A Few Good Methods for Processing Credit Cards
This article – originally written in 2008 and updated in 2011 and again for 2013 – is courtesy of Idealware, which provides candid information to help nonprofits choose effective software. For more articles and reviews, go to www.idealware.org.
Once you’ve read through the different methods for processing credit cards, read Getting the Best Prices for Processing Credit Cards to understand rates and fees from credit card processing vendors.
Security First and Foremost
Three Steps to Processing Credit Cards
Weighing your options for processing credit card payments requires a basic understanding of how the system works. The multiple steps are complex, and can involve a number of different vendors and entities.
- Collect and enter credit card information. In order to process a payment, you’ll obviously first need to collect the credit card information from the person making the payment and transfer it, either electronically or manually, to a service that can actually process it. This step can range from writing down the card information and sending it to your bank to typing it into an online system or swiping the card through a specific kind of hardware.
- Authorize and commit the charge. Once the payment information is entered, it’s transferred electronically to a payment processor who authorizes it by checking to see that the credit card account exists and has enough money to cover the charge. The processor then charges the card. Whichever method you use, you’ll have some kind of processing specialist in the mix who will manage the electronic flow of money for credit card transactions. They typically do very little else, so they tend to work hand-in-hand with another system that provides the interface to enter information and handles any other needed functionality.
- Deposit money to bank account. Once the card has been charged, there’s a critical step: receiving the money. The payment processor always deposits the money in a bank account called a “merchant account.” Money is then automatically transferred from your merchant account into a bank account from which you can actually withdraw it. For most of the methods covered here, you’ll need to open a merchant account through your bank or one recommended by your payment processor. Like any bank account, you’ll want to shop around, as rates vary. These accounts define the base amount you’ll pay for each transaction.
Because credit card companies also charge a per-transaction fee, there will always be some fee involved, but the size and terms can vary substantially. For instance, a merchant account might charge you $25 per month plus 2.2 percent of each transaction—a good rate, applicable to an organization with a high volume of transactions—or a simple 2.8 percent of each transaction with no monthly fee, which might be more appealing if you’ll have a low volume of transactions.
If you want to take online payments, make sure your merchant account allows them. You might want to choose an online payment vendor first and ask them for recommendations for a merchant account bank to make sure it’s compatible with your online payment method.
Credit Card Processing Methods
That’s how it works. But how do you start actually taking credit card payments? There’s a wide variety of methods, each appropriate to different situations.
Credit Card Imprinting Machines
The simplest way to process credit card transactions is also the one that’s been around the longest. Imprinters, those little plastic swipe machines that carbon copy the credit card, make quick imprints of the credit card information for you to process later. The downside is that, if a card is declined, you won’t find out until long after the payer is gone, and you might have to work to track them down. You can generally get an imprinting machine for free, or for a small fee, from the bank where you opened your merchant account.
Imprinters are an easy and inexpensive way to collect information on-site. However, you still need to process the charges later using one of the other methods, and there’s a substantial risk inherent in carrying imprinting slips around, as you’re essentially carrying a stack of credit cards. If you lose the slips, in the best case you’re out a bunch of payments. At worst, you may have just funded some nefarious person’s taste for expensive electronics and exotic trips.
Imprinters make the most sense when you only need to take a few payments in some kind of temporary location. They’re a short-term, quick-fix type of processing method rather than something you’d use to process a volume of credit cards over a long period of time.
If you’ve collected credit card information via an imprinter or through mailed-in donation-via-credit-card forms, one of the most straightforward ways to process the charges—though likely not the cheapest—is to ask your bank to do it. Many banks will run these payments for organizations that have merchant accounts with them.
The payments are then deposited into your merchant account and make their way into your regular bank account within a few days. The bank is responsible for destroying the paper forms, reducing your risk. If you almost always receive your credit card payment information in paper, bank processing can make a lot of sense.
Credit Card Terminals
Terminals may require a power source, though some run on batteries. They also require connectivity, generally a telephone line, to process credit cards in real time. Some allow you to store transaction information to process when you can connect to a phone line. Unlike imprinters, the terminal stores the information internally so it’s more secure, and so you won’t have to enter it later, but you still run the risk of not receiving payment for any declined cards.
