What Happens When a Donor Makes an Online Gift: An Overview

By: Idealist Consulting | 9.17.20

This guest post comes from Matt Dunne. Driven by his desire to support numerous charitable causes in his home country of Ireland, Matt joined the iATS Payments Team in March 2016 to leverage his entrepreneurial experience in support of the non-profit industry. He empowers partner organizations to provide impartial, accurate and valuable payments information and knowledge to the Nonprofit community.

Over the past several years, online fundraising has become a substantial component of many nonprofits’ overall fundraising strategies. Yet in the last few months, implementing digital payment capabilities has become more crucial than ever as a result of COVID-19.

Organizations worldwide are becoming increasingly dependent on virtual fundraising practices to stay afloat during this period of uncertainty. However, online fundraising is also a solid practice to make use of going forward as an organization, even after the pandemic begins to settle down.

Online donations are known for their convenience and simplicity, yet many people— donors and fundraisers alike— fail to understand how the process works. That’s why we’ve compiled this brief overview of what actually happens to get a donation from the donor’s bank account to your own. Let’s walk through these five main steps:

  1. Donor completes an online donation form.
  2. Donor chooses a method of payment.
  3. Donation is sent to a payment processing tool.
  4. Donation is transferred to a merchant account.
  5. Donation lands in your nonprofit bank account.

Becoming acquainted with the behind-the-scenes elements of an online donation can help you make better informed decisions about the nonprofit payment processor and other tools you invest in for your organization. Ready to jump in? Let’s get started!

 

Online donation form

1. Donor completes an online donation form.

The first step in making any online gift is the donation form. When a donor arrives at this page— whether from your social media marketing, email outreach, or another location within your website— they’re probably already interested in giving.

That means all you have to do with your online donation form is nudge them along— and avoid overwhelming them. These are the two types of information it’s essential to gather at this stage:

  • Contact information: Be sure to collect basic donor information, including their full name, (and preferred name!) email address, phone number, and address. Not only does collecting this information allow for the transaction to be processed, but you can then extract donor data to provide valuable fundraising insights and drive future donations.
  • Size of donation: This is also where the donor specifies the size of the contribution they’d like to make to your organization. It’s good practice to provide a baseline with a few suggested donation amounts, but also allow the option to choose any other gift size.

Did you know that up to 70% of potential donors will abandon an online donation form before clicking submit— whether that’s due to unnecessarily long forms, a distrust of the organization or tools used, or an overall distasteful user experience? That’s why it’s essential that you keep things simple and choose the best online donation software for your nonprofit to get the ball rolling.

 

Method of Payment

2. Donor chooses a method of payment.

After inputting their contact information and choosing a gift size, the donor is directed to choose a payment method to complete the gift. The two most common methods include ACH payments and credit card payments, although more niche choices may be available depending on your specific software.

Let’s take a quick look at the top two forms of payment for online donations:

  • ACH payments: ACH, also known as Automatic Clearing House or direct debit payments, tend to be the favorite choice for nonprofit organizations thanks to decreased processing fees. However, donors may be slightly more wary about submitting their routing numbers in an online form.
  • Credit/debit card: Credit payments, on the other hand, often require higher processing fees, meaning less of the donation ends up with the nonprofit. However, this is a highly accessible payment method and one of the most popular with the donors!

For more information, this guide dives deeper into the pros and cons of different payment types and how to optimize them for your nonprofit donations. Although it’s good to know the differences between your options, most organizations choose to implement both ACH and credit payments.

 

Payment processor

3. Donation is sent to a payment processing tool.

After the donor submits their online donation form, payment information and all, the data is sent to the integrated payment processing tool for the next step. Essentially, a nonprofit payment processing tool is the back-end of the donation form. Although the donor never sees it, it’s just as crucial to the process.

There are two distinct types of payment processors that nonprofits usually choose from. By understanding the differences and similarities between the two, you can come to an educated decision on which is best for your nonprofit. To process your donations, you can choose to adopt:

  • An aggregator: An aggregator is a form of payment processor that lumps your organization in with other merchants. Getting started can be a quick and easy process, as it removes the need for your organization to set up an individual merchant account. However, there are some significant drawbacks, including delayed funding and potential security issues.
  • A dedicated payment processor: A dedicated payment processor, on the other hand, is an almost entirely self-contained process that uses an individual merchant account to handle transactions directly through your website. It’s a more straightforward process, meaning funds are typically received in less time.

Although each type of tool offers unique pros and cons, we recommend going with a dedicated payment processor for more control over your funds and to better set the foundation for nonprofit growth. 

 

Merchant Account

4. Donation is transferred to a merchant account.

Depending on the type of payment processing tool you choose, your merchant account will look different as well. With a dedicated payment processor, you receive a private merchant account, while an aggregator utilizes a shared account with several other organizations.

A merchant account is the final step before donor funds reach your bank account. At this stage, funding is stored in a separate bank account that your organization does not have access to, while you wait for the transfer to the nonprofit bank account. These are the two types of merchant accounts you may encounter based on your choice in payment processor:

  • Shared merchant account: As described in the above section about payment aggregators, shared merchant accounts are used by multiple organizations to collect and store funds. 
  • Private merchant account: On the other hand, a private merchant account is dedicated directly to your organization, and the only funding that goes through it is yours. This is often a more secure option as security threats to other merchants do not impact you.

Whichever type of merchant account you employ, it’s an essential component of getting donor funds from one bank account to another. 

 

Nonprofit bank account

5. Donation ultimately lands in your nonprofit bank account.

The last step in the online donation process is receiving funds into your organization’s bank account. There’s not much that happens at this stage besides accepting the donation. Now, you have the donor funds in your nonprofit bank account to use at your discretion, such as to fund your daily operations and other mission-based activities.Then, your team can move on to other vital processes— such as budgeting your funds and thanking donors for their contributions!

Throughout the online donation process, it’s important that every tool you use and every provider that touches a transaction is optimized for high-standard industry security measures. That way, you can avoid any security breaches and keep your donor funding, and your organization’s reputation, safe and sound.

 

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