The risks of using peer-to-peer payment apps for your nonprofit organization
Updated: Oct 2
At first glance, payment apps such as Venmo, Cash App, Google Pay, and Paypal may seem like convenient options to help manage nonprofit finances. However, using these types of services can pose some hidden risks for your nonprofit. Read on to get informed about these risks of using peer-to-peer payment apps for your nonprofit organization and learn about some safer alternatives your organization can use instead.
Why is using peer-to-peer payment apps risky for nonprofit organizations?
Managing member payments and expenses can get complicated for nonprofit clubs, which is why it’s not surprising that it has become more and more popular for members to send their payments or pay for club expenses using peer-to-peer payment apps such as Venmo or PayPal. Your members are likely used to paying with these apps for their personal expenses and have them easily accessible on their phones – they can definitely feel more efficient than having to log in to some external software and start typing a bunch of banking details.
While peer-to-peer payment apps are definitely convenient, many nonprofit organizations are unaware of the risks involved in using them for club finances, and in several cases, they’ve only learned about them once it’s too late. Make sure to read through this guide before proceeding with peer-to-peer payments for your nonprofit organization.
Peer-to-peer payment apps can lead to unexpected personal taxes
Most often, if a treasurer is collecting payments on behalf of their organization using a peer-to-peer payment app, they are using their own personal account. This is a tricky setup when it comes to taxes. Peer-to-peer payment apps like Venmo are required by law to issue their users a 1099-K tax form if they earn more than $600 annually in income for goods or services. This form gets issued to the IRS which then can request tax on that revenue. This means that if a treasurer is collecting dues and other payments from their members using a peer-to-peer payment app, they can easily surpass this limit without realizing it – and some treasurers have had to learn about this the hard way.
Complicated end-of-year reporting
Most often, transactions made on peer-to-peer payment apps end up becoming “off-book” payments that aren’t reported in end-of-year income statements or 990 forms because of the hours of work needed to track down all of the necessary payment details. Reporting these payments is required by the IRS and often treasurers are not aware that when you don’t report them, you put your organization at risk of getting its tax-exempt status revoked by the IRS.
Lost or stolen funds
Another issue that has come up for nonprofit clubs that use peer-to-peer payment apps is forgotten or lost funds. Sometimes these lost funds are an innocent mistake made by the club treasurer, and in other situations, treasurers have purposefully hidden or kept club funds to themselves.
Treasurer handovers are a perfect example of a situation that can lead to lost funds if personal payment apps are being used. Oftentimes, a newly elected treasurer will either inherit a Venmo account that was used by previous club treasurers or start using their own personal account. In these types of situations, nonprofits have reported funds being left behind in old accounts or old treasurers using their old login information to access previous payments without the new treasurer’s knowledge.
Tricky payment tracking
Whether it’s reimbursements, dues payments, or payments for a club event, using payment apps makes tracking down and managing payments a bit messy. With different names for payments and no easy way to search payments for a specific event, Treasurers easily lose track of which members have paid and which members are overdue. This results in the treasurer having to sift through a bunch of old payments just to find the one payment they are looking for.
Cleaning up the mess
The risks can certainly outweigh the benefits when taking a closer look at the troubles caused by using peer-to-peer payment apps to manage nonprofit funds. So what can your nonprofit organization use to manage money more safely?
One option is to use payment software such as Greekbill, Omegafi, or Bill Highway that enable nonprofits to keep personal and club funds separate and provide a solution for managing high-volume payment collection.
While these options certainly help eliminate the risks involved concerning taxes and lost funds, members and treasurers report that they find them less accessible than a mobile app that you can easily open on your phone – this is part of the reason that drives treasurers and members to start using payment apps in the first place.
How Crowded helps nonprofits avoid the risks of peer-to-peer payment apps
With Crowded's mobile-first banking and member management platform, nonprofits get to experience the ease of a peer-to-peer payment app coupled with safety features that help clubs avoid unnecessary tax risks and lost funds.
With Crowded, treasurers can set up all kinds of payment requests (such as dues payments) in minutes, track payment statuses from their phones, and also send quick payment reminders to members.
Completing payments is easy for members who also access the Crowded app on their smartphones and can quickly pay using a credit card, debit card, or ACH transfer. Members can even request a payment link to send to a non-member who can then complete the payment on behalf of the member.
In order to make end-of-year reporting stress-free, Crowded organizes all of your club’s transaction history in a treasurer portal and later uses it to automate yearly 990 forms. This way, you can rest assured that all of your payment history is safe and organized when you need it.
Finally, instead of having to constantly transfer club funds for reimbursements, Crowded has virtual Visa® debit cards that treasurers can issue out to members with allocated club funds. This helps treasurers gain more control over spending and also prevents members from having to pay for club expenses out of pocket. It's truly a game-changer that both treasurers and members enjoy.