raditional checks, long a mainstay of fundraising, are popular among both organizations and supporters. "Although most folks over 50 eventually acquired credit cards for work or travel," wrote fundraising expert Bill Dodd, "when they gave away money, they preferred to do it by check. They liked the act of writing out a bank draft and depositing it into the mail." ¹

Donor attitudes are changing, Dodd said, but such sentiments are still widespread. Organizations like that check-acceptance capability comes with the checking account they almost certainly have already opened. They know that checks are well suited for direct-mail campaigns.

However, requiring a mailed-in check to fulfill a telephone or online pledge will produce a lower response rate than pledge rate. Recurring check givers must issue multiple checks, either postdated or on multiple occasions. Recording and depositing checks expends organizations' or their caging services' time and labor. While less likely than others to receive stolen, closed-account and intentionally bounced checks, nonprofits do have to contend with unintentionally bounced ones.

These reasons help explain the growing appeal of credit cards to nonprofits, along with studies finding such donations are often higher than others, and increasing nonprofit fee collection and commerce (See "Meeting the Credit Card Acceptance Needs of Nonprofits," The Green Sheet, April 28, 2003, issue 03:04:02).

But because many Americans don't have credit cards, (or those who do are "maxed out," or those with available credit are "revolvers" with balances who could find credit card contributions costly), nonprofits are taking a second look at how technology might better enable checking products to complement credit card acceptance.

Point-of-sale electronic check conversion can save bounced-check fees and bank trips in face-to-face transactions, and check verification, guarantee and/or electronic recovery could reduce NSF occurrences or their repercussions. Since 2002, the National Automated Clearing House Association (NACHA) Operating Rules allow checks received at remittance and lockbox locations to be converted into Automated Clearing House (ACH) debits, a potentially significant development for nonprofits. ²

But to improve response rate and time of donors drawing on their own funds and communicating by telephone, Web site or e-mail, processes must access supporters' bank accounts without requiring them to write out and deliver a check.

Many donors who aren't suited to use credit cards still can be accommodated through the credit card processing network. Nonprofits with merchant accounts, knowingly or not, already draw automatically from donors' bank accounts by accepting offline debit cards.

Some studies comparing credit card and checking-based donation trends are skewed because they include offline debit in their credit data. One study indirectly acknowledged this by writing, "Another contributing factor [to growing 'credit card' donations] is that the distinction between checking and debit is becoming blurred as banks offer debit cards and ATM 'checking' cards that look and are accepted like credit cards." ³

Acquirers and ISOs, however, often overlook offline debit when promoting card acceptance, probably a mistake when it comes to nonprofits. Accommodating potential supporters' preferences can be one more perceived benefit of establishing merchant accounts.

In contrast, MyChurchDonations.com, a Glendale, Calif.-based ISO that provides processing services without the need to establish merchant accounts, gives debit top billing. "Churches," the Web site advertises, "can now receive donations by Debit Cards, ATM Cards, Check Cards and Credit Cards."

Doug Nies, Ph.D., a partner in the company, said that because some religious traditions discourage or oppose debting or interest, emphasizing debit helps their institutions to see the compatibility with their tradition of having card acceptance capability.

Other houses of worship besides churches are eligible, he said, although donors' statements indicate "MyChurchDonations.com." A second Web site under the same ownership provides card services to professional organizations and individual professionals and utilizes some but not all of the first site's "debit-first" language.

Although a recent class-action settlement between merchants and bankcard associations allows merchants to opt out of offline debit, nonprofits seem unlikely to reject donor preferences. Small face-to-face donations and payments to nonprofits could be processed less expensively offline.

Most significantly, much fundraising is not done face-to-face, making nonprofits' checking access choice less between offline and online debit than between offline debit and other card-not-present alternatives, such as electronic funds transfer and check drafting. Reduced processing costs could make offline debit more competitive with the latter methods.

MyChurchDonations.com's marketing strategy, a trend among Muslim charitable and religious-goods Web sites to urge payment by debit rather than credit card, and the decision by a small number of MyChurchDonations.com enrollees to publicize only their debit acceptance capability suggest that some institutions opposed to interest or debting on religious or secular grounds, might now want to opt out of credit and have offline-debit-only merchant accounts.

Pricing aside, nonprofits might not want to make offline debit their sole automated "check" acceptance option because not every checking account holder possesses offline debit cards. They often have usage limits; some donors may prefer that nonprofits access their bank account differently.

The Federal Reserve System and NACHA are promoting recurring electronic funds transfers through the ACH network, or "direct payment" to nonprofits, as part of a general direct payment promotion, said Mike Herd, NACHA's Director of Public Relations. NACHA calls one-time ACH debits "electronic checks" or "e-checks," Herd clarified. NACHA's Direct Payment Web site has a special nonprofits section, although consumer-directed print ads in the current campaign aren't specific tononprofits.

Rule changes in 2001 now allow both one-time and recurring ACH to be authorized over the Internet if various security standards are met; they permit telephone authorization under certain conditions for one-time debits. Unless a donor and originator (organization) have an "existing relationship," telephone ACH entries are permitted only during donor-initiated calls.

