How Nonprofits Can Verify Donor Information and Prevent Chargebacks on Charity Campaigns

Why is it important for nonprofits to prevent chargebacks? Your nonprofit probably organizes charity campaigns to raise money, resources, or awareness for a specific cause, project, or community need. Therefore, every dollar counts. 

Whether your charity campaign takes the form of online fundraising drives in-person events, you might experience the hassle of chargebacks. While chargebacks are a burden for for-profit businesses, they can be particularly harmful to nonprofit organizations. 

Don’t let chargebacks threaten the success of your charity campaign. Find out how to verify donor information and prevent chargebacks.

What Are Chargebacks?

A chargeback happens when someone disputes a credit card transaction with their bank or card issuer and asks for a refund. If a consumer wants a charge reversed, they can contact the company directly to have the issue resolved, or they can go through their bank or credit card company. It is better for the company to handle the issue on their own. If the bank gets involved and issues a chargeback, it can cost the company both money and reputation.

The process is no different for nonprofit organizations. A chargeback occurs when, instead of contacting the nonprofit directly to resolve the issue, the donor initiates a formal complaint. Then the bank or credit card company forces the refund. 

Chargebacks were originally designed as a consumer protection tool to guard against fraud or billing errors. However, they have increasingly been used for other reasons, such as buyer’s remorse, misunderstandings about recurring donations, or even fraudulent claims. 

For nonprofits, chargebacks can be especially damaging. Not only does the organization lose the original donation, but it also often pays a chargeback fee and risks damaging its relationship with payment processors. If chargeback rates become too high, a nonprofit may face increased transaction fees or even lose the ability to accept online donations. 

“Friendly fraud”, where consumers dispute legitimate charges, is on the rise as well. As online giving continues to grow, understanding and managing chargebacks has become an important part of protecting a nonprofit’s financial health. Keep reading to find out how much chargebacks could be costing your nonprofit.

Donation Form Fraud

Donation form fraud is an example of card-testing fraud made using a nonprofit’s online giving form. When fraudsters elicit card information from cardholders or purchase the information on the dark web, they typically test the cards before attempting a large transaction. 

Card testing lets fraudsters know whether a card number is real and whether or not it has already been reported and blocked. Using a nonprofit’s donation form, fraudsters will make hundreds of very small donations ($1 or less) with a sequence of cards. When the real cardholder discovers the unauthorized charges, they contact their bank and file a chargeback.

How Much Do Chargebacks Cost Nonprofit Organizations?

While nonprofits generally experience lower chargeback rates than for-profit businesses, the financial repercussions can still be substantial. Each chargeback not only results in the loss of the original donation but also incurs additional fees and administrative costs. 

Chargebacks can cost between $15 and $100 per transaction, plus the cost of time and effort in refuting the chargeback. If your nonprofit incurs too many chargebacks over a certain period of time, you can face increased processing fees due to the additional risk you now pose, or worse, the loss of your merchant account. 

Last year, Merchant Risk Council (MCR) reported that nearly half of surveyed merchants estimated that friendly fraud accounted for 50% or more of their chargebacks. And Chargeflow’s research indicates that unfriendly fraud could be costing merchants as much as $117 billion annually.

These trends emphasize the importance of nonprofits implementing robust verification processes and donor communication strategies to mitigate potential losses. Nonprofits already operate with small budgets and little manpower compared to many for-profit companies, so it is important to take steps to prevent chargebacks.

6 Ways Nonprofits Can Prevent Chargebacks

1. Use Clear Receipts and Descriptions

First, it’s important to make sure that the name of your nonprofit is clear on credit card statement descriptions. Avoid generic names or the name of a random processor. 

Additionally, send an immediate email receipt that includes your nonprofit’s name, the donation amount, and contact information for questions. You can also include a thank you message that reminds them that the donation was intentional. 

2. Implement Fraud Detection Settings

Use payment processors like Stripe, PayPal, etc. that have fraud filters. Fraud filters can block donations from suspicious IP addresses, require zip code verification, and limit the number of donations from the same card in a short time. These measures can help prevent donation form fraud.

