Online fundraising tools are increasingly important. In 2018, online donations increased by a staggering 23%, and the average retention rate for online donors was an impressive 38%. This means your organization needs a mobile-friendly, secure online giving option that donors trust.
If you're feeling overwhelmed by the sheer number of fundraising tools available these days, you're not alone! From custom donation pages to online payment platforms, the options and potential combinations are nearly endless!
PayPal is a familiar name in the online payment processing world. Businesses love it, and people generally know and trust the platform, making it a great option to process online donations and purchases.
Previously we did a deep-dive into Stripe as an online payment processing option. In this blog, we'll share the pros and cons of using PayPal for fundraising.
Table of Contents
What is PayPal?
PayPal for Nonprofits
Soapbox Engage and PayPal
What is PayPal?
PayPal is an online payment platform that allows people worldwide to buy, sell, donate, invoice, and much more. It supports everything from money transfers to credit card purchases. PayPal bills itself as an electronic alternative to traditional paper payment methods (like checks and money orders).
How does PayPal work?
The mobile payment app has been around for well over a decade, nearly making it a household name! Many users rely on it to make online purchases through a secure account rather than directly giving their credit card information to the store or vendor.
Users only need to set up their personal (or business) account and add their bank account, credit card, or debit card information. They're free to shop, pay bills, and make other online transactions through their PayPal account rather than share their information with each business. Individuals, businesses, and nonprofits can also receive money via PayPal--which is the feature we're most interested in today.
How does PayPal process donations?
You're probably not too concerned about the exact details of how money travels from an individual's bank account to your organization's coffers, so we won't get too in the weeds. But, here are some details that matter.
When a donor visits your website and clicks on your "Donate" button, they can choose their preferred payment method from their PayPal account. Depending on how you set up your Donate button, you can also offer monthly giving options!
If the donor already has a PayPal account set up, they simply log in to their account. The donation form auto-fills their personal and billing information. When everything is finished, the donation amount is deducted from the supporter's PayPal account, and you get to throw a "new donation" party.
Suppose your supporter doesn't already have a PayPal account. In that case, they can either choose to create one or continue through the donation process with their credit or debit card and check out as a "guest."
Once PayPal confirms that the money is available in the donor's accounts (bank, credit card, etc.), the money gets transferred into your nonprofit's PayPal account. You can either leave the money in your PayPal account or transfer it to your bank.
How secure is donor data with PayPal?
Because all PayPal transactions occur on web pages that use Secure Sockets Layer (SSL) encryption, your supporters' financial and personal information is encrypted, reducing the risk of stolen information or fraud. This feature makes PayPal attractive to many people who are wary of making online purchases or payments.
Your donor's credit or debit card information gets encrypted and sent to PayPal. PayPal then contacts the bank or credit card company to authorize the transaction on your behalf (this step usually takes just a few seconds). So, you don't need to collect, process, or store any payment information.
PayPal for Nonprofits
As with any tool, it's essential to identify what it does well and any weak points you might want to be aware of.
Benefits of PayPal for nonprofits
Even though PayPal wasn't originally designed with charitable giving in mind, there are plenty of tools and perks to make fundraising easier.
Donation button: It's easy to set up a donation button to accept online payments through your website with PayPal.
Variety of online payment options available: It's easy to offer a wide range of online payment options to your donors, from one-time gifts to recurring donations.
Easy donation tracking and management: You'll be able to download donation logs and search transactions to manage all your donations in one location. You can also offer controlled access to your team, so the right people can access the right information.
Selling options galore: Do you have branded gear, merchandise, or swag? PayPal can facilitate in-person and online sales and donations to help boost your revenue. This feature is particularly beneficial for any organization that sells event tickets or has an online store.
Integrate PayPal with other platforms: Perhaps the most crucial feature of PayPal for Nonprofits is that it plays nicely with others! It's easy to integrate PayPal with apps from Soapbox Engage and loads of other platforms you rely on to run your galas, virtual fundraisers, auctions, retreats, and all the other activities you organize!
Easier bookkeeping: All development professionals know how critical it is to accurately track your income, donations, and expenses. PayPal offers some fairly comprehensive reporting tools to help make bookkeeping easier. You can run monthly and annual summary reports, monthly sales reports, transaction history, money management reports, and more.
As an added bonus, if your nonprofit processes $20,000 in gross payment volume from sales of goods or services in one year and 200 payments for goods or services in the same year, then PayPal will send Form 1099-K to you and the IRS by January 31 of the following year. This can make your life much easier come tax season!
PayPal also integrates with QuickBooks for free!
