Navigating Payment Processing for Nonprofits
Speakers: Nick Bencivenga, Dharma Merchant Services
Facilitator: Becky Wiegand, TechSoup Global
Chat Assistants: Sun Park & Ale Bezdikian, TechSoup Global
Slide 1: Navigating Payment Processing for Nonprofits
Welcome to Navigating Payment Processing for Nonprofits.
Slide 2: Presenters
My name is Becky Wiegand and I am the Webinar Program Manager here at TechSoup. I've been with the organization for 7 years. I'm happy to be your host for today.
Also joining us on the line is our expert today, Nick Bencivenga, who is the COO at Dharma Merchant Services. He holds a degree in economics and international studies from Virginia Tech. And he worked in the financial services industry prior to joining Dharma in 2011. He enjoys biking and rock climbing with his wife and their dog Hubert, and he is a wholehearted supporter of the paleo lifestyle. And we are really happy to have him joining us because he is an advocate of Dharma's Mission which is to enhance their collective situation by operating with compassion, care, kindness, and moral responsibility in every aspect of life. And he brings that to his business life at Dharma Merchant Services.
You'll also see on the backend Sun Park and Ale Bezdikian who are joining us from TechSoup. They'll be on hand to help answer questions and help you with any technical issues throughout.
Slide 3: Where Are You?
We are all here in San Francisco in our San Francisco headquarters office here at TechSoup, and Nick in the offices of Dharma Merchant Services. Go ahead and let us know in the chat window where you are joining from today.
While you do that, I'll also go ahead and look through today's agenda. We have folks chiming in, Santa Barbara, Colorado, DC, Connecticut, Utah, Florida, Texas, North Dakota, Virginia, all over the country. We also have some folks joining us from around the world, Canada mentioned. We are glad to have you all joining us today. Thanks for being with us.
Slide 4: Agenda
Today's webinar will focus primarily on topics and products that are available in the United States, but some of the products are also available around the world. I'll do a quick introduction of what TechSoup is in case you are not familiar with us. And then we will ask you our participants a couple of questions about how do you need to process credit cards and what your level of comfort is in doing so already. Then Nick will take us through how to understand the transaction process and the different players that are involved, giving us some good definitions because there is a lot of jargon and lingo out there that trips us up and confuses us, and makes choosing the right vendor for your
organization's needs more complicated than it needs to be. Then he will talk about how credit card processing works and how to avoid some common traps the end up costing your organization more money. He'll talk about how to accept different kinds of payments, online, in person with the card in your hand, point-of-sale systems, and smart phone options. And I'll go ahead and highlight a few featured credit card processing providers that are available through
TechSoup's programs. We'll have time for Q&A, so ask questions as they come to you because we will be flagging them throughout the webinar.
Slide 5: about TechSoup Global
So TechSoup Global is a network of 63 NGOs around the world serving nonprofits, public libraries, foundations and charities and more than 120 countries. You can see more about the work that we do in our 2014 Year in Review. We serve these countries all around the world.
Slide 6: Our Reach
So anywhere you see a dot on this map we have a presence. And some of those dots, the Green ones in particular are NetSquared groups. I like to highlight them because they are the local chapters you can reach out to to join a meet up in your area to talk to other nonprofits and social do-gooders about how they use technology.
Slide 7: Our Impact
We serve these organizations, 615,000 of them around the world, and have delivered donated technology products to the tune of nearly $5 billion.
Slide 8: Our Product Donation Programs
And prior to joining TechSoup, I was a recipient of many of those donations at 3 small nonprofits that I worked with. So you can learn more about those programs at TechSoup.org.
Poll Question: How familiar are you with merchant services?
Now onto the topic of the day, go ahead and weigh in on this screen. Let us know clicking one of those radio buttons on your screen, how familiar are you already with merchant services? Do you currently accept credit cards and feel like you know a lot about how to select the right kind. You are pretty confident and how you do it. You have tools that worked pretty well for you. Maybe you accept credit cards but you don't know a lot about it or you are not sure if you are using the right tool make up. Maybe you are limited in the ways you can accept credit cards. Maybe you don't accept credit cards yet but want to, and you are not sure where to begin. Go ahead and comment in the chat if there's something else you'd like to share that is not represented on the screen.
Brock comments in the chat, "We take donations and credit cards via PayPal."
Sandy comments, "We've handled credit card processing by a 3rd party with online payments."
Kenneth comments, "Tried it once but fees are too high." That is not an uncommon feeling especially depending on the types of transactions and volume of transactions you are processing.
We know you can't see what others are commenting so we will try to chat out anything that is useful. We will try to share that back out to you. Otherwise, we are reading your comments and capturing your questions on the back end, so know that we are watching.
I'm going to go ahead and show the results and then have one other question. And this helps inform us of where you are at in the process and also how we can best help you in today's webinar. So it looks like 50% of you accept credit cards but you are not sure that it's the right fit. And combined — let's see if my math skills work here. About 30% of you either don't accept credit cards yet or you are just not sure where to begin. So that is great to know and have an idea of how our audience is feeling about credit card processing right now.
Poll Question: I'm interested in credit card processing in these ways (select
any):
And go ahead and click on these buttons. You can select as many as apply to you. How are you most interested in accepting credit card processing and payments? Are you mostly looking to have online sales or donations? Are you doing phone and mail order sales or donations? Are you needing to accept credit card processing in person either at your offices, or if you are a library may be at your circulation desk for late fees, or maybe at your church if you are joining us from a religious organization or church? Are you needing smart phone and mobile sale or donation options? And maybe all of these apply to you, but go ahead and click them all if that is the case. If there is something else, comment in the chat.
I'll give just another few seconds. Right now we have about 155 people in the room weighing in. We want to make sure everyone has the opportunity to share their feelings.
Amy comments, "We need credit card services that can handle donations, products provided for donation, as well as online video pay-per-view in a one-stop shop." So some of you need more robust systems to be able to handle that, or have e- commerce. Some of you sell things in addition to providing services where you may get donations. I'd imagine some of you have membership fees. So there's lots of different ways you may need to process payments.
I'll show the results here. And by far the largest group is online — the ability to click credit cards to online sales or donations, followed by in person credit card transactions either at your events or your offices. That's really helpful to know, but a lot of demand for all of these. So that's great.
