The rapid adoption of electronic payments and alternative payment methods throughout the world, and, in particular, in the developing countries is giving the global digital payments market a tremendous boost: according to MarketsAndMarkets, the size of the digital payments market is projected to grow from $112,3 billion in 2023 to $193.7 billion in 2028. In this context, payment processors, or companies that help businesses accept and process payments, come to the fore and can see some exciting business opportunities.
In our article, we’ll take a look at the different aspects of starting a payment processing company. Our objective is to help those wishing to tap into this market take their bearings as to what should be done to achieve their goal, so let’s get started right now.
How to Start a Credit Card Payment Processing Company Step-by-Step
Market Research and Analysis
The success of your payment-processing business will hinge very significantly on how well you’ve researched the demands and specifics of your target market or markets. These factors tend to vary from market to market, even when it deals with your adjacent markets that, at first glance, look quite similar.
What should one pay attention to while doing market research for a payment-processing startup?
Payment Methods
First off, you will need to survey merchants in the various business niches based in your target market or markets. Namely, you will need to find out the payment methods that they currently prefer to utilize or would welcome to adopt.
Overall, your payment methods must include credit cards, debit cards, prepaid cards, e-Wallets, cryptocurrencies, and QR codes. Pay special attention to digital wallets and the other modern alternative payment methods to encompass their full required variety.
Currencies to Work With
The second major point you must necessarily discuss is the currencies your future target audience or audiences need, want, and are legally entitled to accept.
It is essential that you have support for all such currencies implemented prior to when your solution hits the market. For this purpose, one should take into consideration the following factors:
- Target Market – delineate your target market and list the currencies that are commonly used in the geographies it spans.
- Target Industries – with businesses in certain industries, you cannot limit your list of currencies to those that are typically used in your selected market. For instance, if your clients are going to cater to eCommerce customers, you should probably implement support for all major currencies. Also, it might be useful to look at the geographies that are your market’s traditional trading partners.
- Market Expansion – if in the near future you are planning to expand internationally, you should include the currencies that are used in the geographies to which you are going to scale.
Work With Regulated Industries
In many instances it makes sense to look at the portions of regulated businesses in your target geographies and make up your mind on whether you’d want to work with such businesses.
If you find out that regulated businesses constitute an attractive target audience in your target markets, you should additionally prepare for bringing them into the fold and meeting their demands. For example, if you decide to start working with Healthcare businesses, you will need to first become familiar with the HIPAA regulations and then make your payment processing solution HIPAA-compliant. In other words, one will need to:
- Encrypt and tokenize all customer data. At that, the encryption level used is to be no lower than vP2PE.
- Set up a server with additional full-disk encryption (in addition to applying vP2PE or higher level of strong encryption).
- Use payment terminals with EVP chips, and more.
Similar to this, some additional requirements are bound to arise if you start working with some other regulated businesses, like, for instance, law firms.
Financial Competitiveness
It’s important to know how to start an online payment processing company with good financial prospects.
In this sense, it’s helpful to list all the types of merchants you are going to cater for, consider the average transaction volumes for these types of merchants, and develop the cost and fee structures based on these volumes.
One should also pay attention to the payment methods that your merchants’ customers prefer, as the fees that payment processors charge usually depend on these payment methods.
These approaches can help you come up with a financially competitive service offering.
Technical Ecosystem Development
While most of us deal with electronic payment technology on a frequent and regular basis, our payment experiences are always limited to dealing with the fronts of the integrated payment solutions that let us make payments for products or services.
These front-facing solutions are called payment gateways, and they are not all that it takes in terms of technology to accept and process a card or any other electronic payment. In one of our recent articles, we have explained how to build a payment gateway and estimated the cost of payment gateway development.
However, as a payment-processing startup, you will also need a well-developed, robust, and feature-rich payment-processor that is the backbone of any payment-processing business. Building a payment processor is likely to be more complex and challenging, and there are some other technicalities here that you should be aware of.
