a day and $20,000 a month.
Additionally, not all banks support Zelle. If your bank is not among those which use Zelle, you will not be able to receive funds from a Zelle user.
3. PayPal (Personal)
Features: PayPal is one of the most widely used money transfer services in the US. The service brings with it brand trust, as well as a secure platform to send and receive money.
The major benefit of PayPal over other methods of private money transfer is that the funds are held in your ‘PayPal cash account’ where you then have the option to transfer to your own bank account. This means that if there is any fraudulent activity, PayPal can work to reverse the damage.
Fees: There are no fees for transactions between individuals but PayPal does charge a 1% fee to instantly transfer funds to your bank account. The alternative is to use the free ‘standard transfer’ which takes a few days.
Cons: Because PayPal values the security aspect of their platform, they are known to be aggressive when it comes to freezing user accounts if they suspect any nefarious activity (such as using a personal account as a business account). Once an account is frozen, the user must prove that they have done nothing wrong in order to retrieve their money.
In Conclusion
The methods for collecting charity and donations vary greatly across different platforms. Each service has its own set of pros and cons.
Before investing time and money into a platform, compare your organization’s needs with what the platform provides. In general, small and single occasion causes may prefer personal payment processors as they are easy to set up and hassle-free. In contrast, when dealing with large sums of money and many donations over a period of time, it is recommended to use a platform that works through your nonprofit organization to protect its donations and offer donors a tax break.
