When Molly McWhinnie and I were speaking last week to the group with the Washington State Community Action Partnership, we were asked for recommendations on credit card processing for those who want enable online donations on their nonprofit organization’s website.

Since we have not had much experience with this, we decided to take our question to HARO to see what options other executives with nonprofits would make. We received responses from several individuals and are sharing the one we found to be most helpful.

Joseph Zane, a financial consultant for a number of nonprofit organizations, including the Make-a-Wish Foundation, YMCA, and Cancer is Colorblind, shared the following three tips with us.

1)   Consider what types of transactions you will have. Some nonprofits take one time donations while others take recurring donations. This can greatly influence which processing option is best. Handling recurring donations is best done with a merchant account since the whole process can be automated based on the payment schedule and payment amounts. If your nonprofit rarely takes donations but would still like to have the option, consider Square, a new service which allows the iPhone to be used as a terminal without signing up for a merchant account. The fees are 2.75 percent flat, but are worth it for infrequent transactions.

2)   Avoid third-party processors. Third-party processing is not a good option for most nonprofits for a number of reasons. When a third-party processor is used, it is their name that shows up on the donor’s credit card statement, instead of your nonprofit’s name. This greatly increases the chance for chargebacks (since the donor may not recognize the processor’s name) which are costly. Also, since third-party processors process your donations using their own merchant account, there is usually a lag in the time needed to give your organization the money donated. Advantages to using a third-party processor are that it’s usually easier, and may be slightly cheaper. The most well-known third-party processor is PayPal, which has special options for nonprofits.

3)   Consider getting a merchant account, but be informed. Merchant accounts can often be the cheapest and easiest way for nonprofits to accept donations. However, the key to getting a good deal on a merchant account is to be well informed and know exactly what pricing structure to request. Otherwise, the process can become frustrating and complicated. A big advantage to getting a merchant account is that your nonprofit’s name will be on the donor’s credit card statement, which greatly reduces the chance for chargebacks. Also, the funds from donations will flow directly into the nonprofit’s bank account without a delay. Since the biggest disadvantage to getting a merchant account is a lack of knowledge, make sure to do your research. Make sure to demand an interchange plus pricing structure. A great website Joseph has used for his nonprofits is FeeFighters. This site provides a comparison shopping experience and allows people to get bids from a bunch of processors including the big guys and Square and PayPal. Joseph highly recommends it. Another option is Dharma Merchant Services. Dharma is a transparent, efficient, and low-price merchant option that has not gone unnoticed. Dharma serves thousands of small business in retail and service industries, as well as nonprofits, and has received many awards over the years, including “Best of Category” and “Best for Workers”.

For more information about credit card processing and solutions for nonprofits, please read the following:

• Credit Card Processing Options for Nonprofit Organizations
• How to Choose Donor Management Software for Your Nonprofit

We hope this information is helpful. If you have experience to share, please let us know.

Updated October 22, 2015