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How to Accept Donations Online Using Credit Cards

Summary:

There are basically three ways to do this. This essay explains the differences and lists some online resources for further investigation. Although the focus is on accepting donations, the advice is useful for other transactions as well.

Answer:

This item was placed in an archive with other early FAQ discussions of questions about accepting donations online on February 24, 2006. To see the other articles, open http://www.idealist.org/npofaq/0/1547.html —Ed.

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Accepting Donations Online By Credit Card

by Eric Mercer

Introduction

The Internet is being used by many charities now as a mechanism to solicit and accept donations. This summary describes the current options and important considerations for accepting donations online. This article is oriented toward explaining the process for an organization that wants to set things up to complete the transactions itself; there are also services, discussed in http://www.nonprofits.org/npofaq/16/22.html, that will perform the transaction on another website and forward the proceeds (minus their fees) to the organization that made the request.

Note that if you are soliciting and accepting donations online you may be legally obligated to register in nearly every U.S. state as a charity that solicits donations in that state. This is usually done through each state's attorney general office. The best resource for finding contacts and other information is the Giving USA Update annual first issue, "Annual Survey of State Laws Regulating Charitable Solicitations," available from the AAAFRC Trust for Philanthropy for $35 (you'll save plenty more than that in phone bills). Save paperwork by using the "Unified Registration Statement" in the states that will accept it.

Note that this text is not legal advice nor should it be construed as such.

Additional Resources

The Internet Nonprofit Center includes a long list of online services that offer one or another sort of help with fundraising online. See http://www.nonprofits.org/npofaq/0/1491.html.

The Uniform Registration Statement is explained at http://www.multistatefiling.org/

The Network for Good allows any nonprofit listed in the Guidestar data base to set up a free online credit card donation-processing facility. The details are at http://www.networkforgood.org/npo/fundraising/donations/

Methods

There are three ways to accept donations online. They all use "CGI scripts" or something similar, which is software that interacts with the Web server to provide extended functions. Some expertise with Web server systems is necessary to set up any of these.

A. Accept Pledges For Later Collection From People Who Give You Contact Information Online

This method can be implemented most easily, using one of the various CGI scripts that will forward a Web form's data as email to a designated address. No confidential financial information (such as credit card numbers) is transmitted online. The donor can follow-up by mailing a check (possibly after you send a reminder), else the charity must contact the person to collect check or credit card information by phone.

B. Accept Check or Credit Card Information That Is Manually Processed Later

This mechanism is similar to accepting pledges, except check or credit card information is included in the Web form. The data from the form is either saved to a local database on the Web server for later manual processing, or encrypted and sent by email to a staff member who decrypts and processes the data. The charity must establish a merchant banking account (allowing credit card transactions) that may be used with "card-not-present transactions" (i.e. transactions where the donor's signature can't be visually verified as matching that on the card).

If donors will be entering check or credit card information on Web-forms, the Web server should have secure transactions enabled for those transactions so that card information is sent securely (encrypted). All commonly used commercial Web servers support secure transactions, but the free Apache server does not. Netscape makes its commerce server available free for 501(c)(3) nonprofit organizations. (Note 7/18/02: Adam Frank wrote 6/6/02 to say that recent releases of the Apache server include mod_ssl for secure transactions.)
Check or credit card information sent by email should be encrypted. There are several encryption systems in use but the most convenient for email is PGP. Some email readers (including Eudora Pro) already include full support for PGP encrypted mail, although several independent applications are also available that will decrypt PGP-encoded texts. CGI software that automatically PGP-encrypts and then sends Web form data by email is still rather rare.

