By Becca Davis
As a nonprofit leader, you understand that every penny counts. Finding ways to reduce costs without compromising your mission can make a significant difference. An often overlooked opportunity for cost savings is reducing card payment interchange fees. By doing so, you can redirect these savings towards programs, services, and other mission-critical activities, ultimately making a greater impact.
Understanding Interchange Fees
Interchange fees (sometimes called network costs) are the charges that card payment networks, such as Visa and Mastercard, impose on merchants (including nonprofits), whenever a credit or debit card is used for a transaction. Every donor expects to be able to donate by card, online or in person, so not accepting cards is not an option.Interchange fees are essentially the cost that the card-issuing bank charges for the privilege of accepting card payments.
Interchange fees typically consist of a percentage of the transaction amount, plus a fixed fee per transaction. These fees can vary based on several factors, including the type of card used (credit vs. debit), the nature of the transaction (online vs. in-person), and the industry of the merchant (supermarket vs. charity). For more detailed information, you can check the specific interchange fees charged by Visa and Mastercard.
It’s important to note that interchange fees are different from credit card processing fees.
Credit card processing fees are additional charges from the payment processor (such as Stripe or PayPal or authorize.net) for handling the transaction.
Accessing Lower Interchange Rates
Nonprofits can only impact their interchange fees if they have an “interchange plus” rate model with their credit card processor. This model means that your organization pays the interchange rate charged by the credit card network, plus an additional fee set by the processor. So, the first step in reducing your card fees is to obtain this rate model if you don’t already have it.
Hint: If your credit card processing fee is as simple as “3.49% + $0.30 per transaction”, you probably don’t have an interchange plus rate model. An interchange plus rate for a charity would look more like this: “1.35% interchange fee + $0.05 per transaction interchange fee + 1% payment processor fee + $0.05 per transaction payment processor fee, for a total fee of 2.35% + $0.10 per transaction.”
*To qualify for lower interchange rates, it’s essential to upgrade your credit card processing data level. By providing more comprehensive purchase information to the card network—such as address, unit cost, and tax ID—your nonprofit can access lower rates. This practice can lead to savings of up to 0.25% – 0.75% in interchange fees.
In order to obtain the lowest interchange rate, organizations also need to submit to the credit card networks proof that they are a 501(c)(3) charity.
Some credit card processors are equipped to assist nonprofits in this process. Stripe, a Salesforce partner, offers a specialized “cost optimization” team dedicated to helping their nonprofit clients reduce interchange fees.
And, most processors offer a reduced card processing fee for nonprofits. So, be sure to request a nonprofit rate from them as well. If your volume of transactions is high enough, you may also be able to negotiate an even lower rate on the credit card processing fee! This can impact your bottom line even more.
Making a Greater Impact
By reducing interchange fees, your nonprofit can save a considerable amount of money. These savings can be redirected to further your mission, whether it’s funding new programs, enhancing existing services, or investing in your team. Every dollar saved is a dollar that can make a difference in the communities you serve.
We hope this information empowers you to take action and explore how your nonprofit can optimize its funds. Together, we can work towards a more sustainable and efficient nonprofit sector, maximizing our collective impact. Thank you for your dedication and leadership in driving positive change.
Have questions? Contact us at info@agilecloudconsulting.com.
