- Vladimir Kuiantsev, CEO at Akurateco
- 09.01.2023 08:30 am #creditcards
In the rapidly developing modern environment, the credit card processing business is a niche that is only gaining momentum. It is confirmed by the numbers. According to the 2022 McKinsey Global Payments report, debit and credit card transactions continued to grow at 20 per cent and 18 per cent, respectively, between 2020 and 2021.
Indeed, starting a credit card processing company is a profitable goal to accomplish, yet it is also quite challenging. However, with the right knowledge and skills, it can pay off. In this blog post, we will discuss the basics of credit card processing, learn how to start a credit card processing company with a step-by-step guide, identify the cost of creating one from scratch, and analyze the other alternatives that the market has to offer.
Credit card processing: the basics
Credit card processing is the process of accepting and verifying credit card payments for goods or services. It starts when a buyer ready to make a purchase enters his payment details on the payment page of the merchant’s website. These payment details are instantly redirected to the payment processor’s payment gateway. This software transfers them directly to the acquiring bank, credit card network, and issuing bank. The issuing bank authorizes or declines a payment, and the gateway sends the response back to the customer.
Basically, the role of the credit card processor is to be an intermediary between the customer who makes a payment and the merchant that receives it. In order to build a credit card processing business, you need to be certified and licensed by major payment processors like Visa and Mastercard. In addition, you need to obtain Payment Card Industry Data Security Standard (PCI DSS) certification. You should also have a comprehensive understanding of industry standards and regulations, as well as an effective risk management system in place and top-notch features to stand out in a market that offers many similar payment solutions. Let's start at the beginning.
How to start a credit card processing company: a step-by-step guide
The first thing you should know about starting a credit card processing company is that it requires a lot of time, and financial and employee resources. But, if you have this part covered, you can move on to planning and preparation. This step-by-step guide will give you guidelines on setting up your business from the very beginning to accepting payments from customers.
Starting a credit card processing company involves several steps, including obtaining the necessary licenses and agreements. In addition, it involves setting up the necessary infrastructure and technology and establishing relationships with banks and merchants. Here are the basic steps you need to take to start a credit card processing company:
1. Obtain the necessary licenses and agreements
First of all, you will need PCI DSS certification. It is a complex process that includes many steps. In total, you have to comply with 12 main requirements and roughly more than 250 sub-requirements listed in the PCI-DSS version 3.2.1 documentation.
Also, depending on your location, you may need certain licenses and agreements, which is why it is crucial to research the requirements in your area. For instance, if you want to become a payment processor in the Middle East and North Africa (MENA) region, mainly in the Kingdom of Saudi Arabia (KSA), you have to comply with the Saudi Arabian Monetary Authority (SAMA), which regulates payment processors in the KSA.
If you plan on becoming a payment processor in the MENA region, take a look at the guide below:
How to Start Your Own PSP Business in the Middle East
2. Set up the necessary infrastructure and technology
Credit card processing companies rely on technology to facilitate transactions between banks, merchants, and customers. It includes setting up servers and other infrastructure to host your payment gateway, establishing relationships with payment processors, and acquiring the necessary hardware and software.
Another option you might be willing to consider is renting cloud-based infrastructure, such as Amazon Web Services or Microsoft Azure. On the plus side, you will save on server purchases, and it will be developed and maintained by your cloud provider. On the downside, this option is considered more risky since you are not in charge of the main processes.
3. Establish partnerships with banks and merchants
To process transactions, you need to establish relationships with banks and merchants. This may involve negotiating contracts and establishing processes for onboarding new clients. Note that you will need dozens if not hundreds of integrations with global and local payment providers in order to satisfy customer demand for popular and most-used payment methods in different regions.
4. Promote your services
Once you have everything in place, it is time to start promoting your services to potential clients. The process may include creating marketing materials, attending industry events, and networking with potential partners. Also, note that there will be a lot of competition in the credit card processing market since it is extremely popular with many players already involved.
How much does it cost to start a credit card processing company?
Starting a credit card processing company is not a simple task. To break into the financial industry and provide customers with an easy-to-use service, you need to buy the necessary infrastructure, obtain a license, and assemble a team of professional developers, sales managers, and a marketing, accounting, and legal department at the very least. Thus, the cost of starting a credit card processing company can vary greatly depending on many factors.
Speaking in numbers, a minimum viable product (MVP) for a credit card processing company from scratch would cost you from $150K up to $500K but may be higher or lower depending on your individual situation. In terms of time, it will likely take from 6 months to more than a year. However, if you want to start a credit card processing company with a minimal budget in a short period of time, you might consider other options on the market.
Considering alternatives
White-Label Payment Gateway
These days, becoming a credit card payment processor with a customized payment solution can be accomplished in a matter of weeks, and would require no development costs. There are payment providers that offer white-label solutions to entrepreneurs seeking to start their payment processing business with ready-to-use reliable software. A white-label payment gateway is a good choice for those looking to start their own businesses without having to build every single component from scratch. It is brandable ready-made payment software that offers cutting-edge payment technology and multiple integrated banks and payment service providers worldwide.
If starting your own credit card processing company is possible after at least six months of development and thousands of dollars spent, instead you can launch a white-label payment gateway in 2-3 weeks with zero development cost. In addition, you will be able to process not only credit and debit cards but also alternative payment methods using smart routing, cascading, automated billing and invoicing, risk management, and PCI DSS certification, increasing the revenue of your clients. Of course, a white-label payment gateway will not be as tailored to your needs as your own payment solution, but it is an alternative worth considering when you are in search of ready-to-use payment software that offers advanced payment technologies.
Payment Gateway Source Code
There is another fully customizable alternative to building your payment solution from scratch. It is a payment gateway source code purchase. By purchasing a source code, you become its rightful owner, which means that you can modify it to suit your needs. Source code purchase represents a robust and reliable payment solution allowing you to completely replace the need to develop your own payment gateway. Certainly, its price range is much higher than a white-label payment gateway, but it will cost at least three times cheaper than a payment gateway built on a limited budget, not to mention payment gateways, the development of which costs from $250K. Also, its time-to-market is much faster since it takes only a couple of months for a client to launch.
In outline
Overall, starting a credit card processing company is no easy feat. It requires lots of time, money, planning, research, and dedication to ensure the business is successful. With all the necessary steps covered, such as license and certification, payment provider integration, and developing a well-crafted marketing plan, you can take your credit card processing business to the next level. And, with the right approach and dedication to success, you can build and grow your business into an industry leader with time. However, your payment processing business not necessarily should be created from scratch. There are white-label alternatives on the market, which are not inferior, and sometimes even superior in quality than some self-created payment processing solutions.
