How Choosing the Right Payments Provider Can Help Your Nonprofit Do the Most Good

While their missions may differ from their for-profit counterparts, nonprofit organizations still have to deal with many of the same costs that regular businesses do. Reducing costs won’t lead a charitable organization to gain more profit, but instead enable them to give more help to their chosen community. Whether you are a church or a charity, payment processing deserves your attention.

While their missions may differ from their for-profit counterparts, nonprofit organizations still have to deal with many of the same costs that regular businesses do. Reducing costs won’t lead a charitable organization to gain more profit, but instead enable them to give more help to their chosen community. Whether you are a church or a charity, payment processing deserves your attention.

Payment processing is the second highest expense faced by U.S. businesses, and nonprofits are no exception. No business will be able to fully eliminate their payment processing costs, but nonprofits have a few advantages that can noticeably reduce the effect that these costs have on their charitable mission. We’ll discuss those later on.

First, let’s do a quick rundown of what credit card processing entails:

Payment processing basics

Nonprofits don’t always have access to the resources that other businesses do, but that doesn’t mean they have to be left in the dark. When broken down, understanding card processing is actually quite simple.

Your first step is to work with a payment processor to set up a merchant account. If you’re not familiar with these terms, a merchant account is a bank account set up to receive payments that donors make to your organization. It is facilitated by a payment processor, which connects your merchant account to the bank associated with your donor. Essentially, the processor is the middleman who moves funds from your donor’s bank to yours.

If you’re utilizing an online platform or some sort of accounting service, you might also need to enlist the help of a payments gateway, which will connect your processor to your chosen platform. Gateways also protect the security of your donor’s information as it’s passed between the platform and processor.

Some smaller organizations may opt for an aggregator instead of springing for their own processor. Aggregators, such as PayPal, take on the role of both the processor and the gateway, connecting your donors directly to your organization. You won’t need a merchant account to process payments in this way, but you will have to endure long wait times for deposits to be available for use. Also, the high cost of using an aggregator often cuts too deep for nonprofits to consider them seriously.

Once you have your payments system set up, the donation process looks something like this:

  1. The donor visits your organization’s website and submits an online donation.
  2. The donor’s credit card information passes through a payment gateway, encrypting the card information as a security measure.
  3. Your processor communicates information about the transaction to the donor’s bank, requesting that they transfer funds to your merchant account.
  4. Assuming no fraud is detected, the funds are transferred from the donor’s bank to your merchant account. During this step, your processor will take a cut of the transaction, referred to as a processing fee, for completing the transaction. Interchange, the card company’s portion, will also be paid out here.

Now that we understand a bit more about how payments work, let’s look into how they affect your nonprofit organization:

How payment processing affects your nonprofit

The unique traits of each nonprofit, including size, donor profile, and goals, make choosing the right payments setup a difficult choice. However, there are some things that all organizations should know.


First and foremost, you should know that nonprofits are eligible for specialized payment processing rates.

These specialized rates come in the form of reduced interchange. Interchange, stated simply, is the cost a processor incurs in completing a transaction. Interchange rates are set by card issuing companies and are non-negotiable. However, payments made to nonprofits qualify for reduced rates, allowing you to effectively pay less to accept cards than for-profit businesses will.

Of course, you won’t automatically be granted these rates simply by being a nonprofit organization. It’s important that your organization be given the proper Merchant Category Code (MCC) by your chosen processor. If your processor fails to assign you a nonprofit-specific MCC, you won’t be able to take advantage of reduced rates.

Our next piece of advice applies to any company, but is especially applicable to nonprofits. When evaluating your processing options, demand that your processor operate on an interchange-plus pricing structure. This structure separates interchange costs from processor markup fees, which makes it easier to spot when you aren’t receiving your specialized rates. This pricing structure also makes it easiest to evaluate providers against one another.

Donor retention

If you so desire, most payment processors offer recurring payment functions. These features will allow you to either save customer payment information, making their donation process simpler with each successive donation, or even set up automatic recurring payments. Of course, these functions should only be used with the consent of your donors, but implementing them can have a powerful effect on the donations you receive each month. Not all processors have this capability, so if it is something you’re interested make sure to look for one that does.

These functions are also a great way to build a mailing list to keep donors up-to-date on new events, initiatives, and opportunities. Better yet, any processor you choose will be able to supply you with a physical card reader, allowing you to accept donations in person as well as online.

For those hesitant to get started

There isn’t a lot of extra cash flying around most nonprofit organizations, which makes it hard to justify any added expense. If you’re currently operating just on cash and check donations, making the jump to accepting cards and online payments is a big hurdle. That said, cash and check donations are becoming less and less common, so those who don’t make that jump may see donations dry up entirely.

For those who are concerned about the additional costs, there are ways to keep them to a minimum. It will take some work to educate yourself on the payments industry, especially when it comes to the many fees you might encounter. However, if you dedicate the time to diligently watch your monthly statement, you’ll be on the right track to ensure that processing costs don’t get out of hand.

You can also leverage the help of our payments experts at SwipeSum to find a solution that works for you. SwipeSum helps businesses find the best processing solution at the best rate, guaranteed. And, it’s totally free--how’s that for nonprofit friendly?

Michael Seaman

Michael Seaman

Michael is the co-founder and CEO of Swipesum. A veteran of the payments industry, Michael and his brother Stephen have led Swipesum since its inception in 2016. In his free time, Michael enjoyes time with his three children.

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