CTT in the News - 2004

James Redhead asks :  Can you use the web to better process payments ?

Charity Times - Online Insight Colunm- May 2004
While charities now have fairly developed websites, how many are using the power of the web to centralise and reduce the costs of their payments processing ? 

The cost of payment processing is a significant overhead in retail sectors that have low product margins and high transaction volumes.  Fundraising charities seeking large numbers of relatively small sized donations fit into a similar category.

While many donors still chose to use cash, cheques and standing orders, there is a growing preference for card payments and direct debits – clearly online, but also for offline appeals and trading.

Payments aggregation was born, in the retail sector, from the need to add value and reduce operating costs and outsource a specialist experience and knowledge set which no single firm could afford efficiently nor want to pay for.  The internet has just recently accelerated and improved this.  In a large supermarket chain or retail franchise, with card turnover in excess of £1Bn, a 0.01% reduction in payment processing fees, due to the aggregation of card payment contracts across all outlets of its business, yields savings of some £100k per annum. 

Charities face a similar challenge and savings can be as much as 0.5%.  How many charities aggregate their card or DD payments across their own internal departments or national sites/ shops, let alone club together to aggregate multi-charity payment flows to secure lower processing charges or upgrade their systems ?  And how many have the time or internal expertise to achieve this goal even if they set out to ?

The development of faster and lower cost telecommunications facilities, real time payment checking and authorisation has allowed retailers to lower the fraud (and other) risks inherent in transaction processing.  They have therefore been able to negotiate lower processing charges from banks based upon this risk reduction.  Also, increased security provided by the Worldwide EMV (“Electronic Merchant Validation”) programme - known in the UK as the CHIP and PIN programme - has presented new cost reduction opportunities.

Charities can take advantage of all the work that has been done in the retail sector, and with banks, by “jumping on the band-wagon” of existing technology and pre-negotiated rates – which make the standard “charity rate” appear high – for secure, real-time but aggregated internet based processing systems.

These payment processing facilities can be used to process direct mail appeals in-house, random payments collected across a string of national locations, lotteries, retail services and to back-up telephone fundraising activities, and of course integrated into their websites.  The expected benefits should be lower processing charges, real time and centralized data processing, reduction of multiple system data entry, faster error processing and refunds and much faster reporting.

I am optimistic that there is a great new opportunity for charities to become more efficient and streamline their payment processing activities, and the internet is the key.

James Redhead, Finance Director of Charity Technology Trust