The Pros and Cons of Credit Card Merchant Accounts for Your Church

As more and more churches look at online giving, the topic of needing a Credit Card Merchant Account invariable comes up.  Of the major online giving solutions you see in Catholic Churches these days, its pretty well evenly split between those that require a credit card merchant account and those who do not.  If you’re thinking of selecting an online giving solution or looking to process credit card transactions for your church, there are pros and cons to having your church maintain its own credit card merchant account that you need to be aware of.

A Credit Card Merchant Account is basically an entrée point into the credit card processing network that allows a church to directly accept payments via credit cards.  The keyword here is directly.  Some solutions indirectly let you take credit card payments.  The most common example that you’re probably familiar with is PayPal.  PayPal isn’t really an online donation system, but I’ve seen many churches try and use it as such. PayPal, as well as some online giving solutions, serves as an aggregator of funds, using their merchant account to process your payments.  After they’ve confirmed that they’ve successfully received the funds, PayPal then sends the money to you. See Figure 1 for a list of the most popular Catholic-based online giving solutions and whether or not they act as an aggregator of funds or require a merchant account.

Figure 1 – Catholic-focused Online Giving Providers

The process to acquire a credit card merchant account is somewhere in between opening up a bank account and applying for a loan.  This is because with a Merchant Account you’re really doing both.  Merchant Accounts act as a conduit between someone paying with a credit card and your bank.  The application process has an underwriting component to it, as credit card purchases are really a loan that carries a degree of risk associated with them.  With a merchant account, the risk, data privacy issues and concerns on fraud becomes yours to manage.

There are some distinct pros and cons in having your own merchant account, but there isn’t necessarily a one-size fits all solution.  It’s important to understand the pros and cons and make an informed decision.

Pros in Having Your Own Merchant Account

Having your own credit card merchant account has some distinct benefits.  They are:

• Control – It’s your money coming in and with your own credit card merchant account you get manage the entire process.  The relationship between the credit card user and yourself is direct with no intermediary handling the money.
• Speed in Receiving Payments – You typically get the money faster than if you used an online giving service or any generic service that aggregates funds.  This may just be a couple of days faster, but it is typically faster.  I can’t say definitively that it is always faster as it also depends on when your online donation provider processes their payments.  Even if you have your own merchant account, some online donation solutions still batch their donations up and only process them once per week or a few times a month.
• Transaction Fees May Be Lower - As a non-profit organization, you may be able to negotiate a lower credit card transaction cost than your online giving provider can through their merchant account.  However, you need to look at the total cost of your credit card transaction cost plus the cost your online giving provider charges to decide if it truly is a good deal or not.
• Your Church’s Name on the Credit Card Statements – Every Merchant Account has one and only one DBA name (stands for “Doing Business As”).  This is the name of the business that owns the merchant account.  Aggregators can’t work this way.  For example, if you buy something from a merchant through PayPal, its “PayPal” that will appear on your credit card receipt, not the merchant’s name.

Cons in Having Your Own Merchant Account

• Control Equals Responsibility – With you in control of your merchant account, you’re also now also responsible for it.  You typically need to manage credit card disputes, chargebacks, and are responsible for PCI Compliance.
• Hidden Fees – A bill for your credit card merchant account looks a lot like your personal cell phone bill.  You thought you were only paying $89/month for your cell phone.  Once all the surcharges, fees, and taxes get added in, you may find out you’re paying noticeably more.
• Data Privacy and PCI Compliance – Having your own merchant account makes you responsible for all the transactions that move through this account.  You’re now directly responsible for your parishioner / donor’s data privacy and maintaining the PCI Compliance of your system.  This usually translates into paying a yearly PCI Compliance fee, having a third party test the compliance of your system, and if you don’t pass the test then paying a larger PCI non-Compliance fee.  Some aspects of PCI Compliance are technically easy to understand (see Figure 2), but may be hard to practically implement.   Whereas others can be quite technical in nature and requires significant IT skills to implement and maintain (see Figure 3).  I’ve encountered at least one online giving provider that provides their customers with all the positive responses necessary to complete the PCI Compliance questionnaire.  Help and guidance is one thing, but memorizing and reiterating the answers is a little too much of abdication of responsibility for me.

  

  Figure 2 – Sample PCI DSS Requirements

• Data Privacy Risks – You’ve probably read or seen in the news over the past few years, some very high profile data privacy breaches where consumer data has been lost or stolen.  The management and IT consulting firm, Gartner, estimates that the cost of dealing with a data privacy breach is between $90 and $305 per credit card number lost.
• American Express Is Extra – If you want to accept American Express, you also need to apply for an American Express Merchant Account.  The standard Credit Card Merchant Account only covers Visa, MasterCard, and Discover.

  

  Figure 3 – Sample PCI DSS Requirements

• One Merchant = One Bank Account – A merchant account can only deposit money into one bank account.  If you want to have your online donation system direct money to more than one bank account, you will need to setup multiple merchant accounts (extra charges typically apply).  Some online giving systems allow you to direct your donations into any number of bank accounts whereas others typically only allow donations to be sent to one account usually because of this limitation.
• Fraud – The idea that someone would fraudulently use a stolen credit cad to make a donation or a purchase to your church sounds silly, doesn’t it?  It actually can and does happen.  Once a hacker gets their hands on stolen credit card numbers the first thing they do with them is look for a less-than-secure system to test out the credit card numbers to see if they still work.  They try to make a small purchase or donation in a system that they can easily write an automated routine against so they can test all of credit card numbers they just stole in a manner of minutes.  Unsuspecting and basic donation sites whose name implies a lot of legitimacy (i.e. a church) are frequent targets of these test transactions.  Once they know they can donate or purchase something small for just a few dollars, then they turn their attention to online electronic stores and other high dollar value purchase sites.  While these aren’t your parishioner’s credit card numbers, with your own merchant account you now bear the responsibility of making sure your site doesn’t make this easy to do.

Business Needs Driving Your Choices

There are clearly some pros and cons for having a your own merchant account.  A few of the typical business needs driving a decision towards needing your own merchant account are the need for your organization name on the credit card statements and other credit card needs that grow beyond just online donations.

While I don’t believe this is an issue for the typical church.  It is an issue for any non-profit with loosely affiliated donors.  A charity organization who gets occasional or sporadic donors doesn’t have time to message to their donors that they’re using ABC online giving system, but churches typically can get this message out during mass, in their bulletin, in new parishioner enrollment forms, as well as during their annual pledge drive. Organizations with loosely connected donors will struggle to get this message out and will see their online donation provider having to deal with a large number of credit card chargebacks and disputes.  Diocese are a great example of an organization that can benefit from having their own merchant account.

If your church has its own store, an associated school that wishes to take tuition and fee payments via credit card, or has large events that transact money such as auctions and festivals, they may then be a candidate to have their own merchant account.

My typical recommendation on which option to take is based on both the business need and the size and sophistication of the parish or organization’s staff.  A large church with a good Finance and IS tem who understand Financial and IT General controls is a good candidate for having a Credit Card merchant account.  However, a smaller church with only outside IS support and only a bookkeeper to manage the finances should probably shy away from implementing a system that requires their own credit card merchant account.