Are you considering entering the payment industry but unsure how to proceed? We hope you find this information useful as you learn more about the payment processing industry and the many business options available.
Why should you create a payment processing company?
One of the few industries that have benefited from the COVID-19 epidemic is payment processing. Online payments were already on the rise because many countries were moving slowly toward a paperless economy. However, global financial problems have made online payments even more popular. People bought online rather than in stores because they wanted to feel safe at home. As a result, the payment processing business has become extremely prosperous.
While many firms struggled to stay afloat in 2020-2021, the payment processing industry made news with major acquisitions. To name a few, Worldliness’s $8.6 billion acquisition of Ingenico made it Europe’s largest acquirer and payment processor.
Or Nexis’ acquisition of SIA for $5.3 billion, with the first seeking to become Europe’s largest payment provider.
And, of course, Stripe must be included, a company that completed its most recent financing round in March, valued at a staggering $95 billion. With a value of $36 billion in spring 2020, the company has nearly quadrupled in a year!
Even though it’s getting more competitive, the business of digital payments around the world is still young, which is bringing in new competitors. It is expected to grow at a 19.4 percent CAGR between 2021 and 2028. Continue reading if you wish to work in this developing industry!
What are the Alternatives?
To get started in the payment processing sector, there are three options.
The first approach is to develop your own payment software or solution. It’s a dangerous strategy that will need a significant amount of time, money, and resources.
Another option is to adopt a white-label strategy, which comprises obtaining ready-made payment software from a vendor and reselling it to merchants under your brand and on your conditions.
For those who wish to make money without generating anything, there is also the affiliate model. In exchange for a monetary incentive, you will sign an agreement with a PSP to bring them, new clients. It’s a great choice for people who work in networking, but today we’ll focus on the first two, which give us a more in-depth look at the payment industry.
Building payment software from the ground up is a difficult task
Before taking any more action, like with any other business, it’s critical to research the industry and create a business strategy, determining what your features and services will be, how much you’ll charge, and how you’ll attract clients. When you’re ready, take action:
- Register your company and brand in accordance with the regulations of your jurisdiction.
- Form a partnership with a bank and open an account for your business. That’s where your business strategy comes in!
- Purchase a domain name and the necessary equipment. Depending on your budget, you can buy, rent, or lease it.
- Form a development team to create the payment software.
- Create and implement your payment solution. It may appear to be the smallest step on the list, but it will use most of your resources. Your success is heavily reliant on its quality!
- As you go with the development, you’ll require good server infrastructure and a security appliance.
- As a payment company that processes card transactions, you must be PCI DSS certified.
- To make your product more competitive, collaborate and integrate with banks, payment providers, gateways, systems, processors, and other solutions.
Overall, it will take more than two years to complete all of the phases and launch the MVP (minimum viable product). Following that, you must deal with maintenance, support, and updates, as well as pass regular security and financial audits.
To advertise and sustain your product, you’ll also need to recruit legal, marketing, sales, and support professionals.
Working with a white-label solution is a shortcut
Using a white-label payment system to launch a payment business is more than twelve times faster. This is due to the fact that you will have modern payment software from the start, which will save you money, time, and resources.
Market research is crucial in this scenario since you need to choose a credible and trustworthy solution supplier with whom to partner. We’d be delighted to show you our white-label payment processing. Seeing how it works and getting answers to your questions from our specialists will help you make an informed decision.
You must also fulfill the criteria for business registration and the opening of a bank account.
However, after you’ve decided on a white-label payment solution vendor, all you have to do is integrate it and onboard your merchants.
Your solution supplier will take care of keeping the software up-to-date and stable, freeing up your resources for business development and acquiring new clients.
How much does it cost to launch a payment processing company?
It is impossible to estimate the expenses of a self-developed payment solution. A multitude of factors influences it, including the features you want your solution to have, as well as equipment cost, salaries, regulatory framework, and so on. Estimates vary from $250,000 to $1,000,000 or more. Registration, domain, hosting, design and development, security appliances, licensing, and certifications are all depicted in this figure.
The solution provider chooses the cost under the white label method, which you may find out ahead of time by visiting the vendor’s website or obtaining a quote.
The affiliate model will not cost you anything except time and effort. To earn a set percentage, simply select a supplier with a partner program and bring them, clients. Of course, it does not make you the owner of a payment corporation, unlike the previous two possibilities.
The main risks and challenges of running a PSP business
Despite the industry’s attractiveness and profitability, payment businesses confront a number of problems, including
- Keeping up with the industry’s rate of innovation. To be competitive, it is critical to innovate and enhance functionality while providing robust and flexible services.
- Maintaining security, which is critical when dealing with payments.
- Fraud prevention and chargeback reduction.
- Adherence to regulations. It is especially difficult for cross-border firms.
How much these problems will affect you depends on which payment business model you choose. Choose cautiously, and don’t hesitate to contact us if you need help.
The key definitions to know before starting a payment processing company
Starting a payment processing company requires a thorough understanding of the key definitions associated with the payment processing industry. To successfully provide payment services, companies need to be aware of their options and the different regulations that apply.
Payment Service Provider (PSP)
A Payment Service Provider (PSP) is a third-party service provider that facilitates accepting customer payments. It allows customers to pay for goods or services online through various payment methods, such as bank transfers, credit cards, etc. Payment Facilitator A Payment Facilitator (PF) is a third-party service provider that facilitates accepting customer payments. It allows customers to pay for goods or services online through various payment methods, such as bank transfers, credit cards, etc.
A Payment Gateway is a service provider that facilitates the secure transfer of payments from the customer to the merchant. It is done by encrypting and securely transmitting the payment information to the payment processor, who then sends it to the bank or other financial institution.
A Payment Processor is a third-party service provider that handles the actual processing of payments between the customer and the merchant. It is done by securely sending the customer’s payment information to the acquirer bank, which then sends it to the financial institution that holds the customer’s account.
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