Slide 9: Accepting Credit Cards and Electronic Payments
So I'd like to go ahead and have us dive into the topic at hand with Nick Bencivenga, the COO of Dharma Merchant Services who is going to talk to us a little bit about how all of this stuff works, help define things, help take away some of the scary lingo that makes it complicated, and talk a little bit about the pricing and different models of pricing that are out there that you can select from.
And before actually having him join us on the line, I just want to make sure people understand that there is no one-size-fits-all when it comes to payment processing because if you are a small organization that processes 100 $5 donations in a months, that's going to be a different system that may work best for you compared to a large organization that
processes 1000 donations, or 10,000, or 20,000 donations in a month. Or maybe you only process 2 $5000 donations a month. And those differences in the way that you manage and receive transactions make a big difference in how you select your tools.
So Nick is going to explain a little bit more about that. We're so glad to have you want a program Nick. Thanks for joining us today.
Nick: Thanks so much Becky. I really appreciate it and I am happy to be here and help out.
So as a quick introduction as Becky mentioned, I've been working at Dharma Merchant Services for about 4 years now and I'm a COO. We are a relatively small firm here so I can have my hands and a lot of different parts of our business. We specialize mainly in nonprofits. That being said, we have a social mission towards giving back to our community so we often end up working with a lot of socially conscious businesses, socially responsible firms, as well as nonprofits. About 40% of our portfolio is made up of nonprofits in particular. So we are quite conscious of their needs.
But I wanted to jump in and first off give a back ground of what a merchant account even is, why you might need one, and define a couple key terms, and then discuss some pricing models and how things work in our industry, and how pricing works in general. And then we can discuss hardware and get into some of your specific questions as well. I see a lot of great questions coming up, a lot around PayPal which we will definitely dive into.
And as Becky mentioned, one thing to really keep in mind is merchant services is a really customizable solution. Meaning, everybody is a little bit different and has different needs. As Becky alluded to, not every solution is going to be kind of an out of the box fit for every merchant because we all have different needs when it comes to accepting payments.
With that in mind, I'll go over the basics. Please feel free to interject with some questions and we will flag them on our side so that we can address them at the end.
Slide 10: What is a merchant account, and why do I need one?
So to start out we want to define a merchant account. Most people don't even know what this is. A merchant account is simply a business bank account that allows or organization to accept credit card payments. Most merchants aren't aware but accepting credit cards carries risk just like accepting cash or checks. You could accept a counterfeit bill. You're safe could get raided at night. A check could bounce. Same idea, credit cards actually do carry a risk. And one of the jobs of the merchant service provider is to manage that risk and then pay you for the funds.
So risks that can happen are your customers might dispute a charge. There may be fraught on your account, things of that nature that the merchant service provider is actually responsible for. Should your organization not be able to pay we are on the hook. And so that is one of the things that you are paying for with a merchant account.
You are also paying for the provider to ensure that you are up to date with the IRS. We are required by law to report that income. We are required by Visa and MasterCard to make sure that your account abides by all sorts of different
regulations and standards, and that is one of the jobs of the merchant service provider.
In addition, we are going to be physically responsible for putting the funds into your bank account, helping out with discrepancies, things of that nature, all sorts of customer support. So your merchant service provider is really the company that manages your payments and insures that you are getting paid on time.
Slide 11: All credit card transactions involve several entities:
So as we discuss a kind of the main transaction flow just to kind of get the basics of how a credit card transaction works, there's four main players. The first 2 players are the ones that everybody thinks about, the merchant and the customer. You as your organization are the merchant if you are accepting payments, and the customer's the person making the payment or the organization making the payment.
Behind that there are 2 banks, one bank for the customer and one bank for the merchant. Whatever credit card or debit card the customer is using, that will have been issued by a card issuing bank, bank Chase, Bank of America, Wells Fargo. If you pull a credit card out of your wallet it's going to have a logo on there. That is the card issuing bank who made the credit card.
The merchant service provider is also known as an acquiring bank. This is going to be the Bank that represents you the merchant. So everybody's got a bank behind them. I'm not going to go through this entire transaction flow, but we can keep it up on the slides so you can see it later. But in a nutshell, the transaction is going to go through — every bank is going to get touched as a transaction happens. A live authorization will get sent to the issuing bank. The issuing bank says yes or no. It comes back to the credit card terminal or online and then it gets sent to the acquiring bank to process.
Slide 12: Who are the different entities involved in a transaction?
So as we move forward we can go through a couple of definitions around what these terms mean. So again, the
customer is going to be whoever is actually making the payment, whereas the merchant is going to be who is taking the payment. And the card issuing bank represents the customer, and the merchant service provider represents the
The last term that a lot of people hear around these is called and ISO or an independent sales organization. You can consider an ISO one and the same as a merchant service provider. They're oftentimes considered an agent on the account. For many, many years, many big banks, many merchant service providers simply haven't wanted to get into the business of acquiring merchants. They're really good at processing payments, but they are not great necessarily at customer support or finding merchants. So often times they will essentially rent out the solution to a smaller company to go acquire merchants and be front end support. And that is known as an ISO.
So this is very common to hear in the industry. And ISOs can actually be a really big boon to certain niche markets, for example, in the nonprofit world. Bank of America might not have a great relationship with many of the smaller
nonprofits in their community, but they might have a local agent who really knows all of the different organizations, all the different people in that community. And that agent or ISO could be in a much better position to represent these organizations. So an ISO can actually help out in knowing what kind of needs each organization has, and more adequately finding a perfect solution for them.
And I see that somebody did ask a question. Dharma is an ISO. We are technically an ISO. Most merchant service providers that you hear about out there are actually ISOs. They represent a larger bank. The ones that aren't going to be an ISO are the really big ones, Bank of America, Wells Fargo, Citi, kind of the really large banks. They are direct processors, but most other processors will be ISOs.
Slide 13: What is a payment gateway?
So as we move on we can talk about — now that we've defined a merchant account, many people ask, what is a payment gateway? What could that be? A payment gateway essentially, think of a payment gateway as a credit card terminal for the Internet. So if you accept credit cards in person, you are going to swipe the credit card through a terminal.
Immediately the terminal will dial out for a live authorization, ask the card issuing bank, is this a good sale or not. And the card issuing bank will come back with a yes or a no. The terminal, if it got a yes will say great. The receipt will print. Your customer will walk away and you've got a donation.
