When You Donate to Charity, Are You Donating to a Bank Too?

The growing use of online charitable giving is a boon to nonprofits. But there’s an unintended beneficiary of this cyber generosity: The banks processing all those credit card transactions are raking in millions.

How would you feel if you learned that when you donate $100 to a charity, you’re adding only $97 to the charity’s coffers, while making some nameless bank $3 richer?

That’s probably what’s happening if you donate by credit card – something that’s becoming increasing popular as charities join the rest of the world online.

According to this recent press release from Convio, a provider of software to the non-profit industry, their clients raised more than $1.3 billion online in 2010, up 40 percent from 2009.

It’s easy to see why those doing the donating prefer plastic. Credit cards are convenient, donations are documented, and cardholders can accrue perks like frequent flier miles or reward points.

But that convenience comes at a cost to the charity on the receiving end. They typically pay processing fees – known as interchange fees – ranging from 1.5-3 percent of each donation. Result? Not only is the charity receiving less money than you intended to donate, you’re contributing to the coffers of an organization you may not regard as all that charitable.

Credit card processors have waived their fees for some online donations. For example, shortly after the Haiti earthquake, MasterCard waived fees on donations to the Red Cross and a handful of other charities. Visa, MasterCard, and several major banks did the same after the Japan disaster. But in general, when it comes to interchange fees, banks consider charities no different than merchants. If they take plastic, they pay.

What’s a Good Samaritan to do?

  • Nothing: Donating online is a convenience, and processing these transactions is an expense for Visa, MasterCard, and the various banks involved. So one option is to simply ignore the interchange fee and move on. After all, if you donate $100, Visa, MasterCard, and the banks may be taking in $3, but at least $97 went to the charity.
  • Increase your donation to cover the charity’s processing costs. For example, rather than donating $100, donate $103.
  • Find another way to pay: If you bank online, simply send a payment to the charity via online bill pay, something that typically doesn’t cost you or the charity anything. You might also allow the charity to debit your bank account. And, of course, there’s the old fashioned option: Send them a check.

Regardless how you donate, you might also want to check out 3 Things to Do Before Giving to Charity and Is Your Charity Still Charitable? Here’s How to Find Out.

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  • http://twitter.com/NPBuyer Andrew Urban

    Very good article. My only comment is about when you say “write a check.”  That is actually one of the most costly versions of giving to a nonprofit because of the staff time involved in opening the mail, entering the gift and depositing the check.  It calculates out to more cost in time than a 3-7% credit card and services fee.  Online donations allow for convenience for not just the donor, but in the data management efficiency within large and small nonprofits alike.   I encourage donors to give extra in order for the full amount of their intended donation to make it to the organization.  In a perfect world, Visa/Mastercard/Amex would donate at least a portion of their fees to nonprofits in order that their credit card fees could be closer to 1% instead of 3%.  Thanks.

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