This was just recently posted by a nonprofit ski club on techsoup.org, where I help as a moderator:
Without warning, PayPal froze our account and our funds telling us their fraud warning processes flagged us. We can’t withdraw our $4000 and they won’t give it back for 6 months – that’s half our current savings and 20-25% of our seasonal budget. How do you run a business without being able to change the name on the account?!Mike Taylor @NordicUnited.org fromTechsoup.org
Unfortunately (or fortunately if you think about it?), Mike is not alone- hundreds if not thousands of nonprofits have suffered the same consequences through no fault of their own.
In fact, there’s a whole website dedicated to PayPal complaints and horror stories here.
Having been in the payment processing business before PayPal was even created (yes, this dates me), here’s what I can share:
- PayPal is not a bank. It’s a payment processor that works with banks (and typically is much, much larger than the banks they work with). As such, they are not under the same rules as one would expect. That is, PayPal can freeze your money, for any reason, at anytime, and there is little/nothing you can do about it accept wait it out. Basically, PayPal makes their own rules to serve their purposes, not their customers- and it doesn’t matter if you are a nonprofit.
- PayPal also puts your own organization & donors under more phishing attacks. Imagine your donors getting an email masquerading as your organization to get their PayPal details. It happens quite often and is only getting bigger.
- PayPal could be a good option for nonprofits- but only if you sweep out the money on a regular basis to your own account that PayPal can’t touch (and it involves more than one account too).
I’m sure there are some PayPal advocates reading this blog. And I think they would point out that PayPal has a 300 MM userbase, that some people/donors only use PayPal, and that in some cases PayPal makes it easier for a donor to give.
So instead, I think a much better and safer strategy for a nonprofit is to guide donors to use what they are most comfortable with (VISA/MASTERCARD/DISC/AMEX), and offer a nonprofit merchant account option as the default, but have the option to accept PayPal as an optional link.
Here are some features you will find in any reputable/legitimate nonprofit payment processor (yes, SimplyFundraisingCRM Payments does all of the below):
- They never touch your money. Your money flows directly from the donor’s credit card bank to your nonprofit’s bank within 1-2 business days. Period. No waiting, no “monthly disbursements”. You just get paid now. This way, you can rest easy that you are actually not working with a business operating more like a Ponzi scheme, which is exactly what happened to Brown Paper Bag tickets when COVID hit and they [were caught using new customer’s money to pay back old customers’ events. You can’t make this up!](Washington state AG sues Brown Paper Tickets for failure to pay event organizers and ticket refunds – GeekWire)
- Nonprofit Payment Processors and online donation software companies have figured out how to both increase conversion rates (so more visitors actually give) and have figured out a model where 80% of your visitors will cover the fees. PayPal doesn’t do any of that- they are optimized for retail customers, not nonprofit donors.
- Likewise, good fundraising software will save you time matching up your online donations with your actual donor database records so that you avoid a disease called MVOT – or Multiple Versions of the Truth. No double-entry required. It just works.
In the end, I can see why nonprofits are attracted to PayPal- somewhat lower fees and it’s easy to slap it on a website.
But when you dig just a little deeper, it’s easy to see why there are dozens of legitimate nonprofit fundraising companies with 100k+ clients who specialize in nonprofit payment processing- saving you time, never touching or freezing your money, converting more visitors to donors, and making you rest easy at night.
Including SimplyFundraisingCRM of course!