Modernising payment processing for nonprofit organisations

The challenges charities face with traditional payment methods

High transaction fees

Charities accept donations through various methods, including collection boxes, online platforms, and card payments. In the digital age, with cash payments in decline, charities need to renew and broaden their payment options to sustain and grow their fundraising efforts.

Many charities have turned to card payments, with a significant percentage of donations now being completed using a card, both in person and online. Allowing donors to pay by card is an effective way for charities to modernise in an increasingly cashless society. Card payments make it easier to reach a wider range of donors and, in some cases, allow charities to pass on processing fees. However, they can also come with high transaction costs and other fees.

Card acquiring companies that facilitate nonprofit payment processing charge a transaction fee to charities for each donation. These fees vary depending on the provider and the transaction volumes processed by the charity. Larger organisations across the UK and Ireland can pay between 0.89% to close to 3% on international cards. With donations in the UK alone reaching £13.9 billion, the funds spent on card processing fees become a substantial cost, eating into the bottom line of nonprofits across the sector.

Manual payment processing

Every charity and nonprofit has its own unique internal processes to manage its complex operations. With numerous locations and daily fundraising events, reconciling transactions and managing payouts can become a time-consuming task.

By using nominated subaccounts for each location, unique payment requests that automatically reconcile, and automated payouts to settle funds, charities can reduce the administrative burden of accepting donations. Having such practices in place prevents these organisations from falling victim to complex processes across multiple systems, accounts, and providers.

Reducing donor friction

To maximise donor conversion, nonprofit payment processing strategies must consider the target audience and method of distribution. Payments aren’t a one-size-fits-all approach; accepting donations through TV advertisements versus public fundraisers creates distinctly different donor experiences.

Using a combination of donation types—such as mobile, online, cash, and alternative payment methods—ensures broad coverage and greater donor engagement. Additionally, it’s crucial that these nonprofit payment processing methods offer a seamless user experience that avoids friction for the donor. As with any traditional commerce transaction, whether online or in person, checkout abandonment is an important consideration.

Significant investment goes into guiding a customer or donor to the checkout stage, so any loss at this point should be carefully analysed. Factors such as manual card detail entry or limited geographical coverage can increase abandonment rates. Addressing these customer experience (CX) considerations can help charities increase donations while enabling them to take advantage of alternative payment methods, which we’ll explore below.

Benefits of modern payment methods for charities

Reduced transaction fees

Offering consumers and donors a variety of modern payment methods can reduce costs, both directly and indirectly.

Using modern and innovative payment methods, such as open banking, or account-to-account methods can significantly reduce processing costs. Without the need for intermediaries like card schemes, open banking allows users to pay directly from their bank to a charity, enabling nonprofits to benefit from industry-low transaction fees and ensuring a larger percentage of funds reach the cause.

Beyond just processing costs, manual tasks such as reconciliation create additional indirect expenses that can be eliminated. Open banking streamlines this by having two key stages: the payment request to initiate the transaction, followed by the bank transfer that settles directly into the charity’s chosen account. An open banking provider offering a collection account, instead of a direct PIS-only solution (which focuses solely on initiating payments directly from a customer’s bank account without holding funds), can automatically match payment requests with resulting bank transfers. This includes reference details and product IDs, enabling instant reconciliation and lowering processing costs.

Increased efficiency through automation

Open banking consists of two main stages: initiation and collection. Where a provider offers an end-to-end product, they can match the original payment request with the resulting bank transfer. Using open banking payments brings control to the nonprofit payment processing process.

Providers like Fire offer a comprehensive collections service that enables instant reconciliation without the need for cards, multiple third parties, hidden fees, or small print. This eliminates the requirement for merchants to implement 3D Secure, as the payer’s bank or account provider is responsible for authenticating the payer directly. Additionally, with no manual intervention or data entry required from the end user, the risk of user error is significantly reduced.

Enhanced donor experience

Modern expectations in payments have led to incredible optimisation and innovation. From one-click checkout, direct currency conversion, and a wide range of alternative & local payment methods, consumers’ expectations for digital payments have never been higher.

