If your non-profit is looking to accept credit cards, it's important to understand the basics of processing costs, and what's different for registered non-profits.
The Basics
In order to choose a processor for accepting credit cards as a non-profit organization, you first need to have an understanding of the components of the cost of processing. There are two fixed costs for everyone who accepts credit cards: interchange and assessments.Interchange
For any business or organization, interchange makes up the bulk of the cost to process credit cards. Interchange is a set of “categories” used to classify transactions. For example, a swiped credit card is one category, a swiped debit card is another category, a keyed-in credit card is another, etc. Each interchange category has a rate associated. When your organization accepts a card, the transaction is charged according to the rate for the category it falls into. There are hundreds of interchange categories. Interchange costs are paid to the bank that issued the credit card to your customer, also known as the “issuing bank.”Assessments
In credit card processing, assessments are the fees charged by the credit card associations. (Mastercard, Visa, and Discover.) The fees are in addition to the interchange rates described above. Assessments are paid to the card associations. In addition to interchange and assessments, the other piece of processing costs is the processor’s markup. I’ve separated it because markup is not a universal rate, unlike interchange and assessments.Markup
The processor’s markup is the amount that the processor makes as their profit from processing your transactions. Processor’s markups vary depending on the processor, pricing model, and other factors. The markup is the only component of processing costs where the business or organization has negotiating power.What's different for non-profit organizations?
Credit card processing for non-profits still has the same components. Non-profit organizations still have to pay interchange, assessments, and markup, but with a processor who is familiar with non-profit processing, it may be possible to secure lower interchange rates and a lower total cost for you. When I discussed interchange above, I mentioned that there are hundreds of interchange categories. For the most part, businesses and non-profit organizations don’t need to spend the time learning the ins and outs of the categories. Transactions will be automatically routed to the interchange category for which they qualify. What matters for non-profits is that there are specific non-profit organization and charity interchange categories. A transaction processed through the non-profit interchange category will generally have a lower interchange rate than a transaction processed through a for-profit interchange category. Transactions will only go to the lower-rate categories if your organization is correctly set up with your processor as a qualifying non-profit organization using the correct Merchant Category Code.What is a Merchant Category Code (MCC)?
In credit card processing, a Merchant Category Code (MCC) is a 4-digit number assigned to a business or non-profit organization when they begin accepting credit cards. Your MCC has a direct effect on what interchange fees your organization will pay for credit card transactions.Why are MCC's important for non-profits?
The MCC assigned to your organization is important to you primarily because it influences which interchange categories your transactions qualify for. In order to qualify for non-profit interchange, your organization needs to be set up with a non-profit MCC. If you work with a processor who isn’t familiar with serving non-profit organizations, there may be a higher risk of being set up with an MCC that leads to more expensive interchange.Processing Costs for Non-Profits
One thing to remember is that a correct MCC doesn’t automatically mean your non-profit organization will reap the rewards of lower interchange costs. In order to see the savings, you’ll also need to ensure you’re working with a processor who charges you the actual interchange rates. This means working with a processor who offers true pass-through pricing.Flat Rate vs. Interchange Plus
For non-profit organizations seeking the most competitive credit card processing, the lowest cost solution will NOT be a flat-rate processor, such as Square or PayPal. While those kind of companies offer services that may be suitable for some businesses, flat-rate processing would not provide savings to a non-profit. With flat-rate processing, the goal is to simplify pricing so it appears less confusing. The goal isn’t to provide the lowest cost. While every business and non-profit has to pay interchange and assessments, some processors charge the actual cost of interchange and assessments, and then add a small percentage markup on your processing volume to make their money. If you’re paying the actual interchange rates, you’ll benefit from paying the lower non-profit interchange rates for your transactions. Flat-rate processors charge the same rate no matter what. The flat rate is intended to cover the costs of interchange, assessment, and their markup or profit. Even if your transactions qualify for a lower interchange rate, you don’t see savings. Instead, the lower interchange rate just means there’s more profit for the processor.For example...
Let’s look at a simplified hypothetical situation to see how this works. Say you’re accepting a credit card payment for $100. In this example, we’ll use the Visa charity interchange rate of 1.35% + $0.05 per transaction, listed on Visa’s interchange table. Now let’s look at your processing options: you can work with a processor who charges you the actual cost of interchange (pass-through pricing) or a flat-rate processor.Pass-Through Pricing
True pass-through pricing is the pricing model in which a processor charges you the actual interchange costs and charges their markup separately. In this example, let’s say your processor charges you 0.4% + $0.20 per transaction as their markup. That means that for your $100 transaction at the charity interchange rate of 1.35% + $0.05, you’ll pay $2.00 to process that transaction. (100 x 0.0135) + (100 x 0.004) + .05 + .20 = 2Flat Rate Pricing
Flat-rate pricing charges you one flat rate no matter what. Let’s say your flat rate fee from the processor is 2.75% + $0.20 per transaction. For your bottom line, it doesn’t matter what the interchange rate is when you’re using flat-rate processing because you don’t get the savings from lower interchange. The interchange rate only affects how profitable the transaction is for the flat-rate processor. In this example, you’ll pay $2.95. (100 x 0.0275) + .20 = 2.95How do I get a competitive processing solution?
The good news is that with transparent pass-through pricing and the correct MCC, you can take advantage of the lower interchange rates available for qualified non-profit organizations. When deciding on a processor, you’ll want to make sure they have experience offering credit card processing to non-profit organizations, and that they’re charging you for the actual interchange rates you pay. Credit card processing for non-profits doesn’t have to be a headache. To get started finding competitive quotes, you can create a free account at CardFellow and receive quotes instantly with no obligation. Certified quotes from the processors in our marketplace are quoted with true pass-through pricing and very competitive markups. Additionally, there’s no cancellation fee at any time. Sign up today to see how pass-through pricing can help your non-profit take credit cards without breaking the bank.
Ben Dwyer
Ben Dwyer began his career in the processing industry in 2003 on the sales floor for a Connecticut‐based processor. As he learned more about the inner‐workings of the industry, rampant unethical practices, and lack of assistance available to businesses, he cut ties with his employer and started a blog where he could post accurate information about credit card processing. As the blog gained in popularity, Ben began directly assisting merchants in their search for a processor. Ben believes in empowering businesses by providing access to fair, competitive pricing, accurate information, and continued support. His dedication to transparency and education has made CardFellow a staunch small business advocate in the credit card processing industry.
