Crowdfunding Payment Processing: the benefits of an automated solution

15 July 2020

Business Insight

Crowdfunding platforms process money differently depending on the type of investment and transaction size. Thus, donation and reward-based crowdfunding platforms usually integrate the most comprehensive payment gateway to set up smooth money processing on the platform of relatively small sums of money between $5 – 500.

In contrast, debt and equity crowdfunding platforms often use manual payment processing via a bank transfer due to the large investment sums between $10,000 – 100,000. 

However, the investment size is not the only differentiating factor between manual and automated payment processing on a crowdfunding platform. Each of these methods is required for particular purposes. 


Manual payment processing


Equity and P2P lending platforms that are just starting out usually have a limited client base and work with a few offerings only.

When a payment gateway is not integrated on the platform, investors send money directly to the platform’s bank account. When the required sum to fund a project has been gathered, the fund manager sends money to the business. Later, when it’s time to repay the dividends, the business will send money to the platform and the platform will distribute the dividends among investors.

In this case, a crowdfunding platform is used as an online ledger. And all money processing is done through a bank. So, all money-related data in a crowdfunding platform is purely for representational and informational purposes. 

Nevertheless, this approach has certain limits:

Difficult to scale, time-consuming, requires management, human error possibility.


Automated payment processing


Automated money processing makes life easier for a crowdfunding platform manager. Crowdfunding payment gateways are usually smart and not necessarily process all payments automatically. A manager is able to have the final word whether to approve or reject a certain transaction. Crowdfunding payment gateways usually provide a KYC/AML verification support, but the manager may or may not rely on it to have the final word. 

Using an integrated payment gateway allows for a lot of cool features:

  • Automated dividend distribution 
  • Scheduled repayments and auto-investing 
  • Additional KYC/AML 
  • Dispute resolution support 
  • Escrow account 
  • User-friendly wallet management for investors and fundraisers 
  • Automated withdrawals (or requests for withdrawals)

A payment gateway allows the crowdfunding platform to scale and process multiple transactions without delays. This is especially useful for donation and reward-based crowdfunding platforms where transactions are small and the volume is high. In addition to these, P2P lending platforms also use payment gateways to process payments. 

As for the equity, it depends on the valuation certainty and terms which the business developer and funding platform agreed upon. 

At Lemonway, we can help you automate your crowdfunding platform’s money processing, guide you through the implementation process, and provide you with the required solution for your business. 

Reach out to us to learn more about how Lemonway works.

Credits: JustCoded