redit cards have been around since the 1960s, but only lately have they come into their own as a medium of fundraising exchange." - Bill Dodd, nonprofit-fundraising expert¹

Several factors help to account for a growing perception among nonprofit organizations and the fundraising professionals who advise them that credit card acceptance capability is desirable or even essential for such groups to meet their goals.

First, many donors and potential supporters (although not necessarily the majority of them) prefer credit cards, and organizations want to accommodate them.

Second, because outbound telemarketing, telethons, advertisements in print media, e-mail appeals and Web sites neither allow for face-to-face payment nor can immediately furnish a postpaid reply envelope to encourage mailed-in payment, credit cards are seen as the way to generate an immediate response under such circumstances.

Third, organizations are learning more about the benefits they can realize from credit card acceptance.

A number of studies have found that credit card donations often are larger than those made by other means. With credit cards, organizations can check to see whether funds are available. "Use of a credit card (in response to a telephone appeal) increases the value of the donations since it eliminates the administrative cost to the nonprofit of a billing series [and] does not get eroded by failure to respond to [such] letters," said Bill Dodd, a nonprofit-fundraising expert.

Credit card processing also offers organizations one way to set up pre-authorized "recurring payments," a feature offering greater certainty that such pledges will be received. As fundraising expert Joan Flanagan put it, "You get the pledge even if the donor moves away!" ² Recurring payments might substantially increase the size of the total donation over a year's time.

Finally, interest in taking credit cards is fueled by nonprofits increasingly raising revenue in ways other than outright donations, from special events and fundraising auction purchases to membership dues and periodical subscriptions.

Some entities always have charged for what they do, including day care centers and counseling services, which charge on a sliding scale, and performing arts groups. Others have discovered a market for products with their name and logo, such as mugs and tee shirts - "souvenirs" providing free advertising and supplemental income.

A newer nonprofit commerce phenomenon with potential future significance is commercial ventures aimed at the general public. These enterprises, analogous to the long-standing charity thrift shop concept but now conducted by grassroots advocacy groups providing products or services that directly relate to their missions, aim at raising substantial revenues to enable greater independence from government, foundation and corporate funders.

The "earned income for nonprofits movement" is detailed in the book "Selling Social Change (Without Selling Out)." ³ In one case, an organization advocating alternatives to automobile usage opened a bicycle shop.

The author advises nonprofits, "Credit card capability will boost your business, whether customers are shopping in person, by mail or online. Yes, banks charge a set-up fee and take a percentage of sales, but customers want the convenience and, as a result, most [groups] net more money."

How well has the merchant services industry been responding to all of these trends? Bob Wesolowsky, President of Caring Habits, Inc. (CHI), a Briarcliff Manor, N.Y.-based company that advises nonprofit groups on electronic funds acceptance and on marketing fundraising programs, ⁴ formerly headed a major bank's cash management division for Fortune 150 companies. He said there is insufficient outreach by acquirers to nonprofits.

"It's clear to me that not-for-profits are treated differently than for-profit businesses," Wesolowsky said. "You have to make a distinction between the largest ones and the rest. If you're the American Heart or Lung Association or the Red Cross, everybody wants to do business. Otherwise, many aren't interested.

"In the last eight years, we've attended some of the largest fundraising conferences in the country, averaging 10 shows a year. We've never seen a bank at these shows. Recently American Express has shown up, as has Discover."

A review of several acquirers' sales agent materials revealed some instances in which nonprofits in general, or certain classes of them, are charged extra basis points, required to submit extra documentation or classified as unacceptable risks. Groups occasionally have been required to establish substantial reserve accounts that could constitute a hardship.

Acquirers frequently utilize Standard Industry Classification (SIC) Codes or sometimes use Merchant Category Codes (MCC) to create lists of preferred, higher-risk and unacceptable merchant types. There is no single code called "not-for-profit" although some acquirers include this as a category. More commonly, they utilize key SIC Codes encompassing various types of associations and organizations.

Not-for-profit entities frequently own other industry classifications. In some cases they charge for services or products offered, and in other cases those services are provided free of charge.

On merchant account applications these groups are classified either as organizations or "conventional" merchants. This distinction is important because it can affect the simplicity of the application process, rates and approval process.

Said Wesolowsky, "I would argue that not-for-profits should receive a substantially lower discount rate. MasterCard and Visa do not face the same risk because, generally, you're not transferring goods and services, and, when you are, nonprofits usually will willingly give refunds."

Requiring that nonprofits be corporations, sometimes specifically 501(c)(3) corporations, creates another potential obstacle to the application being approved. Not all corporations are 501(c)(3), and many volunteer-based organizations aren't incorporated at all. Impediments to achieving credit card acceptance status also limit nonprofits' ability to accept offline debit cards, which are processed like credit cards, and online debit cards, for which establishments usually gain approval to accept as an add-on to becoming credit card merchants.

Officials from the major bankcard associations declined to be interviewed about these application-process and risk-management issues.