3. Set Expectations on Recurring Gifts

Chargebacks are commonly filed on recurring charges that a donor has forgotten about. If someone signs up for a recurring donation, confirm it clearly and send a reminder email a few days before charging.

4. Improve Communication

According to Chargeflow’s survey, prompt customer service is critical in preventing chargebacks. With 23% of respondents saying they would file a chargeback immediately, 38% would wait 1-3 days, and 23% would be happy with a response within 4-7 days, consumers have found that they reach a quicker resolution through their bank than by dealing with the merchant directly. 

So make sure it’s easy to reach you. Provide clear phone, email, or chat options to ensure easy communication with donors. If someone wants a refund, it’s better to issue it manually than have them go through their bank (which causes a chargeback and fees).

5. Offer Multiple Donation Options

Offering multiple donation offers makes you look more legitimate and sensitive to payment data privacy. Some donors feel more secure using PayPal, Apple Pay, or even ACH/bank transfers instead of a card. Giving options can lower impulsive disputes because people pick what feels safest.

6. Be Conscious of Donation Form Fraud

There are some common elements among nonprofits that makes them particular targets for card-testing. However, there are ways you can combat some of these stereotypes and stop fraudsters in their path:

Low Transaction Amounts

Donation forms often allow small donations like $1 or $5. Since fraudsters use tiny amounts to test if stolen credit card numbers are valid without drawing attention from banks or cardholders, setting minimum donation amounts can help prevent these mass fraudulent micro charges.

Instant Feedback

When fraudsters submit a donation, they immediately find out if the card worked—it’s either accepted or declined. It’s quick confirmation without needing to buy a real product or deal with shipping.

Weaker Fraud Protections

Nonprofits want to make donating easy. The less friction and fewer verification steps the quicker and easier it is to get someone to donate. Therefore, donation forms sometimes skip address verification, CAPTCHA, or phone/email validation, making them easy to exploit.

Add extra verification temporarily if donation volume spikes unusually (like CAPTCHA or requiring email confirmation). You can also implement donor verification tools to your processes. 

Less Scrutiny

Banks and card issuers are less suspicious of charges from nonprofits. The cardholders themselves, too. So a small $1 charge to “XYZ Children’s Fund” looks less shady than a $1 charge to “GamingPro Shop,” Therefore, nonprofits are less likely to trigger an immediate fraud alert.

How Verifying Donor Information Helps Prevent Chargebacks

Focusing on verifying donor information is one of the best defenses against chargebacks.

First, it helps stop stolen credit card use. If a fraudster tries to donate with a stolen card, verifying basic info (like billing address, ZIP code, phone number) makes it much harder. If the billing info doesn’t match the card, the payment can be automatically flagged or rejected, preventing a future chargeback when the real card owner disputes it.

Second, it confirms legitimate intent. Verifying donor emails and phone numbers ensures that the person is real and reachable. If a donor can’t easily be reached, they’re more likely to dispute a charge later, saying “I don’t recognize this charge.” But, if you verified their info, you can prove it was them.

Third, it creates evidence that can be used to help settle disputes. If a donor does file a chargeback, having verified information (IP address, email, phone, billing address) can help you fight back and win the dispute. Payment processors often ask for proof. Verified data shows you made a good-faith effort to confirm the donor’s identity.

Verifying donor information also helps reduce mistakes and misunderstandings. Sometimes donors mistype their own info (like a wrong amount or wrong nonprofit name) and later think it’s fraud. Verifying information upfront helps catch errors before the donation is finalized.

Prevent Chargebacks on Charity Campaigns with Donor Verification

Hopefully, you don’t experience too many chargebacks. It would take a certain type of person to renege on a charitable contribution. However, credit card fraud does happen, and people often forget legitimate charges.

To avoid losing donations and paying chargeback fees, be sure to follow the advice included in this article. And, just like any other business, take donor verification seriously to help ensure the security of all parties involved.

With phone number validation and email verification APIs, you can verify donor information upon form submission. Then, regularly validate that data so that you know it’s safe for future use. The more accurate and up-to-date your donor information is, the more effectively you can communicate and resolve issues.  

With these and more donor verification techniques and tools, you can help prevent chargebacks and experience more success with your charity campaigns.