In an online environment, there is no phone line. We have all the transaction information, credit card information that is being entered on the Internet. And as such, we've got to get that information to the card issuing bank in an encrypted and secure format. That is where a payment gateway comes along.
A payment gateway's job is to simply take all this information that has been entered by your customer, pass it along to the card issuing bank in a secure manner, and come back with a yes or a no. That is kind of the core job of a payment gateway.
Payment gateways can come in all shapes and forms. Technically, PayPal is both a payment gateway and a merchant service provider. They have combined both of those services. However, most merchant service providers will offer their merchant services as one product, and a gateway as another simply because many merchants will have specific needs when it comes to gateways. As you can see, do I need one? That really depends. Every organization will have different needs.
Almost everybody here said I need to be able to take online donations in some way shape or form. If that is the case, likely you are going to need a payment gateway. But some organizations might have only very basic needs, a quick Donate Now button on the website. Whereas, other organizations might need to integrate with a shopping cart, or allow customers to save information and come back and pull up orders. That kind of advanced feature, those advanced
features can be part of specific payment gateways, and your organization might need some over others.
I do see a question that asked about PayPal as well. PayPal is independent from every other provider. So you can consider PayPal like their own merchant services Company. You can have PayPal and another provider, but only PayPal can process as PayPal.
Slide 14: What does the transaction flow look like?
All right, so just quickly looking at how a transaction flow works on a payment gateway, if we look at this first box here you can see a customer's going to place an order on the website. Immediately your website will take that information and if it is connected with a payment gateway, you will go into the payment gateway. The payment gateway will send this information live through the Internet, get a yes or no, and come back and report that information directly to the customer. They are either going to get a yes or a no in real time. If it is a yes, the transaction will process and the funds will flow out of their account and into yours.
Slide 15: Why do I need a separate vendor for a payment gateway?
So moving forward, a lot of people are going to ask, why do I need this? I've got PayPal, it does both. Why would I want a payment gateway separate from a merchant account?
And the answer is flexibility. Many merchants start out with PayPal because it is simple and easy and it works great. But often times as I've seen a few questions alluded to, PayPal will be missing a feature. Some merchants I see here,
somebody asked, why can't I key in transactions in PayPal? That is a feature they don't include with their basic accounts.
Other things that people may want in a payment gateway might be recurring donations. If you want to be able to take a credit card from your customer or your donor and say let's charge a donation of $25 every month, many payment gateways will allow you to input that information, say set this for once a month, and walk away. Set it and forget it. So you are automatically going to get that payment every month.
That is an advanced feature that's only offered by certain payment gateways. If you are a smaller organization you might not have a need for that yet, so paying for an additional feature like that wouldn't be worth your while. That is why you can see how many companies can specialize in very specific needs for specific industries. And that is why
organizations will opt for different gateways based on their needs. There can be very complex ones all the way down to very simple ones, and depending on your needs prices are going to fluctuate.
The last big reason to choose a gateway that isn't connected to your merchant service provider is actually a big one that most people don't consider. I'll give you a hypothetical situation. Let's pretend that I started working with Company X, Y, Z. And they said, "Oh, you can use our gateway." Great, it's all connected. It's all one. This sounds wonderful. And over the next 3 years we've been keeping all of our customer's data in this gateway. We've been storing credit card numbers and we've got all of our goodies in this gateway, and we feel really good about it.
But then we find out that this merchant services company has been ripping us off, and they have been overcharging us by 3% every month. If I want to take that data to another provider, I can't. This merchant services provider, because it was a proprietary gateway now owns this gateway. So I can't take my data with me. That means that I am either stuck paying their high fees or losing all of my data.
And for that one main reason, many merchants will proactively choose, I want a gateway that doesn't lock me in. I want to be able to have an agnostic gateway that I can take to different providers. And most of the bigger gateways out there are set up like that. So that is why many merchants opt to not utilize an internal gateway because you are basically stuck with them many times.
Slide 16: How does credit card pricing work?
So moving forward, we are going to discuss credit card pricing which can be very complicated because there is a litany of different pricing models out there, and most of them are dependent on some very confusing underlying terms and different kinds of fees that people aren't aware of. So what I want to do is briefly touch on a couple of the main components of how credit card pricing works and then discuss a couple of key and primary models that you can look
out for, things to avoid and things to ask.
So the main components of every credit card transaction are going to be known as interchange rates, card association fees, and your merchant service provider's margins. Typically, the largest piece is going to be interchange. In a nutshell, interchange is the underlying cost of any given credit card transaction. If you pull your wallet out right now and pull 3 different credit cards out, most likely those 3 different credit cards will have 3 different interchange rates associated with them. What that means is the interchange rate is what the merchant service provider is going to pay back to the card issuing bank the moment the credit card is used.
So for a quick example, let's pretend an interchange rate is 2% and your customer donates $100. The moment that they run that $100 sale, the interchange rate of 2% will be assessed, 2% of $100 is $2. So your merchant service provider would immediately pay the card issuing bank to that customer $2 dollars as their fee. So that is the main cost. Your merchant service provider is paying that in advance. That is going to happen on every single sale and the interchange rate will depend on the actual type of card being used.
And the idea here is that interchange rates adequately reflect the actual cost of processing. For example, if you're card issuing bank issues you a card with rewards or points or miles, is going to cost them money to give you those things, and as such that part will have a higher interchange rate associated with it. Whereas, a debit card doesn't have really much risk or cost associated with it because as soon as you use that the monies in your account and we can just pull it right back out, so there is very little risk and very little cost. Therefore the interchange rate is much lower.
There are literally hundreds of interchange rates out there that depend on many factors but the end of the day thing to take away from that is that interchange is set. You are not able to change the interchange rate. Once you receive a card, that's the rate. That's what everybody pays. It's like the invoice cost of a sale for us.
The next section is card association fees. Card associations are simply Visa, MasterCard, Discover, and American Express. Most people think the fees you pay go back to them, but it's actually only a very small section of the fees that will go back to the card associations. I'll get into it in a little bit here, but it is typically around .12% of the volume you process will go back to Visa and MasterCard.
