Last updated on March 11th, 2025 at 05:52 pm
Crowdfunding Merchant Accounts & Payment Gateways.
A crowdfunding payment gateway is a specialized bank account that allows crowdfunding platforms to collect payments from donors and investors. The gateway acts as a transaction processing platform between contributors and the campaign creators.
Crowdfunding platforms allow individuals to set up campaigns and collect contributions. Projects can be of various types, such as art, tech, games, films, and donation- or subscription-based crowdfunding. While these platforms make a significant impact in the lives of millions around the globe when it comes to credit card processing, they sometimes face serious challenges.
On the backend, crowdfunding platforms act as a marketplace for individuals who make accounts for causes. However, such platforms can bring in significant risk for payment processors. One fraudulent campaign can have a huge negative impact on the entire crowdfunding platform. This is one of the key reasons why most low-risk providers generally decline applications for crowdfunding merchant accounts.
However, it’s not a dead end for professionally managed and serious crowdfunding platforms. Specialized high-risk payment processors cater to the transaction processing needs of local and global crowdfunding websites and apps. Unfortunately, merchants may find it time-consuming to search for such providers. This is why the team at QuadraPay has written this extensive guide that explains most important factors related to crowdfunding credit card processing. We are confident that after reading this guide, you will be able to easily find a credit card processor for your crowdfunding project. Let’s begin.
Crowdfunding Sites need High-risk Processors.
According to SkyQuest Market Research, the global crowdfunding market size is expected to reach 7.82 billion US dollars with a CAGR of 16.7% by the year 2032. The projected growth rate is highly impressive. However, it is important to know that many payment processors consider onboarding crowdfunding merchants a big risk.
Crowdfunding differs from fundraising because in crowdfunding, the backer gets a commitment of receiving an exchange for their contribution. If the backer feels that they have not received the promised perk, then the backer may dispute the transaction and demand a refund. Such instances may lead to chargebacks.
Crowdfunding works on the basis of emotions and assurances. Some projects may not be fulfilled due to many reasons, such as mismanagement, production issues, or a new pandemic. These uncertainties also increase the risk of disputes and chargebacks from backers.
Other factors that make crowdfunding a challenging industry include inconsistent volumes, a high project failure rate, and a lack of collateral. All these factors make it difficult for crowdfunding merchants to obtain a credit card processing solution from traditional processors. However, high-risk merchant processors can definitely be in a better position to help.
Website requirements for a crowdfunding payment gateway.
To obtain a merchant account for crowdfunding, it is important that the website meets processor’s requirements. The website should be complete. An SSL certificate is mandatory. Additionally, the website must have terms and privacy policy pages. The customer care contact details should be in the footer section with logos of major card brands.
As your consultant, we say that sites that have good social media presence and natural organic traffic have better chances of getting approved. For this, we suggest startup crowdfunding merchants to work aggressively on the site and social media to generate traffic and a genuine user base. If the site has hardly any traffic, then how would underwriters trust that the site can do any business? Work on your site for easy approvals.
KYC for Crowdfunding Payment Gateway
Providing all KYC documents to the payment processor at once helps improve the likelihood of getting approval. Here is a list of documents that are needed for a crowdfunding payment gateway.
Website WHOIS Certificate: This is to identify the ownership of the website. The domain must be in the name of the company, a major stakeholder, or the ultimate beneficiary of the company.
Business License: Certificate of incorporation.
Photo ID and address proof of directors: Payment processors require this information to identify the ultimate beneficiaries of the company. They will also run credit checks on the directors to assess their creditworthiness.
Utility Bill: This can be a telephone bill, internet bill, or any other bill that clearly shows the name of the business and the address.
Utility Bill of the Business Owners: Crowdfunding merchant account providers ask for this document to confirm the actual residence of the business owners.
Bank Statement: This statement helps the processor understand the financial strength based on the credits and debits.
Test User account: Some processors may ask for a test username and password for the website to ensure that it is being used solely for crowdfunding. They may also perform surprise audits. The login details are also asked for merchants in other industries such as online dating and matchmaking.
FAQ: Crowdfunding Payment Processing
What is the Merchant Classification Code (MCC) crowdfunding?
The most appropriate MCC is 8398. The same MCC is used for similar merchants, such as non-political fundraising.
What is reward-based crowdfunding ?
Reward-based crowdfunding requires the platform to offer rewards to backers supporting the project. These rewards can include premium memberships, t-shirts, credit display on the website, and other forms. Often, the rewards are not very expensive.
What is equity-based crowdfunding ?
In the startup world, equity-based crowdfunding is becoming popular. In these projects, funding is used to establish and develop the company. Contributors to the crowdfunding project receive equity or shares in the organization once the company starts generating profit.
Suggested Readings.
https://crowdfunding.wharton.upenn.edu/research/
https://funginstitute.berkeley.edu/wp-content/uploads/2013/11/Crowdfunding_Creative_Ideas.pdf
https://www.fca.org.uk/publication/thematic-reviews/crowdfunding-review.pdf
