Tier 1 Quality Crowdfunding Payment Gateway
A crowdfunding payment gateway is a special type of bank account that allows crowdfunding platforms to collect credit and debit card payments from backers and supporters who wish to contribute to crowdfunding projects. With a crowdfunding credit payment gateway, individuals and organizations can contribute funds to various causes and initiatives.
At QuadraPay, we have witnessed a significant rise in the demand for crowdfunding payment solutions across the US, EU, Canada, and the UK. Several factors have contributed to this trend.
Crowdfunding has become increasingly accessible and straightforward to set up. Thanks to advancements in technology, individuals, startups, and non-profit organizations can establish crowdfunding sites and projects quickly, often within just a few days.
Contributors now prefer the security and convenience of making digital payments over the internet when participating in crowdfunding activities. Traditional cash contributions are no longer the preferred method, as digital transactions offer confirmation of valid transactions and greater transparency.
Furthermore, the internet has facilitated global fundraising efforts, allowing backers from different nationalities to contribute to crowdfunding initiatives. With the right international crowdfunding payment processor, contributions can be collected in multiple currencies from various countries, making it easier to reach a broader audience and achieve crowdfunding goals.
Every merchant processor is not a crowdfunding payment processor.
According to SkyQuest Market Research, the global crowdfunding market size is expected to reach 6.7 billion US dollars by the year 2031. The industry is projected to display a CAGR of 16.7%, which is highly impressive. However, it is worth noting that the banking industry, particularly financial institutions involved in merchant acquiring, are not very confident about onboarding crowdfunding merchants. In the merchant acquiring industry, online crowdfunding is considered a high-risk business.
Crowdfunding differs from fundraising because in crowdfunding, the backer is assured of receiving an exchange for their contribution. If the backer feels that they have not received the promised perk or if the company which raised the crowdfunding initiative has misused the funds, then the backer may dispute the transaction and demand a refund. This may potentially lead to higher chargeback ratios. For a credit card processing company, excessive chargebacks can elevate the credit risk and lead to financial losses.
Crowdfunding works on the basis of emotions and assurances. Projects committed to may not be fulfilled due to various reasons such as mismanagement, production issues, or unforeseen challenges. These uncertainties also increase the risk of disputes and chargebacks from contributors.
On Crowdfunding platforms backers can make payments from various countries, it is worth noting that this feature can also be misused. This creates a significant challenge for payment processors, which is why it is important for all crowdfunding merchants to ensure AML and KYC compliance, as well as full compliance with the payment processor’s terms and conditions.
Another critical challenge for banking institutions when it comes to onboarding crowdfunding merchants is from marketplaces that offer the ability to set up crowdfunding projects. Financial and legal stress may arise from fake campaigns set up using fraudulent or stolen documents, potentially abusing the system.
Other factors that make crowdfunding a challenging industry include inconsistent transaction volumes, a high project failure rate, and a lack of collateral. All these factors make it extremely difficult for crowdfunding merchants to obtain a credit card processing solution from traditional payment institutions. However, high-risk merchant processors can certainly help crowdfunding platforms.
Website requirements for crowdfunding payment gateway
To obtain an international merchant account for crowdfunding, merchants must ensure their website meets specific requirements. First, the website should be complete. An SSL certificate is mandatory for all crowdfunding websites applying for credit card processing. Additionally, the website must include pages for Terms and Conditions, Privacy Policy, Cookie Policy, and Refund Policy. Proper customer service email and contact form should be available on the website. The descriptor should be visible on prominent pages. Lastly, the logos of major card brands that the merchant wishes to accept must be displayed on the website.
Detailed List of KYC Documents for Crowdfunding Payment Gateway
Providing all required KYC documents to the payment processor helps improve the likelihood of getting approval from a crowdfunding payment processor. Here is a list of documents that are needed for a crowdfunding payment gateway:
Website WHOIS Certificate: This is required 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: This includes the company registration certificate from the government where the crowdfunding organization is located.
National ID and Address Proof of All Directors: Payment processing companies 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 in the Name of the Company: This can be a telephone bill, internet bill, or any other bill that clearly shows the name of the business and the address listed on the merchant account application.
Utility Bill of the Business Owners: Crowdfunding payment service providers ask for this document to confirm the actual residence of the business owners.
Business Bank Statement: Although most payment processing companies run credit checks, it is helpful to share a copy of the last year’s business bank statement. This statement helps the processor understand the financial strength based on the credits and debits of the business bank account.
Non-Expiring Access to the Crowdfunding Website: Some processors may ask for the username and password of the website to ensure that it is being used solely for crowdfunding. Sometimes, processing companies may ask for logins at the time of pre-approval. Processors may also request logins if the merchant is from industries like online dating, forex, betting, travel, airlines, web hosting, and advertising platforms.
FAQ: Crowdfunding Payment Processing
What Merchant Classification code (MCC) is assigned to crowdfunding?
The Merchant Classification code (MCC) for crowdfunding is 8398.
What is donation based crowdfunding ?
Donation-based crowdfunding involves projects where individuals donate a small fraction of money and do not expect anything in return. These projects are typically short-term and related to humanitarian causes.
What is reward based crowdfunding ?
Reward-based crowdfunding requires the platform to offer rewards to individuals 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 preferred. 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. Research, Insight about regulations about crowdfunding.
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