The last section is what you pay to your merchant service provider, like Dharma, or your bank, whoever is actually processing your credit cards. And your merchant service provider is going to charge you for customer support, for actual risk and processing these cards. There are times when your merchant service provider will take losses. They are going to charge for the equipment that they provide you, and for any other ancillary products that you might purchase. There are a lot of different things in payment processing such as give cards, check acceptance, things of that nature that your merchant service provider is typically responsible for.
Slide 17: What is Interchange?
So to dive in a little bit deeper on interchange, because interchange is actually the biggest section of costs. If you were to take your $1000 monthly bill and look at it, typically interchange will be $800 of the $1000. It is the bigger chunk, the largest section of your merchant services fees.
Interchange is always, always set in stone. And interchange is always, always something that you cannot change. So it's important to recognize that interchange is something you can't even exactly estimate because you don't know what kind of cards your customers are going to use. So it can be a little bit challenging to work with interchange because you might be asking yourself, "If I don't know what the rates are, how am I supposed to accommodate for this?" We will discuss this and a few pricing models here, but typically, the best pricing models are ones that disclose this interchange rate.
Interchange, think of it as synonymous with your provider's cost. It is what your provider is paying back for sales that you process. So interchange, basically you are always going to pay at least that plus some margin. It is the base cost of all credit card sales. And it is the cost that every provider has.
Slide 18: What are Card Association Fees?
So let's move on and we will talk about the card association fees real quickly. Again, these are fees that every provider is subject to. They are set by Visa, MasterCard, Discover, and American Express. And there are many different instances of where a card association fee can apply, but the general amount is typically, it is roughly .12% of the transaction volume, and roughly $.02 per transaction. And, again, these fees go directly back to the card associations and it is where they are making their cut. This is how Visa stays in business. This is how MasterCard stays in business. They are taking a small percentage of every sale.
Slide 19: Why choose a full-service provider?
And the last one, we are going to go into pricing of the merchant service provider. And first I want to discuss why you would choose a full-service merchant provider as opposed to something like PayPal or Square. And the answer is you might not want to choose a full-service merchant service provider.
There are plenty of organizations where you are not going to get the benefit of what an MSP can provide, and you will probably overpay should you use an MSP. Most merchant service providers will do better with organizations
processing consistent volume of at least $5000-$10,000 per month. And the reason is, when you are hiring an MSP you are hiring somebody to manage this process for you or to help you out. You are hiring customer support. You are hiring somebody who can pick up the phone when you call. You are hiring somebody who can actually consult with you and can manage this process and can determine what the best solution is for your organization.
PayPal is never going to do that for you. Square is never going to do that for you, and by design. They don't want to and they shouldn't. So a full-service MSP is perfect for customers or merchant who need assistance, who have complicated models, who are taking donations or payments across many different channels and want somebody to help consolidate, keep fees low, and ensure that they are doing things the right way.
Slide 20: Why choose PayPal?
So as we discussed, is an MSP even good for me? Let's talk about why would I even choose PayPal?
PayPal is perfect if you are just getting started or if you are taking smaller volumes every month because of the
simplicity. To be perfectly frank, having a merchant account can have some confusion. There's a lot that goes on. It is a financial services firm that you are dealing with, so as such, there is just more happening. It's not a bad thing, but it can be really nice for a new organization or an organization with limited needs to just have things simple.
PayPal makes it so easy to sign up, it makes it so easy to just put a button on your website. And frankly, it makes it easy to estimate your pricing too, to have a flat pricing model which makes it very simple. You sacrifice some of the
advanced features, but it is definitely worthwhile for merchants who don't know exactly what their processing will be every month, who don't know how big they are going to get, or just need something basic to accept donations today, right now without having to worry about things. PayPal is perfect.
We don't even consider ourselves a direct competitor of PayPal because typically they work best for merchants who are doing under $10,000 per month and we work best with merchants above that. So we have found that it is not even a competition for us. It is actually that this is a good service for merchants doing smaller volumes.
And they see that somebody just asked a question, "At what level of monetary intake is it a bad idea?"
It's really challenging to say, to be perfectly frank. And the reason is that every organization's different. Every organization takes different kinds of cards. And PayPal is even willing to offer different rates at that level, so it is possible the PayPal has given a price break at a certain value. Typically, and I say typically, what we have found is usually in the $5000-$10,000 per month and above range when a full-service merchant service provider will do better than PayPal. That is not always the case though. And if you are wondering, we would be more than happy to do a full
review for you.
Slide 21: What about the MSP margins?
Now that we've discussed, do I even need one? How do the margins work on merchant service providers? Like now that I know that I decided okay, my organization is big enough or I've got enough different channels, what should I be doing here? How do I choose a pricing model? And the pricing models in merchant services can be very, very confusing. There are 2 main pricing models that we will discuss today. Frankly, pricing can be done in many different fashions. These are the most common ones that people see.
Because we have discussed interchange fees here, I'll talk first about the tiered pricing model and how that works. So as we discussed, interchange fees are variable. They can be very low from close to 0% up to as high as 3% per transaction, but they are going to fluctuate. Most cards are in the 1% to 2% range.
The tiered pricing model works whereby your provider will say, don't even worry about those interchange fees. We are not going to show them to you. Instead we are going to give you this rate, let's say 1.99%. And it sounds very nice. You say, "Okay 1.99%. I can deal with that. That sounds good."
But then, what often isn't disclosed is what is called a nonqualified rate. So the provider will lead with this low rate and say, "Hey, your qualified sales will be 1.99%." But then there will be a hidden nonqualified rate that is typically much higher, 3 ½%, 4%. And what your provider won't tell you is what kind of transactions will kind of qualified v. what won't qualify. That is going to be for you to guess. And oftentimes you will get a statement in the mail. And you'll say, "Boy, it looks like all of my transactions, or 90% of them were in this nonqualified bucket of 3 ½% instead of this qualified rate of 1.99%."
The problem with this model isn't necessarily that you will pay more money. Your provider could set this up in a way that is cost advantageous. The problem is, you will never know. It is impossible to know what your provider's margins are on a tiered pricing model because they are not sharing their costs with you. So for all you know, they are making 1/10 of a percent, they're making 1%, they're making 5%. You really can't know because they are not telling you what their costs are.
So a tiered pricing model can be okay if you are getting great low rates. It is just hard to know, which is why we actually advocate for an interchange plus pricing model across the board for any merchant.
