MPayy discusses their transaction costs versus that of two online donation processors in the nonprofit sector, FirstGiving and Network For Good:
According to sources, Network for Good charges 4.75%, while FirstGiving charges up to 7% in transaction costs to the charities. In other words, only $0.93-0.9525 of each dollar of a donation actually reaches the charity. Network for Good, in fact, doesn’t actually get permission from charities, but rather has an opt-out program if charities do not wish to have Network for Good collect donations for them. According to the FAQ’s on the Network for Good’s website, they send the money on to the charities through electronic funds transfer or a paper check on the 15th of every month.
So, in other words, the Network for Good is taking 4.75% and then holds the money for up to 31 days before moving it on to the charity. Network for Good is itself a non-profit, but those fees and the benefit of that negative float provide serious financial benefits to Network for Good far above the cause to whom the donor actually wanted to provide money to.
As a sidenote, FirstGiving actually charges 7.35%. Network for Good’s transaction costs page is here.
It’s a known practice that online donation processors make a bit of money on the float. I don’t know if there has ever been a discussion of this actually online. Should this practice be ended? It’s hard to say since the case that FirstGiving and Network for Good always makes is that they handle end-of-the-year paperwork related to receipting and tax return information. Also, they have pretty good reporting tools for nonprofits to slice and dice with. The deeper question is whether those ancillary reporting capabilities and built-in business logic is worth the float plus the transaction costs that are passed on to the donor.
Personally speaking, the value of reporting tools and business logic capabilities depreciate in time as other and more capable credit card processors go into the market. My experience with Google Checkout for Non-Profits shows that it’s more than capable of handling those particular needs. I haven’t used Network for Good or FirstGiving myself though so I can’t really speak for them.
On the other hand, when I worked at the Coalition for the Homeless, we used IATS, one of the credit card vendors behind Blackbaud’s NetSolutions. Despite a similarly high transaction fee to Network For Good, it actually lowered our net transaction costs because IATS handled the fraudulent credit card problems we were constantly being hit with and because of the instant integration with Raiser’s Edge.
So in the end, that business case being made is predicated on the ability of FirstGiving and Network for Good’s continuing development of their backend processing tools. However, if other processors such as MPayy and Google Checkout for Non-Profits, with their lower transaction fee of 0% (yes, they’re both free) can provide equally compelling backend reporting tools then it’s a total no-brainer for nonprofits.
It also depends a lot on the maturation level of your nonprofit. I believe that if you’re starting out, MPayy and Google Checkout for Non-Profits are precisely where you should be heading. If you need back-end integration though with an existing system like Raiser’s Edge, you might consider just sticking with whatever Blackbaud solution is around. Ultimately, it’s more than just transaction fees that you have to consider but unfortunately as far as the public is concerned, those fees are part and parcel of your relationship with them. Clearly, the weighting should be towards lowering those transaction costs whenever possible.
(2 votes, average: 4.50 out of 5)
Loading ...
One thing you should note is that vendors such as FirstGiving and Kintera offer more than just donation services. Their value-add also comes from the individual fund-raising page capabilities and event registration services that they offer – functionality which a pure credit-card processing service such as Google checkout doesn’t offer.
The pure donation processing model will become increasingly commoditized and price-driven, while add-on functionality will become the differentiator.
Yes, that’s true Will. FirstGiving and Kintera have widgetry and event reg capabilities. I guess it’s a matter of how quickly all that becomes commoditized as well. I’m not entirely convinced that your average small nonprofit in the $2 to $10 million range really can use those capabilities since at least in Kintera’s case, the added licensing fees will push transaction cost per donation too high because the volume of donations won’t be great enough.
And frankly, the way these solutions are architected (with dedicated support staff and an in-house data center) will never beat a PayPal or Google at transaction processing costs. The business case is tough to make if the reporting tools from a Google Checkout for Nonprofits or a PayPal hit 80% of the needs for small nonprofits.
