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Nonprofit life

Nonprofits paid $2 billion in transaction fees last year.

April 21, 2023
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There aren’t many people out there that think about the transaction fees that nonprofits pay (such as Paypal fees on donations, for example). We know, shocking. But, it’s a surprisingly big (and by big we mean pricey) topic. So, to get the conversation started, we’ve put together this article that dives into the costly realities nonprofits face and the hidden world of transaction fees.

What’s in this article:

  • What are transaction fees?
  • Why are nonprofits (or anyone else) charged transaction fees?
  • How much do transaction fees cost nonprofits every year?
  • What’s the solution? (Yes, there is one. Hint: it’s Zeffy. We’re the only fundraising platform for nonprofits that doesn’t pass along transaction fees to our partners.)

What are transaction fees or “per-transaction fees”?

Let’s get right to the point: a transaction fee is an amount of money that a business or organization (nonprofit and for-profit) pays every time it processes an electronic payment for a customer’s transaction.

The cost of the transaction fee will vary depending on the service or payment processor the organization uses. A transaction fee can be charged as a percentage of the transaction amount, as a fixed amount or often both.

For example, if you make a donation to your favourite nonprofit, the transaction fee will probably be between 2% and 3% (sometimes as low as 0.5% for wire transfers and Interac payments and as high as 5% for some credit cards), or as a fixed percentage plus an additional flat charge, e.g. 2.5% + $0.10.1,2 So, a donation of $100 will actually end up costing the nonprofit somewhere between $0.50 and $5.

That may not seem like a lot, but it adds up quickly. And every dollar wasted on transaction fees is a dollar that’s not invested in the nonprofit and their cause. (Shameless plug time: unless, of course, you use Zeffy—the only fundraising platform for nonprofits that is 100% free. Zero transaction fees. Zero platform fees. Zero monthly fees.)

Why are nonprofits charged transaction fees?

Middlemen. And yes, more than one. When you pay for something or donate to a charity using a debit or credit card, the business or organization is charged a transaction fee.

The transaction fee is the sum of two or more fees shared between the bank or payment platform (called the merchant service provider) and the credit card company:

The merchant service provider:

is the bank or authorized independent sales organization (such as Stripe) that allows credit cards to be accepted charges a percentage of the transaction plus an additional flat fee per transaction.1

The credit card company:

your credit card company (VISA, MasterCard, etc) charges an interchange fee that, again, is a percentage of the transaction, plus an additional per-transaction charge.1

For example: Stripe (Zeffy’s merchant service provider) usually charges between 2.2% and 2.9% of the transaction plus $0.30 per transaction. The 2.2%-2.9% will be split between Stripe and your credit card company: Stripe gets 1-1.5% and the credit card company gets 1-2%. This split varies depending on the merchant service provider, country, type of credit card, how many transactions you process and whether or not you’re a nonprofit. Larger companies and nonprofits typically pay lower transaction fees—a savings which fundraising platforms rarely pass on to their clients.

Because that took us a long time to figure out and actually write, we thought we'd try and make a diagram to help:

So, simply put: transaction fees are one of the ways financial services providers make money. And yes, they make money off of everyone—nonprofits included. Curious to read more? Avoiding the Hidden Costs of “Free” Software for Nonprofits.

How much do transaction fees cost nonprofits every year?

Depending on how you calculate your calculations, nonprofits spend around $3 billion a year on transaction fees. The how is a little trickier to explain. But, we’re going to do our best.

“Fundraising technology is critical to nonprofits’ success but eats up too much of the funds they need to raise,” said François de Kerret, Zeffy’s CEO and co-founder. “We fixed this vicious circle by providing tools that allow nonprofits to keep every dollar their donors pledge, which lets them focus on their mission and direct more funds to those in need.”

Transaction fees in Canada cost nonprofits $200 million per year.

Nonprofits in Canada were responsible for 9% of Canada’s gross domestic product (GDP) or $185.8 billion in 2020. Government related nonprofits such as universities and hospitals accounted for $139.4 billion of that (or 75%), community and business nonprofits made up $46.3 billion.3

We know that not everyone donates online, and Canadian data on this is hard to find. But, when it comes to small and medium sized nonprofits in the US, around 15% of their donations are made online.4 That means that Canadian nonprofits collected around $7 billion in online donations. (This is a conservative estimate as our data dates from 2020.)

If we just use the community and business nonprofits and subtract 3% in transaction fees, we quickly realize that nonprofits spend a minimum of ~$250 million on transaction fees each year. Let’s repeat that calculation with a few other nonprofit fundraising sites:

Eventbrite charges 2.9% plus $0.79 per transaction. We can’t be sure how many transactions there are, but if we forget the $0.79 per transaction and just subtract Eventbrite’s 6% transaction fee, nonprofits would be out ~$203 million.

Givebutter charges 2.9% plus $0.30 per transaction. Again, we can’t be sure how many transactions there are, but if we forget the $0.30 per transaction and just subtract Givebutter’s 2.9% transaction fee, nonprofits would be out ~$203 million.

If we do one last quick calculation and multiply the number of Canadians who made a donation (4,967,050) by an average fee of $0.52 per transaction we get: $2,582,866.5

And, that’s just in Canada.

