Payment Processing: The Journey of an Online Gift

Oct 21, 2020 | Tips and Best Practices

This post is a guest contribution from Matt Dunne, Partner Relationship Manager at iATS Payment Solutions.

Online fundraising is only growing in popularity. It’s a convenient solution for both donors and nonprofits alike. As a fundraising leader, you might know the importance of engaging with supporters and collecting gifts online: 54% of donors worldwide prefer to give online with a credit or debit card.

To increase your online efforts, it’s a good idea to become familiar with the journey of an online gift. How does data go from your online payment form and result in revenue in your bank account? Understanding this process is crucial in order to provide a better experience for donors and protect supporters’ personal information.

The nonprofit payment processing system can be confusing at first, but this informative guide is here to help you. We’ll be exploring the following topics:

  1. Payment processing vocabulary
  2. The journey of an online gift

A proper understanding of payment processing vernacular will prepare you to dive deep into exactly how an online gift is made. Ready to learn? Let’s begin.

Nonprofit payment processing vocabulary

The following are important vocabulary terms you’ll likely come across when you set out to understand how online fundraising and payment processing work in the nonprofit sector. Understanding these concepts can help as you reflect upon your own current processes and determine areas where you can improve.

Online Donation Tool

Finding the right online donation tool is key if you want to maximize your incoming revenue. After all, your online donation tool is how you accept online gifts and collect key donor information.

To collect contributions and make the most of your fundraising, your online donation tool should have:

  • Customizable and branded donation forms
  • Recurring donation options
  • Reporting and data analysis capabilities

This tool is different from your payment processor, as it doesn’t necessarily process financial data. However, it should integrate with your payment tool for a streamlined donation experience.

Merchant Account

A merchant account is a type of bank account that allows businesses and organizations to accept online payments. This is where your nonprofit holds all the donations that come in from your website, whether through debit or credit.

However, just because you have funds in a merchant account does not mean they belong to your organization and you can freely use them. You still have to transfer the funds to your organization’s primary bank account.

Obtaining a merchant account can happen in multiple ways. These include:

  • Partnering with a merchant-acquiring bank and paying a small fee for each transfer
  • Partnering with a third-party payment processor

A merchant account is necessary for you to collect debit and credit payments online, so make sure you choose carefully.

Third-Party Processor

A third-party processor is a tool that handles the transaction between your organization (the merchant account) and your donors’ banks. It ensures that the issuing bank authorizes the online gift and sends it to your own bank account.

Using a third-party processor lets you forego the need to create your own merchant account with a bank because the merchant account is provided by the processor itself. Third-party processors can come in the form of aggregators or a dedicated payment processing tool.

Aggregator

A payment aggregator is a processing platform that helps process online transactions for a wide variety of clients. Some popular ones include PayPal or Google Pay. With an aggregator, your funds will be stored in the aggregator’s merchant account.

While this may seem like a convenient solution since many users likely use those platforms, there are some downsides. For one thing, you’ll often only be paid out once a month from large aggregators instead of having immediate access to the funds you need. Additionally, because you share a merchant account with other organizations, there’s a greater risk of a data breach.

Dedicated Payment Processor

The other option, besides a payment aggregator, is a dedicated payment processor. This allows you to have your own merchant account, which is provided by the payment processor service.

There are many dedicated payment tools available, so make sure to find one that truly meets your needs. For instance, if you use the Salesforce CRM, you’ll likely want to find a tool that’s compatible with the Salesforce system. Try and find a payment processor that specializes in working with nonprofits, too. This can also help ensure it fits in with the rest of your online fundraising tools.

ACH (Automated Clearing House) Network

The ACH network is where funds are electronically moved between accounts and facilitates the process from one account to your merchant account. This is a way of sending or receiving money online conveniently and securely. It also keeps an automatic record of the transactions.

The ACH network can help with both debit and credit payments. For a debit transaction, the donor’s bank pulls the funds (if approved) once the ACH request is made. For credit transactions, funds are pushed into the merchant account once the credit card network approves the ACH request.

Security Features

A vital component of the nonprofit payment process is security. According to this iATS Payments article, choosing the right payment processor can help you prevent fraud. It’s important to ensure sure you’re familiar with the following terms and security features and to make sure your own tools provide ample security options.

  • VPN (Virtual Private Network): A VPN is a tool that encrypts important data through a series of virtual connections to protect data and secure the internet connection. It’s a common way for organizations to prevent fraudulent payments.
  • Payment Gateway: This is a crucial channel in the payment process that helps protect vital data and prevent fraud as soon as the online gift is made until it reaches your merchant account.
  • PCI Compliance: The Payment Card Industry group hosts official safety protocols that all payment processors should follow. These standards help with data storage, card processing, and transmission, and thus prevent fraud. All payment tools should at least be PCI compliant.

The above vocabulary isn’t just helpful for better understanding the nonprofit payment process— it can also help you invest in the right fundraising tools, collect the best data, and protect your donors’ information.

Now, let’s learn about the journey of an online gift.

The journey of an online gift

Understanding the exact journey of an online gift will not only ensure your processes are working optimally, but also provide a more positive giving experience and create payment forms they actually want to fill out.

Here are the nine steps to be familiar with:

  1. Someone makes an online gift via your donation tool. All the information and data in the donation form should be automatically saved to your fundraising database for future engagement.
  2. The online gift makes its way through the payment gateway. The gateway will either verify it or flag it for fraud.
  3. The payment processor receives the transaction if it is approved.
  4. The payment processor submits a fund transfer request through the ACH network.
  5. If a debit payment, this payment is processed as an ACH debit payment directly to the bank account.
  6. If a credit payment, the ACH payment request is relayed to the donor’s credit card network.
  7. The funds then go through the ACH network again to be approved before ending in your merchant account.
  8. The funds are stored in your merchant account.
  9. Your merchant account begins the process of transferring the gift to your own banking account. If you use a payment aggregator, you might not receive the funds until a later date. If you have your own dedicated merchant account, you might receive funds faster.

Fully understanding this process can clue you into areas where potential security threats or other payment issues may occur. For instance, if you don’t want to wait for your funds to reach your bank account, partnering with a larger aggregator might not be the best idea. Further, if you want to increase convenience for donors, you should know how to invest in tools with specific features.

The bottom line for nonprofit fundraising

Online fundraising is crucial, especially if you want your nonprofit to grow in this modern age. The tools you use can greatly affect the giving experience you offer donors, as well as the actual nonprofit payment process. If something goes wrong or a tool isn’t working properly, you not only risk your funds but also your relationship with supporters.
Hopefully this guide has given you a better understanding of what happens to an online gift as soon as donors hit that submit button.

Looking to explore more ways that FormAssembly helps nonprofit organizations take their processes to the next level? Read our eBook Web Forms for Nonprofits 101 today!

Driven by his desire to support numerous charitable causes in his home country of Ireland, Matt joined the iATS Payments Team in March 2016 to leverage his entrepreneurial experience in support of the non-profit industry. He empowers partner organizations to provide impartial, accurate and valuable payments information and knowledge to the Nonprofit community.

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