The way an interchange plus pricing model works is instead of just giving you an arbitrary rate, your provider will say we are going to add a specific margin on top of each interchange fee. So let's pretend that the margin is .2%. If the interchange rate is 2%, they are going to add .2%, and you as the merchant will pay a total of 2.2%.
The advantage to this model is your provider will always be disclosing their margins. You are going to know that on every single sale there will be .2% margin. You are going to be able to see this on your statement and you will be able to take that statement to another provider and say, "Can you beat this?" It allows you to ensure that you're provider is transparent. It allows you to ensure that you're provider isn't raising rates. And it also makes it so you can compare services to other providers.
An interchange plus pricing model is something that is widely demanded by large volume merchants. If you talk to any merchant processing above $100,000 per month, I can almost guarantee that they are going to be on an interchange plus pricing model. And the reason is, high volume merchants know they deserve it. They know the providers are willing to give it to them, and they demand transparency.
And we are of the opinion that all merchants deserve that. And we know now that because of the proliferation of the Internet and the amount of knowledge being spread around right now, almost every provider is willing to provide interchange plus pricing. They might not lead with it and they might not tell you about it, but if you ask, most of them will provide it.
Slide 22: Traps: Fixed Rate Programs/Tiered Pricing
And here I will show just a quick example of some of these tiered rates. Here is how the service will lead, 1.99%, or 1.38%. And then the statement will look like this, nonqualified 3.47%. And there will be a whole line item in there where all of a sudden your transactions aren't qualifying at 1.99%, but at 3.47%. And that can be — this is a common trick in our industry unfortunately.
Slide 23: Traps
In addition to tiered pricing or fixed rate programs there are a lot of other things to look out for. And frankly, I could spend an hour just talking about the use. But the big ones are going to be hidden fees. Always read your contract. Look for anything where it says we are going to charge you $100 for this, or $100 for that. You would be surprised at how many things can be written into a contract in small print.
Monthly minimums can be a real killer for nonprofits especially if you are seasonal. Many merchant service providers will say, we are going to charge $100 per month if you don't process X amount of volume. You might not even notice for a few months if you are a seasonal merchant. So you could be processing $50,000 a month for 3 months. Everything is going great. And then the first month you don't have sales, all of a sudden you just got billed $100 for not processing. Unfortunately, it's common in our industry.
Same idea with cancellation charges, the cancellation charges are often to the tune of, "You can cancel your account if you pay us $1000." Or, "You can cancel your account if we calculate our profit for the next year, and you can pay us our profit."
This is again, unfortunately common in our industry and we highly recommend asking your sales representative or any new merchant service provider, "Am I locked into a contract?" And if the answer is yes, we highly recommend looking around because there is really no reason for it.
Another big trap is equipment leases. Typically equipment should not be very expensive in our industry, and many times merchants will be get locked into a 4 or a 5-year contract where you are paying $30 or $40 a month for
equipment. Oftentimes, you can do the math on this, you will end up paying $1500 or $2000 for a piece of equipment that might have only originally cost $300 or $400. We always recommend purchasing your equipment upfront. And always, always ask if that equipment is locked because some providers will even sell you equipment that won't work with another provider, so you are stuck with them if you want to keep using your terminal.
You will also see "Out Of Compliance" scams where merchant service providers will just cold call merchants and say, "Hey, your account isn't in compliance anymore. Just sign right here and it will be." We get these calls regularly from our merchants saying, "Hey, did you guys call us?" And we say, "No! No! No! That was a scam!" Unfortunately, it happens regularly. So always be on the lookout if you get a phone call from somebody purporting to be your merchant service provider. In sure that they actually are by verifying details.
The last thing is Surcharged Assessments this is a really big one to. We just talked about card Association fees and those are incredibly vague and can incur many fees. Unfortunately, this is an opportunity for many providers to just mark things up. They say, "Oh great. Nobody knows, might as well just do it." So always read your contracts.
Slide 24: How are nonprofits affected by interchange?
And one thing that is important in discussing nonprofits and interchange as well, is interchange in particular is designed to help nonprofits. Nonprofits get lower interchange rates than everybody else. As such, you will always benefit from and interchange plus pricing model because if you are receiving lower interchange rates and you are on interchange plus that means that you are receiving lower fees as well. Sometimes it is up to a percentage point lower, so we always recommend it.
Slide 25: Accepting Online Payments
So we are going a little bit behind time so I want to speed up a tiny bit to make sure we get to everything. I want to discuss online payments. I went one too far. I'm sorry.
As we discussed earlier, there are 2 major options when going online. You have something integrated, something that is built for you like PayPal. Simply build a button and put it on your website. The advantages to this are obvious. It's easy. It's simple. It doesn't take long to do. The disadvantages are just as obvious. It's not customizable. You don't get to have recurring payments. You don't get to have your own buttons, your own logos, anything like that. It can be very basic. And to some customers it can feel like a turn off.
So what many merchants to do instead is develop a custom solution and this is where a payment gateway comes in to play. You'll need to have a payment gateway if you want to have custom donation forms, custom payment pages on your website. And typically, you are going to need to also have some development team either in-house or you're going to need to hire somebody. The reason being, every merchant has a unique solution. Every merchant is going to want to ask different questions. Their page is going to look different than another merchant. They're going to want to have different logos. They're going to want their data to be stored differently, and as such, every merchant is unique. And so we want to make sure that you are finding a solution that meets your specific needs, and that is usually why an out of the box usually won't do it when you get to a certain level, which is why we recommend working with an outside web development provider. We offer a few in-house here, and there are plenty out there as well and we can discuss those at the end.
Slide 26: Basic Online Payments: What are the costs?
Usually the costs are, you have $15-$20 a month in a merchant account, and usually $15-$20 a month in a payment gateway. Naturally, these fees can fluctuate based on a deal that you are able to get. But we like to usually recommend to estimate about $30-$40 per month in static fees.
And then online payments for nonprofit typically come in at the range of about 2 ½% to 3%. Again, this is very variable, but that is a good range. It can go as high as 3 ½%. It can go under 2%, usually around 2 ½% to 3%.
Slide 27: Custom Online Payments: What are the costs?
Oftentimes, if you are going to do a custom solution you are going to have to purchase additional services, shopping cart, a web development team, something of that nature. We work with 4aGoodCause.com. They create custom donation pages for merchants so it kind of takes it out of your hands, but there are a lot of them out there which I am sure Becky can discuss at the end as well.