One fundraising guide, concluding several years ago that groups with 100 or fewer donors "may find it too difficult to set up their own monthly donor and credit card systems," recommended, "Perhaps you can find a friendly businessperson or sister nonprofit group who will let you deposit donations through his or her account," and acknowledged, "[D]onors may become confused when their credit card bill arrives showing a payment to Joe's Pizza instead ...!" ⁵

Fortunately, times are changing, and the new trend is for banks and card services to become more nonprofit-friendly, with some even specializing in serving them. One example is Electronic Clearing House, Inc. (ECHO), which offers nonprofits special rates and fees, according to Greg Imlay, the company's Marketing Director. ⁶

"We waive the application fee for nonprofits and have a very competitive discount rate for them," he said.

Applications will be considered from unincorporated associations, he added. "The way we handle that is to write in 'nonprofit' in the space that is reserved for the type of corporate structure," he said.

Other acquirers and processors also are implementing programs to address nonprofits' needs, particularly in the area of Internet-enabled merchant accounts, a topic warranting its own article. Equipment costs also deter some nonprofits from taking credit cards, both small organizations with limited funds, and large organizations with multiple programs or locations. Some smaller groups are currently set up to process by voice authorization.

Another possible alternative for low-volume accounts could be an automated voice-response system accessed by touch-tone telephone, such as ECHO offers.

"We don't have a special nonprofit program for this, but if there was a demand for it we would certainly take a look at the pricing," Imlay said.

Certain nonprofits find it advantageous to process credit cards on their personal computer(s). Alternatives include modem-based, dial-up software; software that accesses the Internet; and a browser-based virtual terminal on the processor's Web site, such as offered by ECHO without setup fees. Software often can provide additional fundraising and membership-management features not found on a processor's Web site, but the latter method offers the advantage of allowing organizations to enter transactions at any location with a computer.

A breakthrough on the equipment front occurred in December 2002 when VeriFone, Inc. and National Processing Co. (NPC) began coordinating the donation of previously owned terminals to nonprofit groups.

"The challenge was posed in November 2001 by VeriFone's Senior Management Team, 'Think of something to do with the used-equipment market,' " recounted Martha P. Richardson, VeriFone's Senior Director Strategic Development, North America. "As I was on my first sales trip since 9/11 and more conscious of a 'giving' theme, nonprofit organizations came to my mind - specifically, the idea of upgrading older, Tranz 330 and Tranz 380 terminals in the field with new VeriFone equipment sold through our normal customer channels and of then donating the older pieces to nonprofit groups."

With support from her boss, Jesse Adams, VeriFone's Senior Vice President Sales, North America, Richardson began researching the current ways (if any) that nonprofits were processing credit cards and confirmed that her idea had merit.

"However, we needed a strong partner," she noted, "because the terminals to be donated actually belong to merchants 'owned' by VeriFone's customers: processors, ISOs, banks, etc."

Chris McNulty, Senior Vice President Sales at NPC, saw this as an opportunity to provide nonprofits with processing solutions at very reasonable rates while at the same time recognizing that the donation of older terminals, tax deductible where applicable, would enable NPC's sales organizations to further justify new equipment purchases.

A team of 12 developed the program, posted at the Web site of TechSoup (www.TechSoup.org), a division of Compumentor, an organization dedicated to linking nonprofits with technology. Interested ISOs can contact jbadgett@npc.net.

As more segments of the card payment industry begin to solicit larger numbers of nonprofit accounts and the nonprofits find that they have alternatives, groups can be expected to look for a friendly application process, reasonable rates and affordable (or donated!) equipment as well as an understandable contract.

A bank's good record on social-responsibility issues also could enhance its appeal to nonprofits as a potential merchant services provider. Banks that practice fair lending, serve modest-income neighborhoods and invest in projects that maintain fair labor standards, consider environmental impact and respect indigenous rights should make this commitment known.

At least one effort is already in the planning stages to market credit card processing on such a basis. Co-op America, a national nonprofit group providing technical assistance to socially conscious businesses (both for-profit and not-for-profit), ⁷ is completing negotiations with Chicago-based Shore Bank to offer merchant accounts to Co-op America's small-business and nonprofit-organization members.

"The money invested in Shore Bank all goes toward small-scale community-development investments," said Chris O'Brien, a Co-op America official.

He concluded, "Enrolling in a program like that will allow the business or organization who's transacting consumers' credit cards to partner with a bank that shares its values."

Eli Kimels is a freelance writer based in New York City. He can be reached at elikimels@hotmail.com

FOOTNOTES:

1. Dodd, Bill, "Think Plastic: Credit Card 'Graduates' Now Better Donors Than Check Writers," reprinted from Direct Mail News, www.dsdl.com/article2.html
2. Flanagan, Joan, "Successful Fundraising: A Complete Method for Volunteers - Second Edition" (Lincolnwood, Ill., Contemporary Books, 2000), p. 124.
3. Robinson, Andy, "Selling Social Change (Without Selling Out): Earned Income Strategies for Nonprofits," with contributions from Jennifer Lehman and Terry Miller (San Francisco, Jossey-Boss, 2001), pp. 101, 103.
4. Visit www.caringhabits.com
5. Swaigen, John; Wyman, Ken; and Young, Joyce; "Fundraising for Non-Profit Groups: How to Get Money From Corporations, Foundations and Government" (North Vancouver, B.C.: International Self Counsel Press, 2002), p. 169.
6. Visit www.echoinc.com
7. Visit www.co-opamerica.org