Although charities don’t have a traditional ‘shopping cart’ or a ‘checkout page,’ as mentioned earlier, it’s equally important for them to ensure a seamless user experience for donors, helping to reduce – and ideally eliminate – abandoned donations. When a donation experience is quick, easy and seamless, it encourages return users and repeated donations.

Digital payment solutions available to charities

Open banking

Open banking is a form of account-to-account payment, meaning a transfer is made directly from one user’s account to another. This can include business-to-business, customer-to-customer, or customer-to-business transactions. Open banking payments use existing bank transfer rails and schemes, such as Faster Payments or SEPA, and therefore do not require intermediaries like card schemes, fraud tools, payment coordination platforms, or gateways – all of which can add to the overall transaction fee.

With over 73% of people in the UK regularly using mobile banking, why shouldn’t they be able to pay directly from their account? In September 2024, approximately 20 million payments were made by 11 million users through open banking in the UK.

Open banking is a low-cost, data-rich, and secure method for nonprofit payment processing, which can serve as an alternative to credit and debit cards. To see how it works in practice, read our case study on how the Irish Guide Dogs for the Blind use Fire to accept payments through open banking.

Recurring donations

Single open banking payments are an ideal method for collecting one-off donations. But what about recurring donations, a vital source of income for many charities? Fortunately, the future of open banking holds exciting possibilities for simplifying this process.

Commercial Variable Recurring Payments (cVRPs) are on the horizon, offering businesses and charities a flexible, efficient, and cost-effective solution for managing recurring payments through open banking. Donors will be able to authorise automated, recurring payments within specified limits with a single authorisation, streamlining the process for both the charity and the donor. In the UK, it is expected that cVRPs will be implemented in 2025 given that they are built on existing open banking payment frameworks and considered a high priority. This will certainly see charities benefit from even more efficient donation management.

Enhanced security features

For businesses, including nonprofit payment processing, security and trust are paramount. With open banking, strong customer authentication (SCA) is handled directly by the user’s trusted account provider in-app. Since users trust their account provider with their funds, they are typically comfortable with its security and authentication methods. Open banking transactions involve two approval stages: authentication (e.g., verifying a PAC code or using FaceID) and authorisation (consenting to the payment).

Additionally, by eliminating the need to enter card details online, open banking reduces the risk of fraud and enhances user security, making it a more secure alternative to traditional payment methods.

Cost savings and scalability

Lower administrative costs

Hidden fees can reduce the cost-effectiveness of nonprofit payment processing. By understanding these hidden costs, charities can better manage their fundraising expenses and choose the most efficient payment methods for their needs.

For charities and businesses, accepting cash can be an expensive payment method. From bank fees for cash lodgements and insurance fees for handling cash to collection and transportation fees and higher staffing costs, there are major overheads to consider. Banking fees can vary between financial institutions, and smaller businesses may face total costs exceeding 15%.

Charities can benefit from exploring modern payment providers and fintech solutions that offer more cost-effective options, particularly as they scale. This enables charities to grow and enhance their fundraising efforts.

Scalability for growth

As shown above, fees associated with certain payment methods can be overwhelming for nonprofits and hinder growth. An efficient, strategic approach to accepting payments is crucial for charities looking to scale. By removing major barriers like high costs and administrative tasks, nonprofits can significantly reduce overheads. This allows them to ensure their efforts to increase donations are as effective as possible, without overburdening their likely limited resources.

Charities and nonprofits with an efficient, cost-effective, scalable solution in place are set up for success, allowing them to focus on their important charitable work and growing their donor and supporter base.

Start modernising your payment methods today

Overall, modernising nonprofit payment processing offers numerous benefits. Charities can reduce costs and manual operations while increasing data, user coverage, and donor conversion – all while ensuring security and trust are prioritised.

Charities and nonprofit organisations should be encouraged to challenge their payment operations and ensure they are meeting their needs effectively. If you are a charity that would like to discuss how Fire could assist your organisation, please get in touch with our team.