Slide 28: Accepting In-Person Payments
So I know a lot of you wanted to talk about in person payments as well. In person payments in our industry are
considered the lowest risk and the cheapest kind of payments to process because you are getting a signature at the time of sale. You are swiping the card and verifying the information. From your perspective it is typically the cheapest sale to process as well because it doesn't require an online payment gateway. And usually you can process through a credit card terminal that you already own or have paid off. Most terminals are cheap, a couple hundred dollars. And many organizations will either give them away or will allow you to purchase them at reduced prices if you are a nonprofit. Wireless terminals will work very similarly to in person stand alone terminals outside of the fact that you will typically pay a wireless fee as well. The reason for that is wireless terminals utilize the cellular networks and just like you have to have a SIM card in your phone you will have to have a SIM card in your wireless terminal as well. And so those will
have an additional monthly fee for that and the additional cost of the battery and things of that nature make those terminals of the more expensive. They are usually in the $500-$800 range.
Slide 29: Using a Point of Sale (POS) System
In moving on along for in person sales is — we've had a lot of questions about, "Do I need a point-of-sale system?" And, "What is a point-of-sale system?"
A point-of-sale system is if you think about when you walk into a restaurant or a retail establishment, it is usually the computer or the tablet that sits behind the register that manages all of the business. It manages the finances. It will manage the inventory, employee time clocks, reporting, all things of that nature. So point-of-sale is kind of like your dedicated front-end device if you are a retail merchant. Perfect for retailers.
Nonprofits however, typically won't get to benefit out of this because usually nonprofits don't have big inventories, usually don't have a ton of employees, and usually your sales are pretty basic. So not to say that a point-of-sale can never apply, but typically, most nonprofits won't need to utilize one.
Slide 30: Smartphone Processing
So moving right along to smart phone processing, and this is something that most nonprofits have a need for. And I see a lot of people said that they are interested in this. Smart phone processing actually utilizes a payment gateway in the background. Most people don't recognize that, but because the transaction is technically happening over the Internet it is utilizing a payment gateway. And so that payment gateway often times already exists. So if you already purchased a gateway if you already have authorize.net for your online sales, you actually already have access to smart phone processing.
Most payment gateway's that you purchased today will include that functionality because it is quite simple for them to develop. All it is is downloading an app on your phone that is essentially a web portal on your phone that will act just like the portal on your computer. So typically, most merchant service providers will offer very discounted or very cheap readers similar to the Square readers. And if you already have a merchant account set up, smart phone processing is usually cheaper through your merchant service provider than Square if you already have a merchant account set up, and if you're processing at regular volumes.
And the reason I say this is Square is perfect, perfect, perfect for small volume merchants the don't have regular amounts of processing. If you are just processing a few thousand dollars a month, Square can be great. But if you already have a full-service merchant account, and you are already paying a monthly fee, and you are already paying for it payment gateway, you might as well utilize that merchant account because the processing fees will almost certainly be lower than Square. So naturally this is another one of those conversations that's going to depend on each individual merchant, but Square is usually best for merchants doing under $5000 in person unless you already have a merchant account for other reasons.
And I see, "Is Intuit similar to Square?"
Intuit can definitely be similar to Square. It's a very similar idea. They have a card swiping device. I believe they are actually a little bit more expensive, but the same idea.
Slide 31: In-Person Payments: What are the costs?
For costs, you will actually pay less as a per transaction fee. Usually it's in the 1.8% to 2.5%. But to be frank, some nonprofits will pay as low as 1 ½% due to those reduced interchange rates. It will depend on the kind of cards you accept, but it is definitely cheaper to accept credit card payments in person rather than online. The interchange rates are more favorable.
Most terminals are between $200 and $400. In the wireless ones are about double that, between $500 and $800. As we alluded to earlier, POS systems are usually not ideal for nonprofits. They have large up front fees typically $1000-$1500 and a fairly high monthly fee, $50-$100.
Since smart phone processing again, that's going to be something that is built into authorize.net for USAepay, or whatever your other gateway is. So typically, you will have already paid for the service. And if not, it will just be the extra cost of a gateway purchase.
Slide 32: Questions? Reach out! www.dharmams.com
So I know we had a lot of information in there. I tried to get through a lot of it here and I'm sure they're going to be a lot of questions. But I wanted to kind of briefly reintroduce myself here in just let you know what we do here at Dharma. We have been around here for about 8 years. We are located in the heart of San Francisco. We process exclusively for, while not exclusively, but we do process almost primarily for socially responsible and nonprofit businesses, and that is really where our mission is. We give back a significant portion of our proceeds to charity every year. We also offer discounted rates to TechSoup nonprofit merchants as well. You'll see reduced set up fees. You'll see some free equipment as well, reduced ongoing monthly fees and reduced pricing. So Becky can post the pricing to that as well. Naturally, we know that we are not going to be perfect for every organization just like PayPal and Square won't. So we really encourage you to reach out and allow us to consult with you. We will definitely point you in the right direction if we are not the ideal fit. And that is something we built our business on is trying to ensure that we are helping our customers make the right decisions, not sign every account. So in that light I welcome everybody here to reach out to me personally. I'd be more than happy to discuss any kind of aspect of your payment processing.
In the meantime here, I think we have some time left over. So Becky, should we jump into some questions?
Becky: Great. Thank you so much for that Nick. I know that was a lot of information and I hope people are able to absorb it. And you will have those slides that have a lot of text on them for a reason because we wanted to make sure you had those definitions and had those explanations because it can be so confusing.
Slide 33: Featured Payment Processing Products
Before we jump into more questions I did want to highlight some featured payment processing products. These are actually all available through TechSoup's programs. Dharma, which Nick was just talking about, Dharma Merchant Services offers discounts to their payment processing services. Sage Payment Processing is another one that has a similar type of setup. They are a merchant service provider isotype system that they can process payments for you. PayAnywhere is this little swiper if you are looking for a card swiping service. I know Nick mentioned Square. There are a lot of different options out there now. Intuit was mentioned as having a card swiping option. PayPal also has PayPal Here. So if you are using a service already you may have something already available to you if you need a mobile card swiper, but PayAnywhere is one of those.
