Take Action: How To Understand The True Cost Of Your Payment Processor

With the click of a button, supporters from around the world can contribute to your nonprofit’s mission. This great advantage has helped nonprofits, leading many to start raising more funds online. However, beneath the convenience of online fundraising is an important consideration: the true cost of payments processing.

The more you or your donors pay in fees, the less that actually goes towards your organization’s purpose-driven mission. Some nonprofit CRM and payments vendors aren’t upfront about their fees. You might pay for things you aren’t aware of (or worse your donors are paying fees directly to the vendor that you’re not aware of). Being educated on payment processing fees will help you make more informed decisions in the future. 

Let’s explore the hidden costs of payment processing and empower you to make informed decisions when choosing a payments vendor. It’s important for you to ensure that your hard-earned fundraising dollars go to your cause and aren’t swept away through confusing fees.

Industry landscape: 3 types of expenses to understand

1. Payment processing fees

Payment processing fees refer to fees charged to merchants for processing credit card payments and online payments from customers. 

In other words, any nonprofit accepting online payments will pay fees for processing donations through a payment processor. Stripe’s debit and credit payment processing fee is 2.2% plus an additional $0.30 per transaction for non-American Express transactions. 

Different payment methods, such as ACH, AMEX, or Apple Pay, may have different fees. For example, Amex® has a 3.5% fee plus $0.30 per transaction. This cost difference can impact a nonprofit’s total paid fees because as you raise money through different payment methods, such as AMEX, you will end up paying more in fees. 

2. Platform fees

In addition to payment processing fees, nonprofits may have to pay a platform fee for their solution of choice. This is a fee charged for the use of fundraising software. 

Let’s explore the different ways this fee can be charged or packaged: 

• Flat fee: This sounds like what it is. You pay one flat fee for the use of the platform, no matter how much you end up raising through your online fundraising. For example, a popular enterprise nonprofit CRM solution charges a flat $600 platform fee for the use of their payment processing tools. On one hand, you always know how much you pay, but on the other hand, if you only raise $1,000 online, you’re cutting into that number significantly with the $600 platform fee. Not to mention, there’s no way to offset this cost on a per transaction basis. 
• Variable fee: A variable fee is charged as a percentage of your online donations. Let’s go back to our $1,000 example from above. If a platform has a variable fee of 1% of all transactions, you would pay $10 for your platform fee (vs. the $600 flat fee). The benefit of this pricing model is that your donors can offset the fee. With this in mind, in the initial $1,000 example, the total fee paid would actually be closer to $3 instead of $10 if you factor in that, on average, 70% of donors cover processing fees.
• Tipping: With this model, the nonprofit organization may forgo a variable or a flat fee in exchange for asking donors to tip the software vendor providing fundraising services. Tips go directly to the software vendor to cover costs and enable the vendor to continue to deliver its services at an affordable rate for the nonprofit. In this model, you forgo the variable software platform fee and turn on donor tipping. Most often, the software vendor defaults to asking your donors to cover 12% or more of transaction costs in their donation amount. Again, considering our $1,000 example, the tip charged to the donor(s) would be $120 and this goes straight to the software vendor. This assumes all donors agree to provide a tip–and it ends up to be a much higher cost than either the variable fee model.  

What is often missed with the tip model is that the money goes 100% to the software  vendor and is not tax-deductible. It usually ends up to be a much higher total cost than alternative options, and can confuse donors. It doesn’t provide the same level of transparency for the donor or the nonprofit using the software platform. 

3. Hidden charges

At a quick glance, some payment vendors might seem to provide remarkably low credit card rates, which could seem like the best choice. But sometimes the cost is just paid by the nonprofit in other fees. Many payment processors tack on additional or hidden charges that can erode the final donation amount received by your nonprofit.

