With so many different payment and donation processor options available, it can be difficult to know which one to select. In this article, I wanted to review Square, a newer processor created by the founder of Twitter.
Is Square a good payment processor for Nonprofits? Square might be a great choice for many nonprofits. It provides all of the functionality you need if you sell any merchandise and is easy to set up. At the same time, it is not ideal for nonprofits that focus on collecting donations. Keep reading to get an in-depth understanding of whether or not Square is a good fit for your nonprofit.
Who Is Square Good For
Square is primarily designed for commercial use. It is commonly found in small brick and mortar stores and is used as a cash register. It is also able to handle payments online. If your nonprofit generates most of its revenue from selling goods or services, then Square might be a great option for you. If you are a more donation focused nonprofit, then Square is probably not going to be the best fit for your organization.
Features That Make Square A Good Choice
Every payment processor has it’s advantages and disadvantages. Square has a number of great features that definitely make it worth checking out when looking for a way to collect your revenue.
One of Square’s biggest selling points is it’s lower than average fee structure for card processing. Square charges different fees based on how the transaction is collected, but overall it is one of the cheaper options you can go with. While this is normally true, there are exceptions to this rule as well. For comparison, let’s look at the fees charged by Square versus Stripe’s standard processing fees.
|In-Person Payment||2.6% + $0.10||2.9% + $0.30|
|Ecommerce And Invoices||2.9% + $0.30||2.9% + $0.30|
|Recurring Payments||3.5% + $0.15||2.9% + $0.30|
|Manual Card Entry||3.5% + $0.15||2.9% + $0.30|
As you can see, for in-person transactions, Square is much cheaper than its competition. On the other side, recurring payments and manual card entry is significantly more expensive than standard pricing.
Another point to note is that most payment processors offer a non-profit discount for any organization providing 501c3 documentation. For instance, Stripe reduces their processing fee by 0.7% for nonprofits if 80% or more of their processing is for donations. Square does not offer a reduced price for nonprofits. Because they are already on the lower end of the fee spectrum, they do not offer any discounts unless you are generating over $250,000 in revenue through their system.
One thing that is worth noting is that to take advantage of in-person payments, you will need to purchase a card reader. These can range from as low as $10 for a phone adapter to as much as $999 for an iPad system. These are one-time costs but are still worth noting if you are a smaller nonprofit as the initial setup will hit your bottom line.
While some nonprofits rely on individual donations or purchases, recurring donations can be the lifeblood of your organization. They provide a predictable revenue that will make any CFO smile. If your organization ever plans on using recurring donations, you will want to make sure that your payment processor can handle that feature.
Luckily, Square does have recurring payment functionality. It is possible to set up a recurring invoice of a specified amount to charge against a card that the individual has on file. Square does a decent job at recurring payments for a couple of reasons. The first is that they are easy to set up and there is no need to manually trigger the card to be charged like with some payment processors (I’m looking at you, Blackbaud).
The other aspect of recurring transactions that Square handles well is when a transaction fails. Whenever a transaction fails for some reason or other, Square will notify both the cardholder and the account holder of the failure. This allows you to reach out to the individual and update their card information so that you can continue to receive revenue from them.
The one thing to note is that recurring transactions through Square have a higher than normal transaction fee of 3.5% + $0.15. Most payment processors are topping out around 3% of the total transaction. That extra 0.5% can add up quickly when it is applied to a large number of transactions.
Online And In-Person Transactions
One of the features that Square offers that most other processors do not is that Square is fully designed to handle in-person transactions. Because Square was primarily designed for the retail industry, they have developed numerous options for anyone looking to allow their customers/donors to make a payment in person. They provide credit card and chip readers capable of handling payments from credit cards, Google Pay, and Apple Pay.
This ability to perform transactions in person is a must for anyone looking to sell merchandise as a part of their nonprofit model.
Square offers some nice reporting options for anyone using their system. With inventory tracking, Square has the ability to break down sales by item, category, team member, and payment method. You can also view your total fees, calculate labor costs vs. sales, and look at overall trends for the transactions that run through Square.
For a non-profit that is looking to sell products, these features are very beneficial as they can inform future decisions about product and supply related decisions.
Features Square Is Missing
While Square offers some nice features, especially for nonprofits that have sales as a part of the model, it is missing some key pieces that may make you want to reconsider it as your payment processor
The basic reporting features of Square are great for a nonprofit with sales at its center, but you will quickly run into a few problems if your primary revenue source is donations.