White-Label vs Custom Payment Processing Software Development
When it comes to building a payment processing software, you would basically be facing two options – develop a bespoke payment processor from scratch, or use a while-label solution that will need to be adjusted to your business context. Let’s compare these options to choose the one that suits your needs best.
| Criteria | White-Label Payment Processing Software | Custom Payment Processing Software |
| Customization | Limited customization options. Businesses can add their logo and branding but have little control over features or functionality. | Highly customizable. Businesses have control over every aspect, from features to user interface. |
| Time-to-market | Faster time-to-market as the core solution is already developed. Businesses can quickly launch their payment processing services. | Longer time-to-market as the software is developed from scratch. Development time depends on complexity. |
| Cost | Generally lower initial costs as development expenses are shared among multiple businesses using the same solution. | Higher initial costs due to the development of a unique solution tailored to specific business needs. |
| Scalability | Limited scalability as the features and capabilities are predefined by the third-party provider. | High scalability as the software can be designed to accommodate the specific growth needs of the business. |
| Control over features | Limited control over features and updates. Businesses rely on the white-label provider for upgrades and new features. | Full control over features, updates, and roadmap. The business can adapt the software as needed. |
| Branding | Limited branding options. The software may have the branding of the white-label provider, and businesses can add their branding to a certain extent. | Full control over branding. The business can create a unique brand identity for its payment processing solution. |
| Maintenance and support | Maintenance and support are typically handled by the white-label provider. Businesses may have limited influence over updates. | The business has control over maintenance and support. It can choose its support model and implement updates according to its schedule. |
| Integration with existing systems | Integration may be limited and may depend on the capabilities provided by the white-label solution. | High flexibility in integrating with existing systems and infrastructure, tailored to the business’s specific requirements. |
| Compliance | Compliance may be pre-built into the white-label solution, but businesses need to ensure it aligns with their specific regulatory requirements. | Full control over ensuring regulatory compliance tailored to the specific industry and location. |
| Use cases | Suitable for businesses that want to enter the market quickly with a basic payment processing solution. | Ideal for businesses with unique needs, specific industry requirements, or those aiming for a distinct competitive advantage. |
In the event that you choose to develop a custom payment-processing solution, you will also need to take care of the technical matters related to the ecosystem your payment processor will reside in. In our recent article, we have explained how to build a payment processing system from scratch.
Partnerships with Banking Institutions
To a significant extent, the successful functioning of a payment-processing ecosystem depends on your partnerships with the banking institutions your payment-processing system is integrated with.
It should be said at once that the process of selecting a partner and forging mutually beneficial payment-processing relationships is bilateral for banks and their payment processors. To appeal to banks as a payment-processing partner, your payment-processing company needs to ensure full-value PCI-compliant 3 Level processing (i.e. be able to process between 20000 and 1000000 transactions per year), and fully support working with regulated industries, like Healthcare, Legal, or Government institutions.
Also, you should be aware that partnerships-wise a lot will depend on your custom software provider’s integration and API development expertise and experience. This makes it advisable that from the let-go you should choose a provider of bespoke software that is extensively experienced in integrating with banking solutions.
Andrii Semitkin
Delivery Director at SDP Tech
In projects of this type, a lot depends not only on how good and experienced you are technically, but also on how keen you actually are to dial into your clients’ business needs, and, what’s more, their customers’ business needs. It’s essential you go with a provider that is keen to get actively involved from the early stages.
As a company that has achieved dozens of integrations in the payment-processing realm, including those with our clients’ partner banks (and has even come up with an integration framework of its own to facilitate the process), we can say with confidence integration expertise should not be played down or overlooked.
Branding and Marketing
Answering the question of how to start a payment processing business without mentioning the importance of branding and marketing activities would be incomplete.
Regardless of the technical excellence you’ve achieved for your payment processing solution with the help of your DMS software developers, you also need to ensure the consistency of your branding throughout the payment cycle it supports. Users must see your logo and other branding elements at all the touchpoints. Your value proposition should also emphasize such aspects as security and speed of payment execution, as these are the two main characteristics of your service both merchants and their customers appreciate the most.
Expansion and Scaling
As a fledgling payment-processing company, you need to be well-aware of the ways to scale and expand your payment processing business early enough to use them quickly and correctly when you have growth opportunities.
Expanding your market to other geographies would be one of the ways to up your game. One can achieve business expansion here by adding more currencies and focusing on the payment methods preferred in your new target markets. Another way to expand both locally and overseas would be to implement convenient and well-suited support for the recurrent payments business model. This can both help develop brand loyalty and attract new clients who are looking for a more convenient service.
Payment Processing Company Business Plan Template
To help you seamlessly build a payment processing business from the ground up, we prepared a business plan template that you can use and adjust according to your goals.
