This article is more of a topical discussion about how we've approached payment processing in Planning Center Giving. Payment processing can be one of the more complex aspects of estimating the cost of a donation management system. If you're new to accepting online donations or you're in the process of comparing donation management systems, our hope is that this article brings some clarity to an important but potentially confusing topic.
Make sure to read the basic overview of Stripe: Processing Payments with Stripe.
There's always a processing fee.
First off, it's worth mentioning that there is always a fee for processing donations payed with a credit card, debit card, or ACH bank transfer – regardless of which donation management system you use.
Some donation management systems roll the cost of payment processing into the software subscription itself. As a customer, there isn't a clear way to know how much of your subscription fees are going to payment processing. For smaller organizations, that might actually be okay. However, once you start collecting more donations (and larger donations) this cost starts to become non-trivial and most organizations want to know how much they're paying in fees.
Other donation management systems will show one simple rate for all payment processing (example: "2.9% for online donations"). The upside, as a customer, is that this cost is easy to understand. The downside is that it glosses over how different the fees are for different types of payment methods. For example, 2.9% is a standard rate for Visa and Mastercard. For American Express it's actually a pretty good rate. For ACH transfers, 2.9% is terrible (a $3,000 donation would cost $87 to transfer... yikes.)
For Giving, we've opted to expose the processing fee rates for credit/debit cards and ACH directly. This is partly because Stripe's pricing is more straightforward than most. The rate does not fluctuate with volume, "credit cards" means all credit cards (including American Express), and ACH rates are appropriately priced lower than cards.
Pricing obscurity, the "effective" rate, ACH, and Giving.
Early on, when we were researching payment processors for Giving, many churches told us what kind of rates they were getting. When we looked at their actual statements with them and did the math, what we found was this: their "effective rate" was almost always higher than the rate they thought they were getting. Sometimes it was because the rate was variable and they didn't meet the tiered minimums. Sometimes their bill was offset by monthly or annual fees. Sometimes, they simply missed some small print (see the PayPal case study below).
The effective rate:
The "effective rate" is the actual % you're paying for payment processing. It includes the % cost as well as the transaction fees. In short, it's the total amount you paid for getting money into your bank account. It's the thing you should care about most when it comes to estimating the cost of payment processing.
How ACH helps lower your effective rate:
Your effective rate includes % fees as well as per-transaction fees. Credit and debit cards are processed at 2.3% + $0.30 per transaction. However, ACH fees are processed at $0.25 per transaction. More ACH donations lower your effective rate.
Ten $100 donations are made with credit cards. In total, $1,000 was received. The processing fees for the card donations totaled $26 ($2.30 + $0.30 x 10) making the effective rate 2.6%.
Five $100 donations made with credit cards and five $100 donations were made with ACH. In total, $1,000 was received. The processing fees for the card donations totaled $13 ($2.30 + $0.30 x 5). The processing fees for the ACH donations totaled $1.25 ($0.25 x 5). The grand total of processing fees was $14.25 making the effective rate 1.4%.
Where to find your effective rate in Giving:
In Giving, we've made it easy to see your effective rate by calculating it each and every time Stripe deposits money into your bank account.
Note: Stripe tends to lump ACH donations together when money is transfered to your account. That means that, in general, your effective rate for some payouts will be higher than 2.3% (because of the per-transaction fees) when the payout is mostly credit cards, and much lower than 2.3% when the payout is mostly ACH donations.
PayPal has a great rate for qualified non-profits of 2.2% + $0.30 per transaction.
But, if you read closer in the "Additional Fees" section, you'll see "American Express card usage fees: 3.5% per transaction." Since Amex cards represent a non-trivial amount of donations, that makes the overall effective rate somewhere closer to 2.5-2.6% for "cards" depending on how many Amex donors you have. You'll also find there's a $30 monthly fee for the "PayPal Virtual Terminal" and a $30 monthly fee for "PayPal Payments Pro." Lastly, you'll note that there's no mentioning of ACH. That's because ACH is a part of that 2.2% rate.
We're on the same side as you.
Most donation management systems have processing fees intertwined into their price model. Planning Center Giving charges for the use of the software (the number of donations) – we make $0 from processing fees. That means our interests, when it comes to processing fees, are aligned with our customers. In the future, if we find that the marketplace has changed and Stripe isn't keeping pace, we could add an alternative payment processor if we determine customers will be better served.