These costs include: 

• Chargebacks and refunds: Software vendors and payment processors might impose charges for chargebacks and refunds, impacting the nonprofit even when a donation is reversed due to unforeseen circumstances.
• Card updating expenses: This is a fee charged when credit cards are automatically updated when they expire. The average cost for this is $1 per card and most cards need to be updated every five years. For context, Bloomerang Payments updates 10% of credit cards. So in this example, if 10% of your 1000 donors have cards that expire in a given year, you’ll be charged an additional $100 for automatic card updates. 
• Fraud monitoring: This is a fee charged for utilizing fraud monitoring tools on leading platforms. 
• Payment-type rates: Vendors may charge higher than the average 1% rate for payment methods such as bank transfers (ACH) and more for digital wallet methods such as Apple Pay or Google Pay.
• Amex® rate: As we mentioned above, nonprofits should be aware of any additional processing fees that might be assessed based on the type of payment, like Amex®.
• Monthly fees: Some vendors charge monthly subscription or service fees – in addition to a monthly PCI compliance fee – which can accumulate over time and negatively impact the nonprofit’s bottom line.

Industry landscape: Average expenses

Let’s compare the average expenses for a CRM platform versus fundraising platform payments fees. 

*Average rates across 5 leading CRM providers

**Average rates across 5 leading fundraising providers

Additional questions to consider

• Approved rates vs. published rates:
  • While many payment processing vendors like Stripe may offer lower nonprofit rates, these often require nonprofits to submit applications and be approved to ensure you are paying the approved nonprofit rate.
• Donor covered fees: 
  • To understand your total cost, consider what percentage of your donors cover processing fees.  The industry average shows 70% or more of donors cover processing fees. For example, if your organization raises $100,000, your payment processing fee would be $1000. And if your donors elect to cover 70% (or $700), that means your organization will ultimately be responsible for the remaining balance of $300 for processing fees not covered by donors offsetting those costs.
• Is free really ‘free’? 
  • While some vendors claim their tools are free to use for nonprofits, these vendors often rely on donor tipping to cover the cost of the software or fundraising platform. As mentioned above, these tips often default to 12%, which can add up significantly over a year. While nonprofits may not pay these directly, the burden is on the donor. Donors could be giving those tips directly to the nonprofit instead of a for-profit company. 
• How can you be secure?
  • Authentication attacks are a real concern. A fraudulent card testing attack begins with fraud actors acquiring stolen partial or full card credentials and submitting hundreds of thousands of card-not-present (CNP) transaction authorization requests on a donation form. In this example, a Queens charity was victim to a credit card test attack. 
  • NOTE: You could be liable for thousands of dollars in declined transactions if your payment processor doesn’t cover this cost.

How to figure out your total cost

The key to avoiding the pitfalls of hidden fees lies in asking the right questions and knowing how to examine your payments vendor. Ask for a detailed breakdown of your fees. Remember to look at the payment processing fee, platform fee, tips or fees covered by donors, and any additional expenses. 

When was the last time you looked at your current payment processor’s monthly bill? If it’s been a while, take a few minutes to review so you understand all the fees your organization is charged.

Once you’ve done your homework, ask for support if you need it. At Bloomerang, we’ll analyze your unique costs for you so you can understand what you currently pay or would pay with Bloomerang Payments. 

Conclusion

The journey to effective fundraising payment management begins with awareness, but it’s action that drives results. When you can approach payments vendors with clarity, you can take control of your nonprofit’s finances and ensure that your fundraising efforts have the maximum positive impact on their cause.

As nonprofits like yours continue to make a difference in the world, the path to success is paved with careful consideration, informed decisions, and strategic partnerships. By taking the time to understand the true cost of fundraising platforms and payments processing, you can channel more resources into your mission and make a lasting difference in the lives of those you serve.

At Bloomerang, we believe in transparency. That’s why we offer a free consultation to help your nonprofit understand its payment processing costs compared to Bloomerang Payments.

Already a Bloomerang Customer and curious about potential savings? Schedule a session with us to learn more.