The biggest report that Square is missing is a report that can show transactions by donor/customer. This report is vital to most nonprofits as it is needed to provide year-end receipts. It would also allow a fundraising team to see how much an individual donor has given in the past so that they have an idea of how much to ask for when pursuing a repeat donation.
Alongside a report that breaks down transactions by a donor, there are also no reports able to segment donations by campaigns. This metric is what helps fundraising teams to determine which messages and methods are the most effective at bringing in donations.
Square currently does not directly integrate with any customer relationship management or donor management tools. This is probably the biggest pitfall of the Square for most nonprofits. For nonprofit looking to generate revenue donations, a healthy donor database is essential. You need to be able to track your donors, send thankyous, and look for trends among your constituents.
It is possible to bypass this issue using Zapier, tool that is capable of connecting different pieces of software. You could use Zapier to send your transaction data from Square to a CRM, but this is not nearly as reliable as having a native connection.
Direct Transfer / ACH
If you are a nonprofit that runs primarily on donations, this one should scare you a little bit. Currently, Square does not offer the ability to accept ACH donations. While not everyone knows what an ACH transaction is, almost everyone has used one. Whenever you enter an account number and routing number as a way to make a payment, you are using ACH.
ACH has a couple of amazing benefits over card transactions. The first is that for recurring transactions, credit cards expire. Bank accounts, on the other hand, don’t expire and rarely change at all. This means that you won’t have to worry about losing donors over expired credit cards. The second advantage ACH has over credit cards is a much lower transaction fee. Transaction fees for ACH donations are typically in the range of 0.5%-1% or a flat fee ranging from $0.25-$0.75. This reduction in processing fees can mean a massive increase in the amount of money that is actually hitting your bank account every month.
Stripe is one of the few payment processors that do not handle ACH transactions. This is primarily because their business model is based around the commercial industry. When buying a coffee or making a quick purchase online, it is more comfortable and convenient to pull out a credit card than it is to enter your bank information.
The Optimal Use Cases For Square
Overall, I wouldn’t recommend Square as a payment processor for nonprofits. There are some nice features, but most are geared towards selling merchandise, something quite a few nonprofits don’t do. That being said, there are a few situations where Square might be a good option.
Brick And Mortar Store
If your nonprofit is a physical store, then Square might be a great choice for you. With its lower in-person transaction fees, you might be able to see a higher percentage of your gross sales in your bank account. Square is also simple to use and set up. This means that the training required for new store employees is simplified and you can get them working sooner.
Square also looks modern and has a clean checkout process. This lends itself to great customer experience, hopefully leading to return customers. I personally would at least suggest Square to thrift stores and stores that sell merchandise from a building.
If your nonprofit generates a large percentage of its revenue through an online store, Square might still be a good option for you. The advantages are less for an online store than a physical store but it still would meet your needs. Sales are what Square was designed for, so as long as you are sticking to that, it should be a decent fit. The downside to using Square for your online store is that the transaction fees are not the same as most other processors but you lack the ability to make ACH payments.
Fundraising At An Event
A less common use case for Square might be in an event booth. You could, in theory, allow donors to swipe or tap their card and then enter a custom donation amount on the screen of the device that Square is connected to. These in-person donations would have the benefit of Square’s lower transaction fees. The major downside to this is that only one donor can give at a time unless you have multiple donation stations set up. A better option might be setting up a text-to-give system.
What payment processors are good for nonprofits?
I personally recommend using Stripe as a payment processor. Stripe was the first online payment processor after Paypal. It is viewed as the gold standard by many and is able to power massive websites like Amazon.com. Stripe has advanced reporting, can accept a wide array of payment methods and currencies, and integrates with a number of CRMs and donor databases. It can be a little more technical in the setup process but anyone familiar with online giving shouldn’t have a problem setting it up.
Can nonprofits charge a membership fee?
Absolutely. Just because you are a nonprofit doesn’t mean you can’t charge for goods or services. A prime example of a nonprofit that charges a membership fee is the YMCA, the second-largest nonprofit in the United States. The YMCA generates a large portion of its revenue from memberships to its gyms and facilities. Square may be a good option for you if you are looking to charge membership fees as you can set up recurring payments or invoices to make sure that your members don’t lapse.