Terminals are widely used and effective in a number of different situations, from on-site events or a development office that needs to process a lot of phone credit card donations to gift-shop type settings. However, integrating terminals with other databases — say, to process a donation and record it at the same time to a constituent record — can be difficult. If you need to do a lot of this, one of the other methods might work better for you.
An alternative to portable credit card terminals, smartphones, or other mobile devices including iPads and other tablets can now process transactions over 3G, 4G, or wireless connections. These work two ways—either by giving you a way to manually enter card numbers, or with inexpensive additional hardware discussed in the next section, by swiping cards directly. This functionality can be provided through specific vendors like Square or PayPal Here, through donor management systems DonorPerfect, or through free or low-cost card reader apps you can download through from the vendors.
This method has the advantage of portability, as you can process transactions anywhere you have phone reception, and requires less hardware to purchase provided you already have a smartphone or other mobile device. Vendors will often include a processing method, factored into the cost of the product, while the apps will work with online processing services like Authorize.net.
Such apps are typically free to download, and like more conventional processing methods, their vendors take their fees as a percentage of each transaction. For example, Square takes 2.75 percent of each swipe, while PayPal takes 2.7 percent when you swipe a card with the PayPal Here card reader. Whichever service you choose, make sure to check the pricing information and user agreement carefully for conditions or additional fees.
There are security issues to consider, though. Does the app you’re using encrypt the numbers for protection? When a card is swiped, does it show the full number or just the last four digits? Are the credit card numbers actually stored on your device? Note: They shouldn’t be. Check to see if the vendor posts information about PCI compliance on its website. Remember, too, that if you plan to leave your device somewhere, like a storefront, that they are much easier for a thief to steal than a credit card terminal—and a more attractive target.
It’s also important to consider what your constituents or customers expect. People accustomed to more traditional registers and credit card terminals may not be comfortable handing over their cards to someone using a personal smartphone to take payments. Think about how your processing account and receipts are branded—will the charge appear on buyers’ credit card bills or bank accounts as coming from your organization, or with the name of an individual staff member they aren’t likely to recognize? Even simply labeling or branding your card reader or mobile device with your organization’s name and logo can go a long way to reassuring skeptical constituents.
To save time over manually entering every credit card transaction, consider hardware that lets you swipe cards. You can buy such devices to connect to a laptop or personal computer via USB, or to most mobile devices, including Apple products. They range in size from a basic, small card reader to a case for your mobile device with a built-in reader and extended battery. These readers can cost from $20 to more than $150. Some companies, like Square and PayPal, provide mobile card readers for free to new customers who sign up for the service. Square has even recently launched the Square Stand, which turns a tablet into a cash register for businesses or organizations with physical storefronts, for $300.
A “virtual terminal” allows you to enter credit card and payment information into an online form and process it over the Internet. You can “rent” a virtual terminal from an online payment processing specialist, such as Authorize.net, usually for some combination of a monthly fee and a percentage of the transactions.
Virtual terminals don’t often support swipe hardware, and thus require you to take the time to manually enter credit card information, and they don’t integrate easily with constituent management systems. Such limitations mean they’re probably not the best solution for processing a lot of payments, but they can be convenient options for processing a few payments if you have an Internet connection.
Online Payment Processors
A huge number of online payment vendors specialize in specific types of online payments. For instance, it’s easy to find vendors who support online donations, event registration, or item purchases. While these vendors typically provide an interface optimized for your constituents to submit payments on their own, most work perfectly well to allow your staff to process payments as well.
Does your staff get registration requests by phone? There’s no reason they can’t enter credit card information into the same interface a registrant would use to register themselves. Just make sure that any automatic emails sent out to the registrant make sense in either situation. This method might even work for in-person scenarios — for example, to process on-site registrations, or sell a few items in a store. Keep in mind that unless you buy some compatible swipe hardware, you’ll need to type in credit card information by hand. This may seem odd to the person paying, as it’s more typical to swipe a card in this situation.
These online payment specialists often offer a number of features specific to their focus area. For example, an event registration tool might allow you to easily track lunch requests and print name tags, while online donation software might support pledges and tribute gifts. For more information, see our specific articles on this topic: A Few Good Online Payment Multitaskers and A Few Good Online Event-Registration Tools.