If you will be accepting checks by phone, you'll need specific software that can print out the checks based on the information the donors read to you off their checks. Such software costs $25-$150 depending on if it has built-in transaction record-keeping, and how good a job it does adjusting the printing for your blank check stock (misaligned printing gives checks no bank will accept). Regular business check printing software doesn't let you easily customize the bank coding in the lower left of the check for each individual check printed, so you'll want software specialized for this purpose. You'll need to use a laser printer and obtain a special MICR toner cartridge ($100-$150), unless your bank is one of the rare ones that uses optical check scanners instead of magnetic ones, in which case any high resolution (300x300 dpi and up) printer will do. Unlike credit card transactions, you don't need anything except the check printing software, blank check stock, and (usually) the MICR toner cartridge to accept checks by phone.

Establishing a merchant banking account can be difficult if your charity doesn't have an established credit history. Banks very commonly don't like accepting mail-order and other card-not-present businesses, which will be the case for information obtained through the Internet. However, banks may allow one of your senior staff to serve as a guarantor. Obviously, you will want to be extremely careful about who in your organization is allowed to process credit card transactions, and you may wish to consult with an accountant about establishing suitable financial controls. There are also third party agents that will process credit card transactions for you (i.e. verify card information and submit the transaction to the banking networks), and which are more likely to approve a business that uses card-not-present transactions, but you may pay significantly more than a bank typically charges in exchange for their looser approval criteria.

There is tremendous variation in the charges banks and third-party agents impose for credit card accounts and transactions. The costs to ask about are:

1. Startup or credit check fee. This is a one-time fee that should never be more than $100 and should be $50 or less, and is sometimes waived or applied as a credit against subsequent monthly or annual fees.
   
2. Card processing terminal or software. You'll probably want to use software instead of a terminal and buy it from a third party instead of the bank. Banks will typically charge 2-4 times more for their proprietary software or for the same software you can find elsewhere for far less. If you can't afford the $100-$250 outlay for the software, you'll have to rent a terminal (the device that cards can be swiped through or have their data keyed into) for $20-$30 per month, which will usually cost you more than the software by the end of the year. Better card processing software will maintain a database of entries to provide a transaction record and to simplify processing repeat donors. Check in advance that your bank is on at least one of the credit card networks the software you purchase can work with, but it almost certainly will be unless it is very bad software or your bank doesn't use the common credit card networks.
   
3. Monthly account fee. This will range from zero to $15 per month. Some banks use an annual fee instead (or, amazingly, charge both fees).
   
4. Annual account fee. These will range from zero to $150 annually. Some banks use a monthly fee instead. Ask if you'll be billed in advance, after six months, or after twelve. Expect to pay $75-$150 each year for the account in total annual and/or monthly fees.
   
5. Per-transaction rate. This is a fee based on the amount of the transaction. All banks charge this fee. Note that you'll incur a higher fee for card-not-present transactions (which is the case for telephone or Internet transactions). Expect a rate of 2.5% to 4.75% if there is no additional per-transaction flat fee, and 1.5% to 3% if there is one. The bank will want to know the expected total monthly revenue and average "ticket" (donation) amount before quoting you a rate.
   
6. Per-transaction flat fee. This is a flat fee imposed by some banks on every transaction, usually ranging from $0.10 to $0.75. If the bank charges this fee, its per-transaction rate will usually be significantly lower than those that don't.
   
7. Minimum monthly fee. This fee is the minimum in transactions fees that you must pay, in addition to any monthly account fee. For instance, if there is a $20 minimum monthly fee, a 3% transaction fee, and you receive $500 that month, you'd owe the bank $15 in regular transaction fees, plus another $5 because you didn't reach the $20 minimum.

Is this all complicated? Yes, very much so, and of course anything that makes it harder for you to compare banks helps the banks that charge too much. Just remember that it's important to calculate the expected total fees you will pay in a year, and the individual charges don't really matter. A bank may charge just 2% in transaction fees, but with a $30 minimum monthly fee that will make its total annual fees too expensive if you will not be getting that much activity. The important numbers to estimate are the expected monthly revenue and the average amount per transaction. Use those to calculate the expected monthly fees, multiply by twelve, and add the annual fee (if any). If the expected monthly fee will be less than the bank's minimum monthly fee (if it has one), be sure to add in the amount needed to reach that minimum fee. Compare the total calculated annual fee amount between the different banks or third party agents. You can save thousands of dollars by shopping around carefully.