Transaction fees in the United States cost nonprofits $2 billion.

The numbers in the United States are … bigger. Let’s break them down:

  • 5.7% of the United States GDP comes from nonprofits.6
  • U.S. nonprofits raised $2.62 trillion last year—yes trillion, not billion.5
  • 56% of Americans (or 186 million people) donated to charity in 2021.6
  • Donations from individuals accounted for $471.44 billion in 20208,9 and, when it comes to small and medium sized nonprofits, around 15%, or $70.7 billion, of those donations were made online.4

With all that in mind, lets repeat some calculations:

Eventbrite charges 2.9% plus $0.79 per transaction. We can’t be sure how many transactions there are, but if we forget the $0.79 per transaction and just subtract Eventbrite’s 2.9% transaction fee, nonprofits would be out ~$2 billion.

Givebutter charges 2.9% plus $0.30 per transaction. Again, we can’t be sure how many transactions there are, but if we forget the $0.30 per transaction and just subtract Givebutter’s 2.9% transaction fee, nonprofits would be out ~$2 billion.

If we do one last quick calculation and multiply the number of US citizens who made a donation (27.9 million) by an average fee of $0.52 per transaction we get another: $14,508,00.

That was a lot of numbers.

We’re trying hard to be as transparent with the numbers as we can be. But, as usual, when it comes to numbers and financials, that’s easier said than done. But, we can confidently say that if we add up the transaction fees paid by nonprofits in Canada and the transaction fees paid by nonprofits in the US and toss is a bit of wiggle room for the percentage of Canadians who donate by credit card today, we arrive at a conservative estimate of between $2 and $3 billion being spent on transaction fees in North America.

What can $3 billion buy? Well…

  • 30,000,000 custom hockey jersey’s.
  • 4,833 kilometers of paved bike paths.
  • 300,000,000 children’s books.
  • 120,000 years of university in Canada.
  • 6 million hours talking on a teen help line.
  • Feed 1 billion children breakfast.
  • Build 20,000 homes.
  • Plant 60 million trees.

What’s the solution? (Yes, there is one. Hint: it’s Zeffy—the only fundraising platform for nonprofits that doesn’t pass transaction fees on to our clients.)

Okay, okay, so there is more than one solution out there to ease the cost of transaction fees for nonprofits.

Find fundraising platforms or service providers that charge lower fees.

Many merchant service providers—such as PayPal and Stripe—offer discounted nonprofit rates for organizations that qualify. For example, instead of Paypal’s usual 2.9% + $0.30, they charge 2.2% + $0.30 per transaction and waive the monthly fee for charities.10 These discounts may not look like much, but they can add up quickly and help nonprofits make the most of each donation.

Ask your donors to help cover the cost.

When most of us make a donation or a purchase, we probably think of what it’s costing us and maybe even the good it will do for the organization. We probably don’t think about how much of a cut the banks that issued our credit cards are taking and it’s even less likely we think of the percentage the merchant service provider or fundraising platform is taking.

This is where education comes in. The more people know, the likelier they are to relate and want to help. Nonprofit organizations can educate their donors on the costs of using their credit card and ask them to help cover the cost of transaction fees when they give.

Not all fundraising platforms are the same.

We obviously have an preference for Zeffy. And our bias is founded—we are the only fundraising platform for nonprofits that is 100% free. We even pay the transaction fees for you. No platform fees. No credit card fees. No monthly fees. No exceptions.

But, there are other platforms out there that offer nonprofit pricing. Some online fundraising platforms charge lower fees than others and most platforms charge additional fees to access their more interesting features. All we can say here is: do some research to find the best option for your nonprofit.

Eventbrite for nonprofits:

Eventbrite pricing for nonprofits is among the most expensive out there—we suggest looking for Eventbrite alternatives for nonprofits and reducing the transaction and platform fees you pay for your fundraising events.

>Want to keep more of your funds? See why Zeffy is the preferred Eventbrite alternative for nonprofits!

Classy is, well, a classy choice:

Classy donates 1% of its revenue to the nonprofit sector and, like Zeffy, is a Certified B Corp. Classy’s pricing model isn’t exactly transparent but they do charge a 4% transaction fee plus a yearly fee to use their platform.

Network for Good:

Network for Good’s pricing model varies depending on the size of your nonprofit and how you plan to use its platform. The transaction fees will be somewhere between 3% and 5% and they do charge additional platform fees for some features.

Things to keep in mind before you choose a fundraising platform:

  • Do some quick calculations to see how much the fundraising platform will cost/save your nonprofit. Transaction fees are part of the cost, but most platforms also charge platform fees for more advanced features such as online event ticketing.
  • Look into the hidden fees. Most platforms will claim to be “free” because they don’t include fees charged by third-party merchant service providers like Stripe. Read more about avoiding the hidden cost of free software for nonprofits.
  • Consider the features they offer (event management for nonprofits, fundraising ticket templates, peer-to-peer campaigns, etc.) and compare them to the features you actually need.
  • Look at their customer ratings on Capterra. (We don’t mean to brag, but Zeffy has 4.8/5 stars on Capterra.)

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