If you’re processing payments that need to interface directly with constituent management software, like donations or membership fees, many mid-tier and advanced software packages let you process payments directly from that software. For example, DonorPerfect, eTapestry, and Raiser’s Edge, three of the more popular donor management systems, all allow you to enter payment information into the software and then process the payment and create a record for it in one step.
This convenient option lets organizations process a high volume of a single type of payment, and saves time-consuming double-entry. Like online payment processors, this solution might also work for in-person scenarios, but is optimized for over-the-phone transactions.
If you want to take credit cards in a permanent physical location like a gift shop, registration desk, or at cashier station, consider more hardware-intensive options. You’ll certainly want a way to swipe cards and print receipts. You could do both with a credit card terminal, or use separate swipe hardware and a receipt printer. You may also want to add up a number of items and calculate taxes, which terminals typically won’t do. If you often sell a number of items to one person, you may want a price scanner and a display pole (the small screen that displays what you’re ringing up to the customer).
If you’re heading down this path, point of sale software such as CamCommerce or Keystroke starts at a couple of hundred of dollars and helps you integrate all the hardware you’ll need. It’s also very helpful at managing actual inventory.
How to Decide
With so many options, how do you decide what will work for you? Think through the following considerations:
- Will you have access to the actual, physical credit card? Having cards in hand will save you time. For any volume, you’ll want a method that will allow you to swipe the card rather than typing in numbers, and to print a receipt.
- Will you have power and connectivity? Processing credit cards without an internet connection substantially limits your options. Similarly, if you don’t have a phone line, you’ll need to use an imprinter, mobile device or specialized terminal.
- Does the transaction need to be stored in your constituent management system? Processing donations or membership renewals that need to be tracked in another piece of software means integration should be a key concern. Payment-enabled software, an online payment processing or a point of sale setup can help.
- Is this a short-term, low-volume need, or a permanent high-volume setup? The right hardware and integration with other systems can be a big time-saver, but they require some initial up-front investment. Does it really makes sense to use a quick and dirty method like an imprinter or virtual terminal, or will investing in a more-efficient solution save money in the long run.
- Do you need to store credit card numbers? Doing so in any format requires strict and specific security measures under PCI requirements, and unless you have a thorough understanding of the regulations and have spent the time and money to create a system that is in compliance, you’ll want to use an online payment processor or payment-enabled software to handle recurring transactions.
- What will your constituents expect? Don’t forget this important consideration. Be careful of methods that require you to gather someone’s life story in order to run a simple payment, or require your staff to go through strange and time-consuming machinations with a constituent standing in front of them.
It can be complicated to understand your options in processing credit cards. Many of the methods themselves are actually quite straightforward, however, and every organization should be able to find one that’s suitable. Whether you’re taking donations, registering members or attendees, selling T-shirts, or running a complex retail organization, there’s a method that will allow you to take credit cards straightforwardly and securely.
Thanks to the nonprofit technology professionals who provided recommendations, advice, and other help for the original and updated articles.
- Andy Abrams, United Way of Greater Portland (2011)
- Peter Campbell, EarthJustice (2008 and 2011)
- Gavin Clabaugh, Charles Stewart Mott Foundation (2011)
- Paula Pruett, YMCA of Roanoke Valley (2008)
- Patrick Shaw, NPower Seattle (2008)
- Dan Shenk-Evans, Capital Area Food Bank (2008)
- Judith Sol-Dyess, YMCA of Metropolitan Chicago (2008)
- Robert Weiner, Strategic Technology Advisor (2008 and 2011)
About the Authors:
As Idealware’s Executive Director, Laura directs Idealware’s research and writing to provide candid reports and articles about nonprofit software. Prior to Idealware, Laura founded Alder Consulting, where she helped nonprofits create Internet strategies, select appropriate software, and then build sophisticated websites on a limited budget. She has also selected software, designed interfaces and conducted user research for multi-million dollar software and website implementations with such companies as Accenture and iXL. Laura is a frequent speaker and writer on nonprofit technology topics.
Kyle is a senior at Indiana State University, where he studies Communication. He decided to travel up to Maine to spend his last semester in a research internship, helping Idealware with social media research and support of their day-to-day work. Prior to joining Idealware, Kyle split his time between managing the student radio station, researching video game communication, and working on local elections.
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