4 Embedded Payment Hacks for Nonprofit SaaS Providers

Saddled by slim operating budgets, precise accounting requirements, and government oversight, nonprofits have a lot to consider when it comes to their payment processing system.

Many nonprofits have learned the hard way that using a one-size-fits-all payment processing system can impose a whole new set of challenges. Nonprofits need payment technology that caters to the unique needs of their industry — so they can keep their costs low, their records tight, and their organization fully compliant.

As a SaaS provider in the nonprofit space, it’s essential to be familiar with your clients’ typical pain points. This will allow you to optimize your features and benefits in a way that packs more value and solves common pitfalls. 

Let’s dive through some common payment processing pain points and solutions for the nonprofit industry:

Pain Point: High Processing Rates

As much as nonprofits want to put every cent of their donations towards their mission, the reality is that processing fees have to be paid. And, processing fees can add up fast — especially if the payment processing provider doesn’t have competitive rates. Many nonprofits are surprised to see how much of their donation volume has to be allocated toward paying processing fees.

Hack: Industry-Specific Rates and Donor Fees

Industry-specific rates

The card brands assess rates to merchant processing accounts depending on a variety of factors like the account holder’s industry and processing volume. Nonprofits typically qualify for rates that are quite a bit lower than businesses — for example, while standard processing rates are generally between 2% and 3.5% per transaction, nonprofit rates can be as low as 1.3%.

However, many payment processing providers aren’t offering competitive rates for their non-profit clients – either because they don’t know how or because they charge a flat rate to clients in a range of industries. 

Offering reduced rates is a great way to get your foot in the door with nonprofit clients. You can do so by making sure to onboard clients with the correct non-profit Merchant Category Code (MCC) as per the card brands and by assessing clients the rates that they qualify for. It seems simple, but it’s something that’s overlooked by many payment processors and SaaS companies. 

Donor Fees

Signing up with a provider that offers competitive, industry-specific rates is one of the best ways for nonprofits to keep their overhead costs low. In addition to that, however, nonprofits can save money by giving their donors the option to cover the transaction cost.

Also known as convenience fees, donor fees are charges assessed to the donor to offset processing costs. This is typically a percentage-based or flat-rate charge that the customer can opt-in for when donating. For example, a donor might opt-in to pay a 3% donor fee in addition to their $100 donation — which means they’ll pay a total of $103.

Pain Point: Tedious Bookkeeping Processes

Accounting is a challenging task for nonprofits, as they are held accountable by donors as well as state and federal governments to maintain clear records. Since all funding is ultimately reinvested back into the organization, nonprofits must precisely track and distinguish all assets, revenue, and expenses. Additionally, charitable funds are often allocated for specific purposes, requiring a dedicated ledger for each fund category. 

Accurately separating donations (revenue) from payment processing fees (expenses) is a common pain point for organizations, as the two are sometimes intertwined during the funding process. Payments are typically funded by payment processors in one of two ways: net settlement or gross settlement. When funded via net settlement, processing fees are deducted from the total amount before funding. For example, a $100 donation with a $3 processing fee would be funded as $97 rather than $100. 

The net settlement process can generate inaccuracies in the nonprofit’s accounting system, as a single donation would be listed without any expense incurred. To solve this error, a member of the nonprofit’s team would need to manually change the donation amount and input the transaction fee into a separate expenses column — a tedious and time-consuming process.

Hack: Gross Settlement 

Although many merchants are perfectly fine receiving funds via net settlement, it’s not ideal for nonprofits. Instead, many nonprofits prefer to be funded via gross settlement, which is when the entire payment amount is funded first, and the processing fee is deducted separately. This means that a $100 donation would display in the system as a $100 donation, and the subsequent $3 fee charged by the payment processor would show up as an expense. This greatly saves time, error, and potential compliance issues for organizations. 

Pain Point: Weak Donation Volumes and Low Conversion Rates

Organizations that only accept a few payment methods are likely to notice that more of their potential donors simply don’t end up making a donation. If a donor’s only choice is to pay by check, for example, they may forego the donation process altogether — whether it’s because they don’t carry checks (like a growing portion of the population) or because they’d have to mail the check.

Nonprofits that accept donations online may also notice lackluster donation volumes if they don’t offer several payment method choices. If there’s no option to pay with a digital or mobile wallet and the donor instead has to type in all their payment information, they may simply opt out.

Hack: Support for a Wide Range of Payment Methods

When donors have more flexibility to pay with the payment method of their preference, they’re much more likely to complete their donation. Offering support for a wide range of today’s payment methods is a great way to help your nonprofit clients grow their donation volume. 

Credit cards, ACH, and checks are all popular payment methods among donors, so you’ll want to make sure to provide support for them. In addition, consider offering support for mobile wallets and donor-advised funds. Mobile wallets enable donors to make an online donation from their mobile device with just a few clicks — which has been proven to increase conversion rates.

Donor-advised funds (DAF) payment cards are an up-and-coming payment method exclusive to the non-profit sector. These cards are connected to tax-advantaged accounts opened by donors who want to set aside funds just for charity. As DAF payment cards grow in popularity, your nonprofit clients will appreciate being able to accept this payment type. 

Pain Point: One-Time Donors and Unpredictable Revenue Streams

Many organizations struggle with limited visibility into their expected revenue. Random one-time donations cannot be easily predicted, nor are they a reliable way to grow donation volumes. Nonprofits that experience unsteady donation volumes will find it challenging to budget for overhead costs and plan program initiatives. 

Hack: Recurring Donations

By building a loyal donor base that regularly contributes, nonprofits can offset financial concerns while effectively boosting their overall donations. In fact, research shows that recurring donors end up giving 42% more per year than one-time donors.

As a SaaS provider for nonprofits, supporting recurring payment processing is non-negotiable. Be sure to embed recurring payment features that enable your clients to set up recurring donation plans with incredible ease. Your clients will quickly find that managing budgets becomes a little less daunting. 

Embedding payments is a highly-profitable tactic for SaaS providers — enabling them to enhance their product’s overall value while earning a markup on processing fees. Whether you currently embed payment features or you’re looking to get started, this list of differentiators will help you build a more profitable embedded payments engine.