Kicking The Tires
August 15, 2005 Craig Causer
An effective online giving system is no muss and less fuss for the donor. A person logs on to a nonprofit Web site, enters their personal information, a gift amount, credit card number and cha-ching – the nonprofit cashes in and the donor rings up another charge on their credit card statement.
Processing that payment may be transparent to the donor, but for the nonprofit there are myriad options when it comes to moving a payment from a donor’s credit card to the nonprofit’s coffers.
The Fresh Air Fund (FAF) in New York City is not exactly a hand-over-fist online fundraiser. Thus, it continues to handle its processing manually. Donors are directed to a secure site where their gift is written to a database. FAF then uploads that data into its credit card processing system.
“It’s semi-automatic, I would say, because there’s a script written that updates the database on a daily basis,” explained George Morfessis, director of technology at the FAF. “That gets transmitted to the clearance house and we get notification of what has cleared and what hasn’t. So it’s not instantaneous. To the user it’s transparent. The user thinks they put in their credit card and it’s being debited but it doesn’t really happen that way.”
The time it takes to approve a transaction depends on the clearing house and the processing house, but it usually is completed by the next business day, Morfessis added. Once a transaction is cleared the FAF has to upload that information into its development system. The data processing is handled in-house by a member each in the technology and development departments.
It is because online donations have been “too small,” according to Morfessis, that FAF has been able to handle them on its own. The organization’s online donations, however, are beginning to grow. From July 1, 2004 to July 1, 2005, FAF collected 985 online donations totaling more than $100,000.
As a result, it is experimenting with outsourcing its payment processing for a small program called the Bus-A-Thon, where people can sponsor a bus used to transport city kids to a trip to the country. “The second they use their credit card, it’s debited,” said Morfessis of the system that is provided by Kintera. “We get a spreadsheet, which we then have to upload into our development system. Since it was the soft launch this year, we wanted to see how it worked and we were interested in the viral component that Kintera provides.”
For nonprofits that realize steady online giving activity, an in-house operation may not be the most practical use of time and money. According to David Crooke, chief technology officer at software and services provider Convio, nonprofits have a number of options at their disposal.
Opening up an Internet-enabled credit card merchant account is one option. A merchant account is opened through a bank that is a member of a credit card network that allows merchants to accept credit cards from purchasers. The funds are transferred electronically to the merchant’s bank account. It’s a streamlined and cost-effective form of electronic payment for larger organizations, Crooke explained.
“Typically there will be three elements to the cost that you’ll pay with a credit card merchant account,” Crooke said. “There will be a set of monthly fees — maybe a merchant account fee and a lot of providers charge a statement fee. Then there’s the cost per individual transaction and what’s called interchange.”
Interchange is a transaction-related cost that is paid to the issuer of the credit card as compensation. These fees are set by the individual credit cards and are based upon how a transaction takes place and in what type of industry.
Typically there’s a cost associated with owning and maintaining your own Internet merchant account. “Unless you’re processing about $10,000 per month online it’s not economical to set up your own merchant account online,” Crooke said. “A service like IATS (International Automated Transactions Service) would work out cheaper. They currently send a direct deposit to your bank account once a week. The cost of that delay, in money terms, is fairly minimal. However, when you’re dealing with large sums of money and an urgent services delivery need, like disaster relief, this wouldn’t be for you.”
IATS’s service functions like a merchant account, Crooke said, but with a simpler and faster application. IATS does not charge a setup or monthly fee, and unlike a merchant account, does not require additional application forms to enable organizations to accept additional card types such as American Express and Discover.
IATS processes all major credit cards without requiring the client to set up its own merchant status with banks or credit card companies. Crooke advised that nonprofits should check with their online software providers to ensure that they support IATS.
A few data concerns should be kept in mind when reviewing payment processing options, the most vital being security, Crooke said. “You need to ask yourself, how secure is the data? Is it collecting all of the data that I need? Are you in a position to turn around and re-market to that donor effectively?”
It is of tremendous importance on the security and reliability fronts to work with a vendor who can handle credit card transactions at all times, at all volumes, and with no down time, according to Harry Gruber, M.D., co-founder and CEO of Kintera. Because of the immediacy of human emotion that triggers online giving, Gruber said that the response rate needs to be very rapid, especially during a single event such as the tsunami in South Asia. The payment must be processed within seconds so the donor doesn’t drift off.
“When considering a vendor, a nonprofit should look for a vendor that is able to provide the capability for automatic chargeback; a detailed reporting of the transaction history; automated reconciliation with the bank for paper checks; the ability to immediately set up unlimited sub accounts without any additional fee and the ability to define what the consumer’s credit card statement says based on the sub account, etc.,” Gruber advised. “The transactional information should be written directly to the donor’s contact record and the transaction history should roll up into the campaign reporting structure seen in donor databases and the overall longitudinal data repository and be automatically associated with source codes.”
