Payment Processing for Nonprofits: A Complete Guide to the Basics

January 31, 2023
7 minutes

From movies and grocery shopping to museum tours and shark tracking, more and more of our lives have moved online in recent years. As a result, our wallets have, too. Today, more than four in five Americans use digital payments, and that number’s only rising (McKinsey). While it might seem scary—and while we’re still stubbornly paying cash at our local coffee shop—our finances are going digital, and that means we all need to up our e-payment know-how.

Long, long ago, most nonprofits received donations by check. Then, credit card and debit card donations took center stage, and donors spent hours on the phone repeating their card codes. And now, it’s all about the ease of online payments. As a modern nonprofit organization, you need certain tools to handle online transactions smoothly and securely—but it’s a big, wide, and confusing digital world out there. That’s why we’ve got (totally jargon-free) guidance to help you navigate this rocky terrain. Just keep in mind that none of this is one-size-fits-all, so ask all **the questions and take it slow.

But before we get to the nitty-gritty, let’s just address the question you’re really here for:

Which payment processor is best for your nonprofit?

First things first: In general, nonprofits choose a fundraising platform, not a payment processor. A complete fundraising solution should make all the best and most popular payment options readily available to your donors so that you can sit back and watch the donations roll in. (That’s how it works, right?) If you’re reading this article because you need a better solution to processing online payments ASAP, you can stop reading after this section.

Grab yourself a Funraise account and start accepting donations via credit card, ACH, Venmo, Apple Pay, and more. It’s fast, safe, and easy.

For everyone else who’s been desperately seeking insight into the inner workings of nonprofit payment processing, read on.

Talking shop: Digital wallets, payment processors, and more of the essentials

Before we get into all the gritty details of payment types and processors, there’s some fancy-schmancy lingo you should know. And this is just the beginning. We could go on and on about merchant accounts and ACH and blah, blah, blah until your eyes glazed over. Instead, think of this as a jumping-off point; it’s Payment Processing 101. Learn the ropes, then get ready to be the most popular guest at your next dinner party.

What’s a digital wallet?

A digital wallet, also known as an electronic wallet or e-wallet, is an online service or application that lets you pay for things online. Since it stores all your banking info, there’s no need to reach for your physical wallet. Nonprofit donors use their digital wallets to make donations, join membership programs, or buy tickets to an event. Examples of digital wallets include Apple Pay, Google Pay, or PayPal.

And here’s a fun fact: In 2021, more than 50% of global e-commerce payments were made using digital wallets (Statista).

What is a payment processor?

Once you’ve paid for something with your digital funds, a payment processor handles the actual transaction, making sure the money gets where it needs to go, quickly and securely. It’s basically the middle-person between your donors’ bank account and your organization’s account. Nonprofit organizations use payment processors to accept and process online donations and purchases. Examples include Stripe or Authorize.net.

What is a payment gateway?

If a payment processor handles the behind-the-scenes work, a payment gateway is the entry point for online transactions, facilitating a smooth experience. It collects all the necessary customer data, ensures everything’s kosher, and then transfers that information to the payment processor.

So, if you want to take advantage of the funds in your donors’ digital wallets, you’ll need a payment gateway to collect and encrypt their payment information and route it to the payment processor. The payment processor will then connect with the donor’s bank to actually get you paid. It’s all a beautiful symphony, really.

Wait, I thought they were the same thing…

Yep, the terms “payment gateway” and “payment processor” are often used interchangeably. Always with obfuscation, finance world! But with good reason—it’s not unusual for a provider like Stripe to act as both the gateway and processor. So now that you know the difference, you’ll know what to look for. And one more thing… getting a Funraise account is the easiest way to have all of this and more. No need for the neon question mark above your head anymore!

How does payment processing work?

While you can tour the US Mint to see exactly how your cash gets made, the same isn’t true for digital payment tools (but now we totally have an idea for a new educational video game). If you’re feeling mighty suspicious of all this newfangled technology—and we get it, we relate to Abe Simpson, too—here’s a quick play-by-play of how everything fits together.

  1. A donor makes a payment on your website. It can be a small gift or a large gift, a one-time donation or a recurring donation, event tickets, or online merch. The point is: they’re sending you money.
  2. The donor’s financial information enters the payment gateway. Whee!
  3. The payment gateway collects, verifies, and encrypts the information. Just double-checking that your donor’s info hasn’t been stolen by robots. Once everything’s safe and secure, it can get processed.
  4. The accepted donation moves on to the payment processor. Hi there!
  5. The payment processor starts the official transfer process. It securely sends the financial data from the check-out page to the donor’s card network (be it Visa, Mastercard, or something else).
  6. The network says yay or nay. The card network either authorizes or declines the payment depending on whether funds are available. Assuming the payment is authorized …
  7. The bank sends you the funds. Thank you!
  8. You get the donation in your account. Woohoo!

Know your payment processor fees

As you can see, payment processing requires the involvement of many parties and systems, and like most things in life, it don’t come free. There are staff members to pay, networks to maintain, and bugs to troubleshoot. As a result, there are fees, and they fall into three categories. Note well, however, that these fees vary widely, so do your research.