C. Accept Credit Card Information Online That Is Automatically Processed Immediately

This type of system includes CGI software that automatically contacts a third party whose system verifies the submitted credit card information and submits the data to a banking system. Under this scheme, the donation is automatically deposited in the charity's bank account. The charity must obtain a SSL security certificate from a separate Certifying Authority that will be used when verifying the credit card information, as well as obtain a merchant banking account to receive the donations.

It is technically complicated to establish a Web server that processes credit card information automatically. Surprisingly, there are few "turnkey" software solutions available for installing on your own computer, but expect this to change. You may wish to use a Web hosting service that provides a "virtual storefront" and which already has its own security certificate and arrangements with a credit card verifying agent. Many commercial Web hosts have added this to their list of services, so ask your Internet service provider. Expect to pay $200-$500 per month or more for this service, though, unless you find a very good deal. Several agents that cater specifically to charities have appeared, and are worth investigating. Choosing a credit card transaction agent of this sort has significant legal and financial implications with regard to their potential function as a professional solicitor, and a separate discussion of this issue is available elsewhere, entitled "Soliciting Online Using Third-Party Hosting Agents." If the provider of your virtual storefront actively encourages donors to visit your page and donate, they are probably functioning as a professional solicitor, and must be registered as such in every U.S. state.

The person who sets up automatic credit card processing on your Web server is probably already familiar with third-party card verification and processing agents. There are many consultants performing this service these days if you are going to establish the system on your own computer, otherwise check with your ISP to see if it provides this service.

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The references given below are NOT endorsements, but are just intended to get you started and to give you some idea of what kinds of resources are available.

State Registration

• AAAFRC Trust for Philanthropy (publishes the "Annual Survey of State Laws Regulating Charitable Solicitations")
  

  http://www.aaafrc.org/
  

• Unified Registration Statement -- Standardized Registration Kit
  

  http://www.multistatefiling.org
  

• Association of Fundraising Professional (formerly the National Society of Fund Raising Executives), 703-684-0410
  

  http://www.nsfre.org

Check Printing and Credit Card Processing Software

• Turbocheck
  

  http://www.turbocheck.com/index.html
  

• PC-Charge (available from several sources)
  

  http://www.gosoftinc.com/
  

  http://www.biz-sites.com/merchnt1.htm
  

  http://www.provantage.com/FP_09434.htm

There are many other software products for check printing and credit card transaction processing.

MICR Toner Cartridges and Check Printing

• MICR Repository
  

  http://www.sensible-solutions.com/micr.html
  

• MICR Stuff
  

  http://www.mindspring.com/~claudias/work.html

Automated Credit Card Verification and Processing

• CyberCash
  

  http://thor.cybercash.com/cybercash/merchants/

Web Form Processing CGI Software

• PGPformmail
  

  http://www.digitaldaze.com/support/cgi/pgpformmail/
  

• FormMail
  

  http://www.worldwidemart.com/scripts/formmail.shtml

Third-Party Merchant Banking Agents

• Credit Cards on the WWW
  

  http://www.ibcnet.com/dir/credit.htm
  

• Credit Card Processors
  

  http://www.businessknowhow.com/tips6.htm
  

• Directory of Credit Card Authorization Companies
  

  http://thor.cybercash.com/cybercash/financial/bankfin.html
  

• Cardservice International
  

  http://www.cardsvc.com/
  

• Electronic Clearing House (ECHO)
  

  http://merchant.echo-inc.com/

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Eric Mercer (mercere@netcom.ca) -- June 28, 1998; small changes 3/5/02; 7/18/02; 6/27/05 -- PB