Crowdfunding Payment Processing: Beginners Guide
Are you familiar with the term crowdfunding? Did you know that the global crowdfunding market size was valued at $1.41 billion in 2023, and is expected to reach $4.50 by 2032?
As Slava Rubin, Founder of Indiegogo, says:
“Crowdfunding is a powerful tool for those looking to finance a project or business. It democratizes access to capital and allows creators to engage with their supporters directly.”
Stay tuned, as we learn more about crowdfunding payment processing, and what are the pros and cons of this method.
How Does Crowdfunding Work?
Briefly put, crowdfunding is a way to raise money to complete a project, be it to commence a startup, donate to a cause, or even, create a movie.
There are a few different types of crowdfunding, but basically people either donate money altruistically or are promised something, i.e., a special reward of some sort, in return.
What Is Crowdfunding Payment Processing?
Crowdfunding payment processing is the system that makes the secure transfer of funds from contributors to the creators of the crowdfunded project possible.
Platforms like Kickstarter, Indiegogo, and GoFundMe allow their users to choose from various payment methods. These platforms guarantee that all their contributors’ donations are monitored by security and trust experts who actively monitor the site for any signs of abuse or fraud..
“Efficient payment processing is essential in crowdfunding. Backers trust that their payments will go through smoothly, and creators need assurance that the funds will be available on time to meet project goals.”
– Heather Graham, former CEO of WePay
Key Features of a Crowdfunding Payment Processor
- Payment Gateway
- Payment Processor
- Merchant Account
- Security and Fraud Protection
- Currency and International Payments
1. Payment Gateway
The payment gateway (Stripe, PayPal) is the connection between the crowdfunding platform, and the financial institution where the payment information (credit card details) is securely transferred to the payment processor.
2. Payment Processor
The processor serves as an intermediary between the payment gateway and the credit card networks or banks. The payment processor authorizes payments and manages transactions, and ultimately, it must ensure that funds are properly transferred from the account of the donor to the account of the creator.
3. Merchant Account
There are instances where platforms use a merchant account to temporarily hold funds until transferring them to the creator account. This way, payments are stored securely and can be monitored to prevent fraud and chargebacks.
4. Security and Fraud Protection
It is crucial for crowdfunding platforms to comply with PCI DSS to protect the payment information of users. On top of that, it’s a good idea to use features, such as two-factor authentication, encryption, and fraud detection to make sure that both creators and users are protected from fraudulent activity.
5. Currency and International Payments
People from all over the world can donate money. Therefore, it’s important to provide crowdfunding payment solutions that cover different currencies and provide transparent exchange rates. Last but not least, cross-border payments should always comply with regulations.
Why Is Crowdfunding Payment Processing Important?
“Payment processing in crowdfunding isn’t just about moving money from backers to creators—it’s about trust. Ensuring that every transaction is secure and reliable gives both backers and creators confidence in the platform.”
Patrick Collison, Content Strategist at Stripe
- Security and Trust. It is extremely important to build trust among potential backers, and that’s exactly what a reliable payment processing provider can do. Without providing advanced security and establishing trust, many backers might be hesitant to fund projects.
- User Experience. A smooth payment process is crucial to the success of any campaign. After all, if people are having trouble transferring their funds, many will just abandon the step altogether. Payment processors need to offer their clients a hassle-free user journey, making it simple, transparent, and reliable.
- Global Compliance. Crowdfunding platforms have a global reach. Therefore, payment processors must comply accordingly with the rules and regulations that govern different jurisdictions worldwide and their currencies.
- Transaction Fees. Lower transaction fees mean that creators will get to keep more of the money they’ve raised. That is why it’s a good idea to look for a payment processor that provides competitive pricing.
Crowdfunding Advantages and Disadvantages
Advantages:
- Accessibility. Integrating a payment processor allows crowdfunding platforms to accept payments in various currencies from around the world. This makes it very easy for everyone to contribute, increasing the number of backers.
- Transparency. The majority of crowdfunding payment processors offer extensive transaction reports. This allows creators to monitor contributions in real time, and it also lets backers see where their money is going.
- Trustworthy. Complying with PCI DSS regulatory requirements gives users a greater sense of security that their payment details are safe.
Disadvantages:
- Complexity. Campaigns that rely heavily on international backers can cause problems. This is due to the complexity of different exchange rates, additional fees, and geographical regulations.
- Delayed Access. Some crowdfunding platforms, like Kickstarter, use the “all-or-nothing” funding model. Essentially, this means that funds are held until a campaign successfully reaches its goal. For creators, this can delay a project’s execution.
- Regulations. Creators could face compliance issues depending on the country and the type of campaign; especially, when it comes to anti-fraud measures and tax regulations. Finding ways to meet these regulations can add an extra layer of complexity, especially when a campaign is global.
“In crowdfunding, secure payment processing isn’t optional—it’s fundamental. With so many campaigns going live every day, platforms must ensure they can handle high volumes of transactions without compromising on security.”
– John Rampton, Founder of Due
Are You Ready to Choose the Best Payment Processor for Your Crowdfunding Campaign?
Successfully raising funds and bringing a project to life is a rewarding experience for both creators and backers.
But before anyone can reap the benefits, you need to do the heavy lifting. Part of that involves choosing a reliable payment processor that can ensure that payments are safe, and above all, that people can trust you with their money without hesitation.
With more than 30 years of experience, Electronic Transfer is definitely a partner you can rely on. Sign up with us now, and join over 50,000 merchants who have already confided in us to help them on their road to payment processing success.
It’s absolutely free to get started – no sign-up fees, and no cancellation fees. We even offer a month-to-month agreement, so that you can see for yourself that ETI is the only payment processing provider you will ever need.