Executive Summary
Objective: Launch and operate a cutting-edge payment processing company focused on providing secure and efficient transaction solutions for businesses of all sizes.
| Mission Statement | To revolutionize payment processing by delivering innovative, secure, and user-friendly solutions. |
| Vision Statement | To be a leading provider of seamless and reliable payment processing services globally. |
| Primary Objectives | 1. Establish a robust and secure payment processing platform. 2. Gain a significant market share within the first two years. 3. Achieve profitability by the end of the third year. |
Products and Services
| Service | Description |
| Online Payments | Secure and efficient processing of online transactions. |
| In-store payments | Point-of-sale solutions for brick-and-mortar businesses. |
| Mobile Payments | Seamless mobile payment options for on-the-go transactions. |
Payment Processing Packages
| Basic | Core payment processing features | Competitive rates |
| Advanced | Additional security layers, analytics, and customization | Customized based on usage volume |
| Enterprise | Scalable solutions for large businesses | Negotiable based on requirements |
Market Analysis
| Target Market Segment | Description |
| Small business | Affordable and user-friendly solutions tailored for small enterprises. |
| eCommerce | Integration-ready APIs for online stores and e-commerce platforms. |
| Retail chains | Scalable point-of-sale systems for large retail chains. |
Competitor Analysis
| Competitor | Strength | Weaknesses | Market positioning |
| Competitor 1 | Established brand reputation | Limited flexibility in pricing plans | Leader in online payment solutions |
| Competitor 2 | Advanced security features | Higher processing fees | Preferred choice for large retailers |
| Competitor 3 | Seamless integration with apps | Limited customer support | Niche market focus on mobile payments |
Marketing Plan
| Channel | Strategy |
| Digital marketing | Social media campaigns, content marketing, and SEO. |
| Partnerships | Collaborate with e-commerce platforms and business associations. |
| Referral programs | Incentivize existing clients to refer to other businesses. |
Sales Strategy
| Sales channel | Approach |
| Direct sales | Establish a dedicated sales team for B2B relationships. |
| Online sales | Implement an easy-to-navigate online signup and onboarding process. |
| Partnerships | Form strategic partnerships with industry-related businesses. |
Financial Projections
| Year | Revenue | Expenses | Net Profit |
| Year 1 | $X,XXX,XXX | $X,XXX,XXX | $X,XXX,XXX |
| Year 2 | $X,XXX,XXX | $X,XXX,XXX | $X,XXX,XXX |
| Year 3 | $X,XXX,XXX | $X,XXX,XXX | $X,XXX,XXX |
Milestones and Timelines
| Milestone | Timeline | Responsible party |
| Product launch | Q2 Year 1 | CEO, CTO |
| Market expansion | Q1 Year 2 | Head of Sales |
| Technology upgrade | Q1 Year 3 | CTO, Development Team |
Risk Analysis
| Risk | Likelihood | Impact party | Mitigation strategy |
| Cybersecurity Threats | Medium | High | Regular security audits, encryption protocols. |
| Market Saturation | Low | Moderate | Continuous market research, diversification of services. |
| Regulatory Changes | High | High | Legal counsel, staying informed on industry regulations. |
In Conclusion
In answering the question of how to start a payment processing company, we’ve touched upon several important components of success. Undoubtedly, a great deal will also depend on the technical excellence your payment processing software development vendor can provide.
In this sense, it is essential for a payment processing startup to combine the knowledge of the business aspects with a fair understanding of the technicalities involved in order to make your interactions with your software development vendor more productive, and, eventually, achieve a better quality of the resulting product. As a provider of bespoke fintech software development services, we have experience with helping a high-scale payment-processing startup take off, and would, certainly, be delighted to answer any of your related questions – just write to us.
FAQ
- What is a payment processor vs payment gateway?
In a nutshell, payment gateways collect credit card and transactional information, while payment processors handle the rest of the payment transaction through interactions with the card-holder’s bank and the merchant’s acquiring bank.
- How to become a payment processor?
You need to choose a target market, research into the business needs of the various merchants in this market, develop a custom payment-processing solution or pick a white-label payment-processing platform, find partner banks, and take care of the payment infrastructure-related matters.
- How difficult is it to build a payment processor?
Just like with any other software application, it depends on the features of the solution, and, incidentally, on the payment methods, currencies, and other parameters that you want to include. The guidance of a well-seasoned custom software development company can make the task a great deal easier: they can help include only the features you need and embed the ability to scale the application whenever that needs to be done.
- How much does it cost to start a payment processing company?
Again, everything depends on the scale and functionality of the payment processing solution you want to build. In relation to a MVP, the figure can approximately range from $250K to $500K. For a more accurate cost estimate, get in touch with our experts.