Crowdfunding has transformed the way individuals and businesses raise money for their projects, products, and causes. By connecting project creators with willing backers, crowdfunding platforms make it easy for businesses to find investment for a budding idea, or charitable causes to gather contributions. Behind the success of every crowdfunding campaign is a payment processor, facilitating the transfer of money from backers to creators.
There are different ways to process crowdfunding payments depending on how you’re raising money. For example, debt crowdfunding and equity-based platforms often deal with large sums of money and tend to rely on manual payment processing. On the other hand, donation and reward-based crowdfunding platforms use automated solutions to manage smaller transactions at high volumes.
That said, most crowdfunding campaigns stand to benefit from an automated solution to payment processing, which is more scalable, efficient, secure, and user-friendly amongst other aspects. In this guide, we’ll look at:
- Difference between manual payment processing and automated processing
- Benefits of an automated solution for crowdfunding payments
- Things to consider when choosing a payment processor for your crowdfunding platform
- Best practices for crowdfunding payment processing
- The best crowdfunding payment processor for your platform.
Manual payment processing VS automated payment processing
There are two options for crowdfunding payment processing: manual or automated solutions. Below, we look at the difference between manual payment processing and automated payment processing.
Manual payment processing
With manual payment processing, a payment gateway is not integrated on the platform and money is transferred directly to the platform’s bank account (by a human being). This type of payment processing is most often used for small equity-based crowdfunding and P2P lending platforms that have a limited client base.
Here’s how it works: Once a crowdfunding project has reached its funding goal, the money is manually transferred to the project creators by the crowdfunding platform. In the case of equity, when it’s time to pay dividends, the business will transfer money to the crowdfunding platform to then distribute amongst the investors.
Manual payment processing solutions treat a crowdfunding platform as a sort of online ledger. Since all of the actual payment processing is done manually through a bank, any money-related data on the crowdfunding platform is purely for informational purposes.
There are some limitations to using manual payment processing for crowdfunding, including:
- Difficult to scale: Manually transferring money from the platform’s bank account to the business is manageable when a crowdfunding platform is new and doesn’t have many projects. However, it will be difficult to scale and take on more crowdfunding projects with more donors.
- Time-consuming: It goes without saying that manual payment processing is time-consuming and requires extra steps that can be automated and completed within seconds.
- Potential for human error: As with any task done by humans, there is a possibility for human error when making manual payments.
- Hands-on: Manual payment processing requires management to oversee the payments and prevent errors, making it a more hands-on process than automated solutions.
Automated payment processing
Automated payment processing makes crowdfunding payments miles easier – for crowdfunding platforms, project creators, and donors alike. This involves integrating a payment gateway into your crowdfunding platform to process payments automatically. This gateway would accept various electronic payments, such as credit cards, debit cards, virtual cards, cryptocurrencies, and more.
Transactions made with automated payment processing can still be approved or rejected before they’re processed, however this can all be done with the click of a button.
Benefits of an automated solution for crowdfunding payments
Using automated payment processing for crowdfunding is a no-brainer. There are so many benefits for both platforms and backers, including:
- Fraud prevention: Most payment gateways that offer automated payment processing include instant Know Your Customer (KYC) and Anti-Money Laundering (AML) support, ensuring compliance with EU regulations and preventing illegal activities taking place on your platform.
- Stronger security: Automated crowdfunding payment solutions offer stronger online payment security than manual payment processing, such as encryption and tokenization, that can help prevent data breaches and unauthorized transactions.
- Cost-effective: Automated payment solutions can be more cost-effective for crowdfunding platforms by reducing the need for someone to manually manage payments. Essentially, it frees up time and resources. On top of this, transaction fees might be lower when made through a payment gateway rather than a direct bank transfer.
- Automated dividend distribution: Instead of waiting for businesses to pay dividends to the platform, and then passing the funds on to investors, automated solutions can make the dividend distribution process easier by removing the middleman.
- User-friendly wallet management: Most payment gateways offer a user-friendly interface that allows investors and businesses to monitor their money easily.
- Fewer errors: Manual payment solutions are prone to human error and duplicates, which can cost crowdfunding platforms more time to identify and resolve. Automatic solutions reduce the chance of human error and duplicates, leading to cost and time savings.
- More scalable: Automated solutions make it easier to scale a crowdfunding platform and take on more projects, particularly those that deal with high volumes of small transactions. This would be nearly impossible to manage manually.
- Accept more payments: When using an integrated payment gateway for crowdfunding payments, you’ll be able to accept more online payment methods. This includes BNPL, credit card, debit card, digital wallets, cryptocurrency, and more.
The advantages of automated payment processing make it a suitable option for all kinds of platforms, but reward-based or donation-based crowdfunding platforms will especially benefit.