If you need an online store front, if you have e-commerce and you want to sell your tote bags with your logos on them, or stickers or T-shirts or what have you, Shopify is one option for you. CauseVox is primarily dedicated to cause based organizations and helping them fund raise and raise money online with an online platform. Connect2Give is a mobile based platform for taking online donations. So if you need mobile access and SMS, text messaging, donation
processing, that is available to you.
And then I highlighted a couple of these other ones here because one thing that is not mentioned so far in Nick's presentation is when we talk about online donations, there is that straight up easy to use simple PayPal that may not have the features you want. And then there is also building out something custom with an MSP. But in the middle there are other options that may already be in your repertoire of tools. If you use an online donation — sorry. If you use a donor management tool like eTapestry or DonorPerfect or many of the hundreds of others out there, many of them have
some built-in payment processing available and they may already have a relationship with an authorize.net or VeriSIgn. So look at the tools you are already using. You may have a customer relationship management tool, a CRM like
Salesforce. That may have an add-on that you can use that offers payment processing. Now it may not be the best rates or the right fit for the types of transactions you need, so you want to look at those rates if you already have a tool at your disposal. But certainly look at what you are already paying for to make sure that there is not an option that is already there for you to use because it may be easier, simpler, cheaper to go with what is already in your pocket too. So those are some options.
And then the last item on the list that I wanted to highlight quickly is for those of you that have a higher level of PCI compliance, we are all beholden to process credit card payment securely no matter what industry we are in. But certain industries have an additional burden to make sure that we are maintaining private records, that we are maintaining or not holding onto credit card data or customer information and data where it just shouldn't be in our hands and kept where maybe we are allowed to process that payment and after that we are only supposed to be able to see the last 4 digits of the card. If you are concerned about that definitely check out some security options like this HackerGuardian from Comodo. It's PCI compliance that helps you evaluate whether you're credit card processing is actually meeting PCI compliance standards.
We won't get into detail on that unless people have specific questions which I'm sure Nick could talk a little bit more about. But I wanted to highlight that there are tools out there to help you determine if you are meeting those standards and requirements so you don't get yourself, or your organization, or your customers, or your staff into any legal trouble if that data is hacked into and that credit card information gets into the wrong hands and you find that your donors are suddenly being fraudulently charged because they made a donation to your organization and some scammer out there managed to get their card info.
Slide 34: Additional Resources
So before we jump into other questions we have a whole bunch of resources here. They are not clickable on screen but they are in the slide deck that you got with your reminder confirmation email. You will also get them later today, everything from the upcoming EMV card chip that is coming out that some of you asked about that. And I'll ask you a little bit about that in a second, Nick. But Dharma merchant services has a huge knowledge base that talks about all of this stuff that Nick went over today in more depth. So if you have a specific area that you want more detail on that knowledge base has tons of resources to go into.
And then TechSoup has a lot of resources that we've created, things that are for specific industries, specific needs. So if you are joining us from a church we have examples of how churches can go high-tech with their collection plates. We have some Payment Processing in Pictures which kind of shows you the actual process visually so that you can see what it really looks like to do this process. And then we have some comparisons of some different tools that are out there, a few good methods for payment processing for credit cards, a few good point-of-sale systems, how to take mobile payments and different options that are out there, so lots of resources at your disposal here. Definitely check those out after.
Slide 35: Q & A
So now I am going to dive into this big long list of questions. And the first is Jeanette asked about wondering about the chip in the new credit cards and how that affects us. That is that EMV that we mentioned. So Nick, tell us a little bit about what's coming and what we need to know about that.
Nick: You bet. And this is what we call a loaded topic in our industry because EMV is on everybody's tongue right now. So EMV stands for Euro MasterCard Visa, and it is a technology that has been around for about 15 years pretty much everywhere else except for America. It utilizes and RFID chip in the card to secure the transaction as opposed to the magnetic stripe on the back of the card. It is far more difficult to copy a chip card, and as such, fraud is greatly reduced when using a chip card in an in-person environment.
I want to be clear here. Chip cards will only affect your in person sales. There is a zero implication for chip cards on your online sales or feed in sales. It just doesn't matter. However, starting in October all retailers are required and we use this word "required" to have EMV terminals. That being said, although you are technically required to be able to accept EMV cards coming in October, we can tell you that the vast majority of card issuing banks have not issued chip cards yet. So what that means is that even though you are required to have a terminal in October, almost none of your customers will want to pay by chip card yet.
So you are going to see that many providers are taking a slow approach to this because although technically you are required to have it, there is not any massive reason, or there's not going to be a huge penalty to not accepting it right away. The only actual liability that you do need to be concerned about is what technically happens on October 1 is if you are using a credit card terminal that does not accept EMV cards you will be technically on the hook or liable for fraudulent sales only if somebody pays with a fraudulent card that was copied from a chip card and you swiped it. What that means is that somebody would have to actually fraudulently copy a chip card, make it into a magnetic swipe card, hand it to you. You have to accept the sale, and then that customer would have to call in and declare that sale
fraudulent, then your organization would be on the hook for it. But if somebody hands you just a standard card that doesn't have a chip in that nothing has changed.
So we could discuss a lot about this, and I could talk for about an hour about it. But I highly recommend reading the EMV blog that Becky referenced on the follow-up slide and know that although technically you do incur some liability starting in October, it is very minimal for most merchants and we do recommend speaking directly to your MSP if you are already accepting credit cards about EMV.
Becky: Great. Thank you for that. So we have a couple of other questions in here, just people asking for comparisons like PayPal v. Square. Do you have opinions on that, or are there resources where people can do direct comparisons on some of the products that are out there?
Nick: Yeah. So actually on Dharma's website if you go to the Dharma Merchant Services Knowledge Base, we discuss who is best for Square, who is best for PayPal. And we always encourage you to simply reach out to us if you are unsure. If you have kind of gone through these things and go, "I just don't know." Feel free to reach out and we will point you in the right direction. Our goal is not to sign up another merchant, anybody that reaches out to us. We want to find a solution that works for you.
That being said, typically, Square is going to work best for anybody who is processing in-person, and they are really, really great for merchants processing under $5000 a month. There is almost no cheaper solution. In addition, they are also perfect for merchants who have very small transaction amounts. If you do $3, $5, $10 sales often times, especially in-person, Square will be just a far cheaper solution for you because Square has no per transaction fees. So imagine if you are paying $.20 per transaction with your merchant service provider. On $100 sale that doesn't make a big
difference that is only .2%. But $.20 on a dollar is 20% of your sale. So if you have to pay a per transaction fee and you are processing very low dollar volumes Square is often far, far, far more beneficial because they don't have that per transaction fee and you are essentially allowing Square to subsidize your small transactions.