  • Transaction fees (AKA payment processing fees). These are the fees associated with each individual payment. They’re usually a percentage of the amount plus a small flat fee. Per-transaction fees are typically your largest payment processing expense, and they’re nonnegotiable, so pay close attention.
  • Flat fees (AKA scheduled fees). These are set monthly or annual fees associated with a payment processor. They’re all over the map; some processors change no flat fees (woohoo!) while some are pretty steep (boo!).
  • Incidental fees. If something goes awry, you may find yourself with incidental fees. Maybe it’s a chargeback fee or a fee associated with not having sufficient funds in your account. Either way, if you get them, you should prepare to haggle with all your might.

All about online payment security

No matter how affordable a payment processor may be, if it doesn’t keep your donors’ data safe and snug as a bug in a rug, it’s a no-go. But what should you look for when you’re considering processor security—and which security features give you the biggest bang for your buck? Never fear; Funraise is here [to demystify payment processing security features].

  • Tokenization. Worried about hackers, cyberattacks, and fraud–oh my(!)? Fear not, friend. Enter tokenization, a process by which card details, like names, numbers, and CVV codes, are replaced with randomly generated IDs known as “tokens.” Now, all your data is as safe as can be.
  • Encryption. Data encryption is a process that uses algorithms to make text unreadable. It’s similar to tokenization, but the method is different. So, you might wonder, which is better? The answer is a resounding “both!” A payment processor that uses both tokenization and encryption offers optimal protection.
  • PCI compliance. Payment card industry (PCI) data security standards are a set of guidelines that outline how companies can best keep customer data secure. You want your payment processor to be PCI-compliant and then some.

Choosing a payment processor

Now that you know everything you could ever want to know (and maybe some things you didn't) about payment processors, the time has come to choose which one’s right for you. Keep in mind that features, rules, and rates can vary for nonprofits—plus, you’ll need to get your board’s full buy-in before making any moves. With those caveats out of the way, let’s dig in.

But first, we want to emphasize this… you don’t need to choose a payment processor. By setting up your Funraise account, you automatically get access to Funraise Payments by Stripe—the gold standard for nonprofit payment processing.

Questions to ask when choosing a payment processor

As you survey the vast payment processor landscape, here are some things to ask yourself and any potential payment processing vendors. (And yes, you can ask us at Funraise all of these and more.)

  • Is there a start-up fee?
  • Is there an annual fee on top of the transaction fees?
  • Do they support international payments?
  • What security precautions do they take?
  • Do they have readily available, live customer support?
  • What’s the onboarding process like?
  • How long does it take for donations to get deposited in your account?
  • Are there additional features for nonprofits?
  • Is there a cancellation fee?

The different payment types/processors

With all of the above in mind, what’s the right processor for you? Here are a few top payment processors along with our expert opinions.

Our top choice: Funraise Payments (powered by Stripe)

We built Funraise Payments to have all the features of the big payment processors—but customized for nonprofit payment processing, so you get the best of what Stripe offers on your donation form, embedded right on your website. There’s top-notch security and transparent pricing, and Funraise Payments supports all the popular payment methods. Plus (and this is a big bonus), donors have the option to cover the platform fee. About 90% of them do, which means an effective platform transaction fee of 0% for you.

Stripe

We love Stripe (and that’s why we chose it for Funraise Payments!). It sets the standard for payment processors, is secure, accepts a ton of currencies, integrates with pretty much everything, and has live customer support 24/7. The best part is that with Funraise Payments, you get all this and you can begin collecting donations day one. It’s that easy.

PayPal (and also Venmo)

If you want to go with what you—and everyone—knows, PayPal is the original payment processor. It’s popular for a reason: it’s easy to use and works in nearly every country. But it tends to be more expensive than the alternatives and you can only reach customer support on the phone during limited hours. There’s also very little in the way of customization.

Block (formerly Square)

Block, which you probably still know as Square, is popular with brick-and-mortar businesses. Upside: it’s a snap to set up and get going. Downside: add-on services can really add up, and as you grow, you’ll might want more options (which Funraise Payments has in spades!)

When it comes to payment processing, it’s a jungle out there. Thanks for letting us be your guide today!

Nonprofit payment processors: Key takeaways

  • Funraise Payments is powered by Stripe and is purpose-built for nonprofit donation processing. It offers the best of Stripe and Funraise’s security, innovation, and ease of use. All Funraise accounts have access to this super-powered payment processor. So, what are you waiting for?
  • With more than four in five Americans using digital payments, nonprofits need to have the tools to accept and process online payments securely and seamlessly.
  • There are three main fee types associated with payment processors: transaction fees, flat fees, and incidental fees.
  • When choosing a payment processor, security is paramount. Look for a processor that is PCI-compliant and uses tokenization and encryption to protect donor information.
  • The right payment processor depends on your nonprofit’s size, technical knowledge, and needs.
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