The bad part I see is that those extra services that Kintera and FirstGiving provide are improperly charged as part of the transaction cost. If you actually broke out the processing cost, you would see that the actual costs are certainly in the 2% range or less. It’s clear that reports building is expensive but it’s very unclear that it’s as much as an additional 2.75% or 5.35% charge. I think it would be better for our sector if vendors were to charge a minimal transaction fee but break out the costs for the reporting tools separately.
Thanks for this post, I work at Network for Good and we it’s important to us to be completely clear and open about our fees so I wanted to add a little more information. As you noted, there is a 4.75% tax-deductible fee which donors can choose to cover or have deducted from their transaction. Network for Good does not profit from these fees or the minimal amount associated with collecting money that is disbursed monthly. Most donors decide to cover this fee which means the average nonprofit pays only 1-2% in fundraising costs. Even when donors do not elect to cover the processing fee, these fees are extremely low.
The 4.75% fee covers credit card charges, bank disbursement fees, securing the transaction online and our administrative costs. Our administrative costs are registering with the state attorney general offices in all states that require it, creating a tracking report for charities to be able to access information on all the donations they receive, dispersing the funds to all the charity(ies), issuing a tax receipt for the donor, storing donation records, and handling donor customer service and questions on behalf of charity(ies).
As Allan noted in terms of breaking out the costs, we also offer a Custom DonateNow service with a monthly fee of only $29.95 where the transaction fee (3%) is broken out from the monthly charge. To help charities evaluate our solution we have outlined how it can be affordable even for small nonprofits at http://www.fundraising123.org/article/network-good-custom-donatenow-numbers.
We welcome any questions on this topic, feel free to contact us.
Just to follow up on Stacie’s comment, Network for Good has an interesting PDF document comparing its services with PayPal and Google Checkout for Nonprofits. I wish this comparison hadn’t been buried so deep within the Network for Good site. It’s actually pretty useful information. I have certain caveats about the documentation but it’s directed at your average non-profit, not your average developer. I am following up with Google Checkout for Non-Profits and see if they have any responses to it. It’ll be interesting to find out.
Hi Allan,
Glad to see that poking around reveals a much higher percentage fee than most people realize.
As I posted earlier, DonorPerfect charges one of the lowest transaction fees in the industry- 2.99% +.95, and that’s the list price. For organizations that transact significant volume (> 500 transactions/month), the prices are even lower. Plus, we never hold onto the money- funds are deposited directly into the non profit’s merchant account within 24-48 hours.
What’s important to a non profit is the ability to track the incoming donations correctly. This means assigning items such as General Ledger, Appeal, Source, and Thank You Letter code (just to name a few) to each incoming electronic donation. This is even more critical if the nonprofit lets the donor designate their donation- and most do.
Then there’s providing the social network fundraising infrastructure for a non profit. Again, there’s very real costs to these as well. We launched ours last month, and I know it’s very competively priced:
http://www.donorperfect.com/fundraising-software/online-social-network-fundraising.asp
The problem with Google and others is that NONE of them support these integrated components, which means that every time a non profit imports the transactions, they are left to fend for themselves and typically correct everything by hand (which is a HUGE cost). In addition, when you pay nothing for something, what kind of support do you expect? That’s right- nothing. My guess is that Google hasn’t gotten back to you yet- I wonder why?
There’s a very real cost of supplying the right solutions for non profits that fits their needs so that it provides the value they need. I’m glad that you think that 5% or more is too much (I agree!) and I hope you see that Zero actually costs more in the long run.
-Jon Biedermann
Vice President
DonorPerfect Fundraising Software
http://www.donorperfect.com
Thanks Jon. Does Donorperfect have any direct comparison that documents differences between Donorperfect and other donations processing services? I would love to see all the vendors discussing their different takes on the way donations processing ought to be done.
Clearly, there are a ton of variables to decide upon. Is it time for a matrix and a Google Spreadsheet? Hmmm… how would I weigh these issues?