But Bob Wesolowsky, President of Briarcliff Manor, N.Y.-based Caring Habits, Inc. (CHI), a company that promotes monthly giving, observed, "It's the banks that process, not NACHA or the Federal Reserve." Wesolowsky, who asserted in the earlier article on credit cards that acquirers' interest in approaching nonprofits often hinges on groups' size and stature, differentiated, "But not for funds transfer." Irrespective of size, he maintained, "For the most part, the only time funds transfer happens is if the not-for-profit goes to the bank and asks for that service. It's almost never offered."

Once an organization takes the initiative and contacts a bank about ACH, the group's size and resources could well make a difference in the bank's receptivityaccording to Frank Petrov, President of Business Cashflow Solutions (BCS) in Richmond, Va. "Most banks aren't equipped to underwrite any risk factor," he said.

Issues of cost, bank priorities and approval of new ACH modalities have combined to create a market for third-party ACH providers and for ISOs, such as BCS, that work with them. "What's driving [ACH processing] sales are outside independent sales organizations," said Petrov, who holds NACHA's AAP (Accredited ACH Professional) designation.

"With a bank," he said, "transaction costs generally are lower; and there is quicker funding. However, a third-party processor has more sophisticated, customer-friendly software. Banks typically charge a return-item fee two to three times that of third-party processors and usually charge transmission, batch and/or file fees plus NOC (Notification of Change) fees, which third-party processors generally do not."

Greg Imlay, Marketing Director for one third-party ACH provider, Electronic Clearing House (ECHO), said users do not need to purchase software: "We do additional steps that the bank wouldn't. We check the BIN number against the Thomson Data Base to make sure it's valid.

With the National Check Network database, in cases of online 'checks' and other cases where [ACH] 'checks' aren't batched, we can give a warning [of potential problems]. We automatically reinitiate returned items up to two times if the establishment opts for that."

Atlanta-based McCurdy Cash Consultants (MCC), reaches out to nonprofit organizations about ACH and donation and collection products by explaining on its Web site how specific products can benefit different types of establishments, according to company founder Rob Davidson. Likely nonprofit classifications include country clubs, fraternities and sororities, hospitals, houses of worship, neighborhood associations, private schools, professional associations and other associations and nonprofit organizations.

Other intermediaries, such as CHI, work with bank ACH services. Kerry Hocutt, who coordinates CHI's funds-transfer programs, emphasized, "If there's a problem, we act as an interface. Banks sometimes are more willing to deal with other bankers than with non-bankers. They perceive CHI as bankers because of our founder's banking background."

Drafting and printing checks based upon an account-holder's oral or written pre-authorization continues to be another, sometimes overlooked method by which nonprofits can accept funds from supporters' accounts without the account holder personally creating a check. Although check drafting doesn't allow account holders to experience "the act of writing out a check," it is the only other way that checking-account donors can get a canceled check back. Some donors may desire this memento of their support. The U.S. Federal Trade Commission's amended Telemarketing Sales Rule, effective March 31, 2003, covers for-profit companies working on behalf of nonprofit organizations. Interstate telefundraisers/telemarketers must obtain "express verifiable authorization" of donor or customer consent when accepting any "novel payment method" - defined as any payment method other than credit cards and debit cards.

As the payment processing industry increasingly promotes programs enabling nonprofits to collect supporters' bank funds without the supporters personally writing and delivering checks, others are coming up with creative new ways for donors to do just that. California-based Charity Checks sells "giving certificates" to corporations and individuals for gift giving to others, who in turn can donate them to 501(c)(3) charities of their own choice.

The certificates are actually paper checks drawn on Charity Checks' own account, filled out by the party presenting or mailing the check to the charity, explained Lisa Sonne, program co-founder. That party doesn't actually sign the check but can provide name and address information on a perforated attachment.

The original purchaser receives a tax deduction, if eligible, for both face value and surcharge since Charity Checks is itself a 501(c)(3) entity.

"Charity Checks personally vets each check received to make sure that the writer has made it out to a recognized 501(c)(3) nonprofit," noted Sonne.

One recent initiative has school children learning "the habit of giving" by check writing. Other purchasers anonymously donate Charity Checks directly to nonprofits, avoiding mailing lists.

"We've created a new instrument," said Victor Dorff, another co-founder. "There was no way until now to say, 'Here's a giving certificate; you decide where it goes.' "

Credit card acceptance, paper checks and various forms of automated bank account access will continue to play roles in nonprofit funds collection. Just as nonprofits looked for reasonable fees, prompt access to funds and conscientious service when they opened their checking accounts, organizations exploring innovative methods of transferring funds from supporters' bank accounts into their own will seek those same features.

Web Sites for More Information

www.mccurdycorps.com

www.ProfessionalCharges.com

www.directpayment.org

www.caringhabits.com

www.bizcashflow.com

www.echo-inc.com

www.ftc.gov/os/2002/12/tsrfinalrule.pdf

www.charity-checks.org

^1.,3. Dodd, Bill, "Think Plastic: Credit Card 'Graduates' Now Better Donors Than Check Writers" (reprinted from Direct Mail News), www.dsdl.com/article2.html

^2. "NACHA Opens New E-Check Application," http://ecc.nacha.org/Resources/PRcheck/prcheck