Things to consider when choosing payment processing for crowdfunding
Decided that an automated solution is the way to go for your crowdfunding site? To help you find the right crowdfunding payment provider, we’ve outlined some things to consider when making your search.
Compare different payment processors
Choosing the right crowdfunding payment gateway is essential. Things to consider when searching for a payment gateway include transaction fees, multi-currency support, compatibility with your crowdfunding platform or website, instant settlement, and security features such as PCI compliance.
Consider user experience
User experience is paramount when choosing between crowdfunding payment gateways. After all, it’s the users who will make your business succeed. Look for a seamless payment experience that encourages users to support projects on your crowdfunding site. You want it to align with your website’s aesthetic and offer numerous payment options to suit users of all ages, demographics, and locations.
Accept international payments
Most crowdfunding platforms target users from all over the world, and a payment processor that accepts international payments is essential. Look for a payment provider that offers multi-currency support, currency conversion, and compliance with international banking regulations.
Strong fraud prevention measures
Crowdfunding sites can be vulnerable to fraudulent activities such as chargebacks and unauthorized transactions. The best way to protect your platform and users is to choose a payment processor that offers strong fraud-detection features, such as multi-factor authentication (MFA) and address-verification systems (AVS) to minimize your risk of fraud.
Compliance with regulations
To keep your crowdfunding platform safe from illegal activities and maintain compliance with EU regulations, look for a payment processor that complies with financial regulations, such as including instant KYC verification and AML.
Data security
It’s essential for any crowdfunding campaign to protect sensitive payment data, and it’s up to you as the crowdfunding platform to ensure that security. Choose a payment provider that’s trustworthy and uses encryption technology compliant with PCI DSS standards to minimize the chance of data breaches.
Easy to scale
If you have a vision for your crowdfunding platform to grow, you want to choose a payment processor that will grow with it. Look for a payment gateway that can handle increasing transaction volumes.
Good customer support
As with any technology, having reliable and accessible customer support is essential. You want a payment gateway that can support you with any questions and resolve issues quickly.
Transparent fee structure
If you’re looking at a payment gateway and can’t figure out how much they’ll charge in fees, you’re better off looking somewhere else. Choose a payment provider that’s transparent about how much they charge so you can avoid hidden fees.
Easy integration
Ideally, your payment processor of choice will be easy to integrate with your existing crowdfunding platform and easily adaptable to your platform’s needs.
Best practices for crowdfunding payment processing
Whether you’re managing an equity crowdfunding platform or a debt-based crowdfunding site, we’ve outlined some best practices below to ensure you get the most out of your payment processing.
Automate payments
In almost every case, an automated payment solution will improve the efficiency of your crowdfunding site. Automation streamlines the processing of contributions, disbursements, and refunds, reduces manual errors, and allows your crowdfunding platform to manage numerous transactions with ease.
Optimize for mobile
Make sure that your payment processing system is optimized for mobile and tablet devices. This ensures a user-friendly and seamless checkout experience for users regardless of which device they’re accessing your platform from. This can improve conversion rates and user satisfaction from both campaign creators and backers.
Be transparent
Wherever possible, be transparent with both project creators and donors about when payments will be made, the status of their transactions, fees, and any changes to payment policies. This fosters trust while improving customer satisfaction and loyalty.
Consider escrow services
You may want to consider integrating escrow services to hold funds until certain conditions are met, like campaign goals being reached or products being delivered. This can give backers an extra peace of mind when making contributions.
Develop risk management strategies
Ideally, you’d never suffer any issues, but realistically, you might. It’s a good idea to develop risk management strategies to address issues such as payment disputes, failed transactions, and cybersecurity threats. This allows you to respond quickly should any challenges come up.
Integrate with your accounting software
If possible, integrate your payment processing system with your existing accounting software to streamline your financial reporting, reconciliation, and tax compliance. This will make it easier to maintain financial records – automation is what we love to see!
Make your interface accessible
Accessibility is an important consideration to take into account. Make sure your payment processing interface and checkout experience complies with accessibility standards to accommodate users with disabilities. This includes things like screen reader compatibility, keyboard navigation, and alternative text for visual elements, which all help to make your crowdfunding platform accessible to more users.
The crowdfunding payment processor you deserve
Ready to start automating your crowdfunding payments? Supercharge your experience with specialized payment processing that empowers everyone involved – we’re talking about flawless transactions, instant funds, and worldwide reach across 28 currencies.
ZEN’s crowdfunding payment processor is specially designed to enhance crowdfunding for platforms, project holders, and donors. We’ve created a seamless, responsive, and secure checkout page with 20+ payment options and one-click payments for a smooth experience. Our developer-friendly API is easy to integrate and effortlessly aligns with the needs of your platform.
What’s not to love? Start growing your crowdfunding platform with the only payment processor you’ll ever need. Get in touch with our team to discover why ZEN is the best offer on the market.
