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Payment Processing 101: A Guide for Nonprofits

Payment Processing 101: A Guide for Nonprofits

Payment processing is a necessity for any nonprofit organization, as you rely heavily on your donors’ gifts to further your cause. With the rise in popularity of online donation forms, your donors’ financial and personal information needs to be held secure throughout an online transaction for your organization.

There’s a lot to look for and understand when it comes to payment processing, so we’ve broken it down and created an easy guide to help you out:

  1. What are the key terms I need to know?
  2. Why do I need a payment processor?
  3. How do payment processors work?
  4. What are the different payments I can accept?
  5. Why is PCI compliance so important?

If you’re ready to learn all about payment processing, let’s dive in!

Payment Processing 101: A Guide for Nonprofits

1. What are the key terms I need to know?

There’s a lot to learn when it comes to choosing a payment processor, so you’ll want to start with getting to know all the key terms! This way, you’ll fully understand what your nonprofit needs from a payment processor.

Merchant Account

Set up between a nonprofit and a bank, this account allows the nonprofit to accept online donations given from debit or credit cards and serves as the holding location for all online donations.

Depending on the processor, your nonprofit might have to set up your own merchant account, which can better in the long run, or you’ll work with a shared aggregator account.

Third-Party Processor

Your third-party processor aids your organization in actually accepting the online donations. The processor doesn’t partner with a bank, but instead has their own merchant account, which the nonprofit has access to.

Payment Gateway

A popular fraud prevention practice, a payment gateway is a necessary method of protection processors implement to secure donors’ debit or credit card information throughout a transaction for your online fundraiser.


A Virtual Private Network uses data encryption to secure information by preventing unauthorized users from gaining access. A VPN also stops fraudulent payments to protect the nonprofit.


An aggregator is a larger company that processes payments for smaller businesses in its industry. From the account to the payment gateway, nonprofits don’t have to choose anything as the aggregator will select the details.

Aggregators are typically easy to set up and have simple fee structures, but they don't offer any personalization or nonprofit-specific support, as opposed to a merchant account, which is completely nonprofit-focused.


The Automated Clearing House is responsible for the electronic funds transfers between banks and merchant accounts, which are typically completed within 72 hours.

Payment Processing 101: A Guide for Nonprofits

2. Why do I need a payment processor?

A payment processor is essential for accepting any form of online payment. Without one, you won’t be able to receive donations, collect membership fees, or sell merchandise and tickets online. In other words, a payment processor can open up another (and huge!) stream of revenue for your organization, so it can be a very wise investment.


To accept donations, of course! This is the most common reason nonprofits invest in a payment processor, because without one, accepting online donations is impossible.

Membership Fees

Your organization’s members will be able to pay their dues online if you partner with a payment processor. You’ll be making memberships even more appealing with this added convenience.

Online Merchandise

You can raise even more money to put toward your cause if you’re interested in selling your merchandise online. With the help of a payment processor to handle the online transactions, this fundraising dream can easily be made into reality.


If your nonprofit hosts a lot of fundraising events, selling your tickets online may be a great addition to your usual practice. By working with a payment processor, you can easily collect the profit from selling your tickets online.

Payment Processing 101: A Guide for Nonprofits

3. How do payment processors work?

After your donor makes their online contribution, it will need to go through your payment processing system to verify the funds.

Payment Gateway

When your donor enters their debit or credit card information, a series of backend activities are followed through by your payment processor. The donation first enters through the payment gateway, which is where the card’s validity is checked. As long as the card’s information is legitimate, the transaction can continue.

Merchant Account

From there, the donation is transferred to a merchant account. Your organization will be able to access the funds within a few days, depending on your predetermined schedule. Each merchant account will have a different rate that determines the fee your nonprofit will pay per transaction.

Bonus! With the help of your donation form, you can even collect the personal information your donors provided and upload it to your CRM (constituent relationship management program) to help improve your outreach.

Payment Processing 101: A Guide for Nonprofits

4. What are the different payments I can accept?

The two forms of online donations you’ll accept will be debit payments or credit card payments.

Debit Payments

These payments are taken directly from a donor’s bank account. Payment processors usually charge one flat fee for debit transactions, unlike credit transactions, which usually result in flat fees and percentage fees.

Credit Payments

Unlike debit payments, credit payments are taken out against the card, not directly from a bank account. Just make sure your payment processor can accept Visa, MasterCard, American Express, Discover, and other major credit cards.

Payment Processing 101: A Guide for Nonprofits

5. Why is PCI compliance so important?

PCI (Payment Card Industry) compliance is a security standard that was implemented in efforts to protect both your organization and your donors during an online transaction.

Your payment processor should be PCI compliant in order to accept online donations, and data security should be one of your main priorities.

Plus, being PCI compliant reassures your donors that their information is safe when donating. It will avoid abandoned donations because of insecure platforms!

Take a look at iATS’ Why PCI DSS Compliance is a Must-Have for a deeper understanding.

But your security measures aren’t limited to just that! There are also tools like:

  • Address Verification System (AVS)
  • Bank Identification Number (BIN) blocking
  • Card Verification Code Requirement Capability (CVV2)
  • Card number tumbling
  • IP blocking
  • IP velocity checking
  • Minimum transaction
  • Limit name tumbling

You can also look into data encryption and tokenization, a process that hides the card data and encrypts it as it passes through the payment system.

Keep in mind, security is a huge element of your payment processor and should be one of your biggest priorities when selecting a provider.

Now that you’ve read this quick run-down on payment processing, you can get started with your search for providers! Happy payment processing!

Payment Processing 101: A Guide for NonprofitsCourtney Nielsen is a partner relationship manager at iATS Payments. During her long tenure at iATS, she has had the privilege to stand at the forefront of the fastest moving finance technology industry and witness the challenges nonprofit organizations encounter daily. She intuitively sees the threads of opportunity that wind through a nonprofit organization, and with her innate vision and ability, she helps nonprofits find long-term solutions and success. Courtney is an accomplished business development professional with over 15 years in the finance and technology sector, and consistently uses her expertise to ensure the success of her clients. When she is not feeding her insatiable interest in the developing technologies within the nonprofit sector, she is outside hiking and spending time exploring beautiful British Columbia with her three children and family.

Topics: Online Donations Online Payment Processing