I’m very curious about the 50 state registration feature that Stacie mentioned. Jon, does Donorperfect do that? I’ve done some research on my own and I’ve noticed that it’s not always true that you have to do it but that you ought to if you’re getting a substantial sum of donations outside the state you’re registered in. However, the law seems to be pretty murky about the guidelines. Stacie, can you discuss this further? How serious is that requirement?
Those of you who are vendors of donation processing services are also invited to speak about the way your company is handling donations and why you feel it’s the best way to do things. I want to hear everyone out as it’s a pretty useful thread.
Alan, you said:
>And frankly, the way these solutions are architected (with dedicated support staff and an in-house data center) will never beat a PayPal
In response to that statement and to the PDF that is linked to, I would like to point out that while PayPal doesn’t have a support staff per se, it does come with some level of support in the form of technical documentation, not just for basic usage, but for its open API.
Its API does allow for one-page checkout, 100% control of look and feel, custom parameters for storing values like source codes, appeal/campaign codes, thank you letter codes, etc.
Paypal does offer recurring payments.
The state by state registration costs thousands of dollars, and will result in prosecution if not taken care of. Hmmm, I think the verdict is out on this point, no?
PayPal costs 1.9% to 2.9% +.20…
Honestly, the one thing PayPal doesn’t offer is the marketing expertise.
No polemical conclusion — just my observations. PayPal doesn’t seem like *such* a bad alternative.
Maybe there just aren’t enough PayPal API programmers in the NP world?
@RO: I think you thought I was knocking PayPal. In fact, I meant the opposite and I guess that’s my fault. I was pointing out that independent nonprofit-oriented payment processors always end up with difficulties keeping their processing fees low because they’re not monstrously-sized donations processing beasts like PayPal, Amazon or Google. All three of those donations processors have significantly matured APIs and Amazon’s is pretty incredibly delicious in that it handles micropayments. They all have pretty strong name-brand recognition. To be frank, when we implemented Google Checkout for socialmarkets, we realized that the socialmarkets “brand” was not as well-known as the Google brand when it comes to payments processing. As a result, we left the Google branding alone. I think if I were a nonprofit in the $2 to $10 million space, it wouldn’t be such a big deal and wouldn’t necessarily flip out at the Google branding.
As an aside, I think the Paypal PDF is inaccurate when it comes to Google’s chargeback policy. It clearly states that “Chargebacks resulting from claims of unauthorized purchases and non-receipt of items” are covered under a policy that will reimburse chargebacks for up to $10,000 a year. For every million in revenue, they will cover up to 1% in chargebacks.
Google and PayPal claim to do “advanced risk modeling” when it comes to chargebacks so that’s very useful for beginning nonprofits like us. I’m not sure what the risk modeling activities are at Network for Good, JustGive, PayPay, et al.
BTW, I talked to a nonprofit yesterday about their online donations processing fees. They’re getting charged 11%. I immediately suggested they should switch to another payments processor. I think I can safely say that 11% is pretty high but I’m not entirely sure what is the lowest percentage when we can say — ok, switch to something else. Would that lower limit be at 5.5% or so? I bet in 2010, we’d be saying 4% would be too high.
@Allen, just to clarify, I didn’t necessarily think *you* were knocking PayPal, and I think you made your point well about the processing fees and economy. I was responding more to the PDF, which may be somewhat dated, and therefore unfair to PayPal.
Full disclosure: I do advise small/beginning NPs to use PayPal so I feel somewhat obligated to defend it (though I have no loyalty to the brand and would abandon it at the drop of a hat if need be). Or, in case that’s bad advice, I feel obligated to understand why.
Very interesting point about Amazon; I noticed an NP vendor using it and now I understand why.
11% is outrageous…
I don’t think PayPal is bad advice to give to nonprofits. Heck, I remember using their early predecessor Verisign’s Payflow Pro. I think of PayPal as fairly similar to Authorize.net. They both have strong APIs but I feel they’re just a little bit faceless and haven’t significantly changed their product in years. Too bad there isn’t a PayPal for Good or am Authorize Your Cause!