April 8, 2009

Taking A Donor’s Credit Card

Perhaps you’re hoping to process credit card donations based on telephone calls from donors, or to allow on-site registration at your next conference. Perhaps you want to take credit card payments at a T-shirt booth at a concert, or at your organization’s gift shop.

The world of credit cards is a complicated one. There are a number of different possible methods for taking credit cards, which might require different types of hardware, software and relationships. While it’s beyond the scope of a single article to tell you everything you might want to know about every method, it can be useful simply to have a view of what’s possible.

Weighing your options requires a basic understanding of how credit card processing works. Unfortunately, this process isn’t a simple one. It’s a multi-step process that often involves a number of different vendors and entities.

Three steps to processing a credit card:

1. Collect and enter credit card information. To process any payment, you’ll obviously need to collect the credit card information from the person making the payment and transfer it -- whether electronically or manually -- to a service that can actually process the payment. This can involve anything from writing down the card information and mailing it to your bank, to typing it into an online system, to swiping the card through a specific kind of hardware.

2. Authorize and commit the charge. Once the payment information has been entered, it is transferred electronically to a payment processor, who checks to see that the credit card account exists and has enough money to cover the charge — a process called “authorizing” — and then actually charges the card.

Regardless of the processing method you use, you’ll have some kind of payment processing specialist in the mix. These payment processors manage the electronic flow of money for a credit card transaction. But they typically do very little else, so they often work hand-in-hand with another system that provides the interface to enter information and handles any other needed functionality.

3. Deposit money to bank account. Once the card has been charged, you get to a critical step: actually receiving the money. The payment processor always deposits the money in a special kind of bank account called a merchant account. For most of the methods discussed in this article, you’ll need to open your own merchant account, either through your own bank or one recommended by your payment processor.

Money is then automatically transferred (called “sweeping” funds) from your merchant account into a bank account, where you can withdraw the money within a few days. This transfer usually occurs on a nightly basis to facilitate reconciliation with bank statements.

Like any bank account, you’ll want to shop around and look at rates for a merchant account. These accounts define the base amount you’ll pay for each transaction. There will always be a fee involved, but the size and terms of these fees can vary substantially.

For instance, you might have a merchant account that charges you $25 per month and 2.2 percent of each transaction. That is a good rate, applicable to an organization with a high volume of transaction. Or, the account might be one that charges a simple 2.8 percent of each transaction with no monthly fee, which might be more appealing if you’ll have a low volume of transactions.

If you want to take online payments, make sure your merchant account allows them. You’ll also need to make sure that the merchant account is compatible with your online payment method. So, you might want to choose an online payment vendor first and ask them for recommendations of appropriate merchant accounts.

***

This article is from NPT TechnoBuzz, a publication of The NonProfit Times.

Subscribe to NPT TechnoBuzz or any of our other enewsletters and get the latest nonprofit news and stories delivered to your inbox.