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Pipevine – A Valuable Lesson in Donation Processing?

Apparently, when you write the word “crises” in Chinese, two symbols are used; one signifies “danger” and the other “opportunity.”

The piece of news that reminded me of this saying was the recent closure of Pipevine, a credit card processor for the nonprofit community. They shut their doors last month and blamed “a severe liquidity crisis” as the cause of collapse. They had processed donations for over 50,000 nonprofits and the closure has created quite a shock amongst the nonprofit community and has forced many organizations to scramble to find an alternative method of processing their donations. It has also, quite rightly, started many other organizations thinking seriously about how they are processing credit card donations and how important that part of the operation is.

A survey by Mastercard showed that over 79% of households in the US carry at least one credit card. This dramatic increase over the last few years can be attributed to: ease of use, simplicity, control, and of course the “airmile” factor. From the nonprofits perspective, credit cards are the least expensive way of processing donations; a study by PriceWaterhouse Coopers found the administrative cost of processing credit cards is an average of 2.7% while checks cost 4% and cash surprisingly 4.8%. American Express goes so far as to say, “Because credit cards are easier on the donor, credit cards help nonprofits improve the size of their donations.”

The importance of credit card processing has also been highlighted by the advent of e-philanthropy. However, as many have found out, this can be extremely daunting, time consuming and expensive to implement; with setup, monthly and transaction fees as well as lengthy banking agreements and merchant rates. Coupled with the fact that there are so many suppliers of online services the choice is made even more difficult. The balance is to find a competitive solution that will not need to be replaced in the near future. A simple, “donate now” button will satisfy an immediate need to accept online donations but how will it proactively solicit donations? Will the online solution communicate with your donor database or will it create yet another administrative burden for your already over worked department?

It has taken the rather dramatic turn of events at Pipevine to demonstrate how important, yet how often, credit card transactions are overlooked as a process worth improving. Many organizations are still using systems that are administratively inefficient, the best example being the point of sale terminal, where hours are spent inputting credit card information waiting for a response and then re-entering the same information into your donor database.

Pipevine has been quoted as saying that their average fee is 7% per transaction but their cost of processing turned out to be as high as 9% (New York Times, June 5th, 2003). The concept of not knowing your cost of processing may seem incomprehensible to some people, but it is extremely common, especially when it comes to credit cards. Many organizations will quote a merchant rate of say 3% as their cost of processing. However, when they take into account the multitude of fees levied by banks and payment gateways that 3% could quite easily be doubled. Even then we have not taken into account the invisible cost of having a member of staff take the time to process and enter the information into your database and with multiple streams of revenue (offline transactions, events, online donations etc.) these fees tend to be duplicated.

These visible and invisible costs can, however, all be avoided by choosing the right processing system. Just as many organizations are now utilizing technology to improve the way they manage, cultivate and grow their donor base, they should also look to their technology providers to assist them in streamlining the way they run their donation processing systems. It is with these types of discussions that nonprofits will be able to find a processing solution that will work across their whole “business” efficiently and effectively and give donation processing the attention and priority that it so rightly deserves.

The Pipevine crisis will hopefully prompt organizations to work with their software providers to create these solutions that will reduce the cost of processing, streamline their systems and improve the day-to-day management of this essential function. Without doubt, these are the opportunities that the Chinese symbol is referring to.

 

About the Contributor: Amdrew Mosawi

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