When it comes to credit card transaction fees, it could be as low as approximately two percent. Larger volume processors can provide even better rates, Gruber added.
Gruber provided a checklist of what nonprofits should consider when searching for the right processor.
- Reliability (includes redundancy)
- Scale (can handle large volumes of transactions)
- Speed of transaction
- Transaction fees
- Availability of multiple payment types (major credit cards, electronic checks, pledges and recommendations, donor advised funds, PayPal)
- Ability to handle foreign currencies
- Variety of payment methods (recurrent payments, electronic and paper checks, installment, coupons, integrated sales tax, integrated shipping and integrated fulfillment charges)
- Financial strength of processor (financial reputation of company which includes assets on hand, certifications and reputation of board of directors)
The tried-and-true “donate now” button is a seemingly no-nonsense technique fit for the armed services. So, it’s no surprise that the Marine Toys for Tots Foundation (TfT) in Quantico, Va., has parlayed its basic tool into a successful online giving space. The nonprofit has grown from approximately $25,000 per year online to last year’s total of more than $425,000.
For the past seven years, TfT has enlisted San Francisco-based online fundraising services provider Entango to handle its processing. Entango cages all of the donations and deposits them into TfT’s bank account. It takes approximately one business day before the bank officially accepts the credit card donation.
“We’re not a big foundation people-wise,” admitted Mjr. Bill Grein (Ret.), vice president of TfT. “You’re talking to the entire fundraising staff here. There’s just no way that we can do those things, so we like to outsource as much as we can in regards to time- consuming processes that others are capable of doing better.”
Grein has the ability to keep a close eye on online giving. Within minutes of it being given, Grein can view the donation on his computer screen. He has access to the donation amount, a segment of the credit card number, email address and street address.
“The neat thing is that sometimes some of our corporate sponsors want to help us raise dollars and one of the things we’ve done with sponsors is put a donation button on their Web site, Grein said. “When a person makes a donation, it is the same as if they were on our Web site. It’s handled the same way but it is monitored differently. The dollars are tracked as coming from that corporate Web site.”
Entango delivers 100 percent of every donation into the bank and then sends TfT an invoice. The vendor has no responsibility or authority to touch any donations, Grein said. They simply provide an invoice for their services.
Nonprofits should use resources like Tech Soup and the Nonprofit Matrix to help clarify specific needs. Then, when they approach a potential processor, they are asking questions that will help determine if the processor has the most effective tools to help reach their goals, said Steven Harkness, chief executive officer at Entango.
Harkness has found that those clients that come with their needs clearly defined have the most success.
Organizations should begin with the basics, according to Harkness.
- What credit cards can be used through the system?
- Can people also use electronic checks (electronic funds transfer)?
- Will the forms be seamless with your Web site and customized for our needs, while still being secure for our supporters?
- Will IRS-ready receipts and acknowledgements be issued immediately?
- Will I have access to real-time reports of transactions?
- Will supporters be able to make tribute and recurring gifts through the system?
- Do you manage automatic recurring gifts and notifications?
- Do you provide toll-free customer support for both us and our supporters if needed?
- Do we need our own merchant account or can you provide us with one?
“Once all of this has been answered, additional questions are raised regarding the ability to accept donations from foreign based supporters and what other services are offered,” Harkness explained. “For example, event registration, membership/renewal, merchandising, email management services.”
The Tomorrows Children’s Fund (TCF) in Hackensack, N.J., is one such organization whose diverse fundraising methods are tied to an online processor. The nonprofit’s fundraising events, merchandise sales and general online donations are all funneled through AuctionPay.
“We’re a foundation that assists kids with cancer and blood disorders so we receive a lot of honor or memorial donations in someone’s name,” said Kathy Ambrose, administrative director a TCF. “(Using a payment processor) is not only easier for us here but the donors find it much easier to do it online than by mail because it’s just a quicker process on their end.”
TCF held a fundraising event in May that raked in $266,000 online. It set up a pay page through AuctionPay and received authorization for each gift within one day. “If the gift was coming through the mail it would have taken three days just to get through the Hackensack University Medical Center to us,” Ambrose added.
When thinking about the hard numbers involved with selecting a payment system, the systems usability can get lost in the shuffle. Nonprofits should envision how that tool can be used to capture donations.
Laura S. Quinn, founder of Alder Consulting in Brooklyn, N.Y., believes that a lot of organizations tend to think that the “donate now” tool is a very nuts-and-bolts area on their site to come and give money. People often surf past it while thinking, ‘Should I give?’ It’s important to include on the donation page a reaffirmation that the mission is important, she said.