Disadvantages of PayPal that Nonprofits should consider
For all of the great things that PayPal does, there are some fairly significant disadvantages to consider.
PayPal is a third-party processor: It's important to be mindful that PayPal is actually a third-party processor (the technical term is Payment Service Provider or PSP). That means there are some risks involved with using PayPal rather than a traditional merchant account.
Third-party processors combine all their users into one "umbrella" merchant account rather than letting each organization have their own account. The benefit of this arrangement is that the sign-up and approval process is almost instantaneous.
The potential downside is that nobody undergoes a vetting process before they are approved. Every transaction is more thoroughly scrutinized than payments processed through a traditional merchant account to make up for the lack of vetting.
What does this mean for nonprofits? This extra screening of each payment increases the risk that a single donation might trigger an account hold.
Before you dive right in with PayPal, make sure you review their prohibited products and services. While most nonprofits should be in the clear, it's essential to fully understand the rules and regulations.
PayPal fees and discounts: While PayPal does offer a discounted payment processing fee to 501(c)3 organizations, the costs do add up.
The standard processing fee is 2.9% + $0.30 per transaction. Registered 501(c)3 nonprofits can pay as little as 2.2% + $0.30 per transaction.
It's important to note that charities and nonprofits do not get to pay the discounted rate when accepting in-person donations. The PayPal Here app charges a flat 3.7% fee for all transactions.
If your organization typically receives a lot of payments of less than $10, those processing fees add up fast! You can get a little bit of a break if you sign up for PayPal's Micropayments Plan, which charges 5% + $0.05 per online transaction. This will save you money if you tend to process a lot of smaller donations.
Combining PayPal with Soapbox Engage for Better Fundraising
PayPal offers a wide range of perks and tools specifically for nonprofits, but it's an even better option when paired with another system!
Here's what we mean: while PayPal is a great payment processor, it was never designed for online giving. So, while it's great for processing donations, it's not ideal for TAKING those donations. PayPal's donation forms aren't really designed to meet industry standards and best practices that help with important things like conversion rates and donor retention.
Study after study confirms that branded fundraising platforms (from donation pages to e-receipts) improve donation results. By combining the security and payment processing ease of PayPal with the donor-friendly fundraising platform like Soapbox Engage, you'll get the best of both worlds.
Branded donation forms tend to be more successful than generic forms. Donors appreciate knowing they're still in the right place and giving to their charity of choice. If you use the default PayPal forms, it's difficult to customize them to reflect your brand. But, if you add PayPal as a payment option to your donation page, PayPal users can give in the way they prefer, and you'll still be able to use the optimized form!
Similarly, thank-you pages and donation receipts are an often-overlooked but valuable "touch-point" between you and your donor. It's difficult (and sometimes impossible) to customize the "thank-you" page and e-receipt on the generic PayPal platform. Combining PayPal with Soapbox Engage lets you create branded thank-you pages and send a branded donation receipt.
It's difficult to gather much information about your donors with PayPal alone. Pairing PayPal with Soapbox Engage also lets you collect more information from your donors so you can send relevant follow-up content and stay in touch!
As we said in the beginning, there are no perfect solutions. What's most important is to find the tool that best fits your nonprofit's unique needs and wants. While PayPal for Nonprofits does offer quite a few perks and useful features, pairing it with a nonprofit-specific platform like Soapbox Engage can give your organization a distinct fundraising advantage.
Are you looking for more ways to improve your fundraising efforts? These three blogs will help you continue your relentless pursuit of fundraising excellence!
- Online Fundraising With Microsoft Fundraising and Engagement: This short webinar covers many details about Fundraising and Engagement for Dynamics 365 Sales, the Nonprofit Common Data Model, Microsoft Tech for Social Impact, and how Soapbox Engage helps nonprofits use these tools to raise more money and expand their impact. Don't worry, a degree in programming or technology is not required to understand the content!
- Venmo & PayPal Alternatives for Nonprofits: 7 Top Providers: Online fundraising is not going anywhere. It's increasingly essential for nonprofits of all shapes and sizes to choose the right payment processing tool to accept and process online donations. This quick guide will help you weigh the pros and cons of various payment processors to choose the best one for your organization.
- 5 Steps to Designing Donation Tiers to Raise More Money: Does your nonprofit offer donation tiers in your online donation forms? Setting donation tiers is both an art and a science, but it doesn't require any mind-reading abilities or a crystal ball! This guide will help you create donation tiers in just five steps so you can increase your donations and reach your fundraising goals!
Donations
Events
Petitions
Forms
Shop
Directories