Becky: Great. And we had a comment from Silk Waters Mooney in the chat saying no mention of PayAnywhere, they are cheaper than Square. I don't have the pay transaction details in front of me for the PayAnywhere option, but is sounds like is definitely worth doing a comparison there as well and checking out the options that are available because there are a lot out there.
We have a bunch of other questions in the queue like Jimmy asked, "With the purchase of equipment, what is the obsolescence time frame?" So if you are getting a cards swiper, or a mobile swiper, how long do those typically last if you are looking at $500 or a couple hundred dollars to purchase one, how long will that last?
Nick: The real credit card terminals and actual dedicated stand alone terminals are designed to last years and years on and. And particularly if you purchase right now or in the next few months, pretty much everything that you are going to find is going to be EMV compatible moving forward meaning your technology is kind of locked in. You have future proofed yourself for a long time.
There are some terminals, I'll be honest, that we can still reprogram after 15 years, not, October, but there are some out there. So terminals are designed to last a long time, so theoretically when purchasing one, assuming you don't get one that is locked or obsolete when you purchased that they are designed to last a very long time.
Smart phone readers however, are a different story. As many of you might be aware after using Square, they are designed cheaply with the intention that they can be sold at very low cost or given away for free. So often times the smart phone dongles in particular are of lower quality and will last not quite as long. We often hear from merchants that are using Square that they will actually keep 5 of them on hand because they break so often.
So we have a couple of different options when it comes to smart phone swipers. There are some that are super nice and some that go all the way down to, "Hey, will give you this one for free because it doesn't cost us much either." But it definitely from a terminal perspective, terminals will be very dependable. Smart phone swipers I wouldn't put in the same category.
Becky: Good to know, so they are a little bit newer in developing. So Joan asked a question that I think is interesting around what percentage of transactions are Visa v. MasterCard v. AmEx v. discover. Are the majority of transactions Visa and MasterCard still, or has that change?
Nick: Very good question. First off, it definitely depends on what kind of merchant you are. The reason I say this is merchants who except very high large ticket payments like $1000, $3000, $5000, or merchants who work directly with affluent clientele, you are going to get a lot of AmEx cards. If you deal with rich people you will have expensive cards. And AmEx always has the most expensive cards, not always but usually.
So typically, AmEx is a low percentage of sales unless you are selling jewelry, taking high-volume donations, things of that nature. Then you might get into the 10%, 20%, 30%, 40% of AmEx sales. Typically however, Visa, MasterCard. In my personal experience whenever I do cost comparisons it is usually I would say about 60% Visa, 30% MasterCard, and the remainder is split between AmEx and Discover. You often won't see many Discover cards.
Becky: Good to know. And let's see, we are just about out of time so I will ask this one other question here. What do you think is a good standard rate to look for? Like if something is 5% for their total rates is that something that is just out of the woods too high?
Nick: When you are comparing interchange plus pricing models, the actual plus on the interchange plus should always be under 1%. You should never be paying a percent or more for sales. I will tell you that Dharma's TechSoup margins are .2% and $.10 per transaction. So we make one fifth of one percent and then a transaction fee. And that doesn't mean that we are always going to be the lowest and that doesn't mean that other providers can't be nearby and be fair because they can be. You might find a provider offering 30 or 40 basis points or .4% or .3% above cost. Those are all definitely within the range of what I would call a fair merchant services deal.
In my personal opinion just based on how many accounts we see, usually anybody who is doing under a half of a percent above interchange I feel like they are giving a pretty good deal. Most merchant service providers do have work in the background and they actually are doing things on your behalf although you might not see it.
As a net effective rate, you mentioned 5%. We call that an NER in our industry. What did I pay at the end of the day? 5% sounds high to me but again it depends on everybody's independent solutions. Because you might be paying for 2 different gateways. You might be paying for a whole bunch of hardware. You might be paying for a bunch of things that you absolutely need so it is hard to parse that out. From a credit card processing perspective if you are only looking at the actual processing fees, most nonprofits should be paying under 3%. Again, most. It's hard to say across the board but I would say just credit card processing, I would hope that you are in at least the 2 ½% to 3% range.
Slide 36: Learn and Share!
for taking the time to answer all those questions and really explain a lot. And hopefully this will give you, all of our participants out there is something to start with to be able to go out and have those conversations, go out and say to your current providers, "Hey, I think I should be getting a better rate. Can I get the interchange plus rate?" Or, "Hey, I didn't want to be in a monthly contract or yearly contract." And renegotiate those things. Because this is very much like when you go to buy a house and you are negotiating for a mortgage, these are all banks and lenders and the same kind of financial services organizations so they are used to trying to negotiate and compete for your business. So make sure that you are asking the right questions and you can save your organization money and apply it to your mission, your patrons, and your constituents so you can serve them better.
Go ahead and chat in one thing that you learned in today's webinar that you are going to go back and share with your colleagues and friends, or try to implement for your own credit card processing service search, just to help us know that we helped you learned something useful today.
Slide 37: Upcoming Webinars and Events
I'd also like to invite you to join us for upcoming events. We have an NP Tech chat on Twitter taking place next week. You can just follow that hashtag or you can click that link when you get into the slides later on. It will be focused on financing for development if you are a development based organization looking at global development or UN
development goals. That is a great chat for you to join.
Then on Wednesday next week we are having a webinar specifically for crowdfunding for libraries. So if you are joining us from a library you can learn about the different crowdfunding options out there to help support your library's work.
Then we will talk about Microsoft OneNote and how you can use that more effectively for collaboration, brainstorming, and sharing at your nonprofit or a library. And then in August we will be talking about accomplishing more with social media. And later on in August we will be talking about Windows 10. So for those of you who are excited keep an eye out for more on that.
We are excited to have you join us for all of our webinars and to explore our webinar archives to see what we've done so far and learn more.
Slide 38: Connect with Us!
Join us at TechSoup global.org, TechSoup.org, on our Facebook and on our Twitter channel. We appreciate you participating and interacting with us today.
Slide 39: Thank You to Our Webinar Sponsor!
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