The big surge in e-commerce and the shift towards digital payment methods has created a great need for high-quality payment processing. If you’re the one striving to help businesses grow by enhancing their payment capabilities, starting a merchant services business is the way to go. However, a path towards industry leadership is strewn with obstacles, and making mistakes can be costly for newcomers.
This complete guide provides in-depth information about all aspects of starting a merchant services company. Let’s cut to the chase.
Merchant services definition
To move from easy to complex bit by bit, we’ll start with some basic terminology that every up-and-comer in merchant services should be aware of.
Merchant services (often referred to as credit card processing) is a broad term to describe services that enable merchants to accept, process, and manage electronic transactions from their customers. Merchant services providers act as guides to the world of payments for business owners, providing them with everything they need to accept payments, including software, hardware, and professional support.
Merchant services are a jumping-off point for every business, enabling them to accept different payment methods, handle multiple currencies, and manage transactions. Partnering with a merchant service provider allows companies to expand their payment options and enter new markets with minimal effort. Such clear advantages generate a great demand for merchant services among businesses of different industries and sizes, making this niche lucrative and attractive to enter.
The basic steps to a merchant services business
Before you embark on this arduous journey, learn these five underlying steps to creating a merchant services business.
1. Research the industry and market
The success of your future merchant services company directly depends on the thoroughness of the research you conduct before starting it. This is especially true in the payments industry, where things are changing too quickly and sometimes it’s hard to keep up with new trends. Besides feasibility study, gather the latest data about similar businesses, merchant services they provide, and their pricing policy.
Special attention should be given to the level of competition in the industry. Usually, the bigger providers get more prominent merchants. However, it’s easier for smaller merchant services providers to get local clients on board.
2. Decide on services you’ll provide
There is a huge variety of offerings that a merchant services provider can offer to customers. Based on the preferences of your target audience, determine the services that will be most relevant to them. Here’s a brief overview of the most common merchant services:
To accept debit and credit card payments, as well as digital payment methods, every business will need a merchant account where funds from all processed transactions will be deposited. Some providers offer turnkey merchant accounts, but there’s also an option to register clients as sub-merchants, providing them with unique merchant IDs. Whether you can offer the first or second option depends on the type of your integrations with the PSPs and banks.
A payment gateway is a piece of software that establishes a connection between a merchant’s website and participants in payment processing. It encrypts sensitive customer information and sends it securely for further processing. Every merchant who aims to accept online payments will need a payment gateway, so it will definitely be in demand in your list of services.
- Point of Sale (POS) systems
Another good way to make money for merchant services providers is to sell POS systems that combine all the tools for seamless payment acceptance. The POS system is software that allows merchants to accept different payment methods, including contactless ones, track cash payments and sales, do necessary calculations, and much more. Depending on the store type (online or brick-and-mortar), merchants may also need hardware, for example, a credit card reader, receipt printer, or any internet-enabled devices to process transactions.
A shopping cart is a piece of software that merchants integrate to create pleasant shopping experiences for their customers. Acting as an online catalogue, the shopping cart keeps track of items that a buyer selects on a merchant’s website, forms an order and displays all the necessary information about it to the buyer. Сustom shopping cart integration is the key to successful sales for e-commerce retailers.
If you’re having difficulty choosing the right products and services for sale, take a look at your competitors’ merchant services and assess their customers’ level of satisfaction with these services. It seems difficult to do, but customers’ online reviews and networking will come to your aid. There is nothing better than live communication with potential clients. It’s also an excellent opportunity to create a database of phone numbers and emails for future sales.
3. Partner with financial institutions
After the brainstorming work, it’s time to move on to practice. All merchant services companies need to make arrangements with several financial institutions to provide customers with banking services and technology. Here are the connections and contracts you cannot start without.
- Register with major card networks
Before you solemnly enter a merchant services industry, you need to make sure that you’ve got approval from major card networks, namely Visa and Mastercard to process the cards issued under their brands. To make this work, you need to submit requests to each card network and get approvals.
- Apply for PCI DSS assessment
The PCI DSS compliance is extremely important for every organisation that interacts with sensitive payment data. If you comply with each of the 12 clauses of the standard, you can be trusted to process payment information without the risk of data breaches.
- Partner with banks and PSPs
Depending on the type and size of the business, your clients will have different needs, and it’s essential to provide them with all the processing services they require. Look for business partners in your area and contact them with a proposal for cooperation. For starters, it may be just one acquiring bank or payment processor. The more time you are in the industry and the more clients you acquire, the faster your network of partners will expand.
4. Hire a team
Financial expertise should be your hallmark in a market where hundreds of payment processing companies offer the same merchant services. Only a few startuppers can afford to hire a team of professionals right from the start, but even a couple of knowledgeable people can bring your company to the top. Find people with relevant experience and skills who are genuinely interested in the development and success of your merchant services company. By joining forces, you will prove to merchants that you are worth paying for and quickly gain a foothold in the market.
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The best way to get started
Initially, there are two ways to start working as a merchant services company: from scratch or with a white label solution. Starting a merchant services business from scratch, you should be ready for a huge array of work, including developing your own software, obtaining the necessary licenses, passing all audits, finding partners and establishing relationships with them, building a marketing strategy and attracting the first clients. In addition to the time and effort involved, you will have to invest a substantial sum in the development team, registration fees for each card network, and the purchase of hardware. However, there’s another way to go for those who don’t have a large budget and strive to gain a foothold in the merchant services market as quickly as possible — a white label solution. We’ve already provided extensive information about the white label business model and getting started with it in our previous articles. Now, let’s find out which benefits and pitfalls lie behind the white label solution for aspiring merchant services businesses.
Opting for white label solution: pros and cons
- Fast start. It will take at least a year and a half to develop your own software, obtain the necessary licenses and pass security and compliance audits. Added to this is the time it takes to hire a team, partner with financial institutions, and find the first clients. With a white label solution, you can get started in a month or even less without wasting time on the most time-consuming processes.
- Less costs. Alongside time and resources, independent software development requires significant financial investments. In many cases, the cost of a product’s development exceeds the price of a ready-made solution by 20 times or even more. By choosing a white label product, you don’t need to invest in the initial stages of development, release, and support, which turns out to be very cost-effective.
- No technical hassle. As we’ve mentioned, opting for a white label platform deprives you of development worries and everything related to the product’s technical side. Your provider’s technical support team will immediately solve all the possible issues, and you can fully devote your time to business processes.
Opting for a white label makes you technically dependent on the solution provider, which means you cannot fully influence the product’s structure, features, and performance. However, given the huge market of white label providers, it won’t be difficult for you to find the best fit.
The bottom line
Starting a merchant services business is a long row to hoe, but with the right approach, you can encounter far fewer challenges. Instead of starting all processes from scratch, you can take your place in the market much easier and faster with a reliable white label provider. Corefy’s white label solution is a perfect entry path to the highly-competitive merchant services market. Understanding the needs of aspiring merchant service providers, we’ve built a scalable payment platform with cutting-edge tools, allowing you to run a business under your brand without the burden of development and huge costs. Provide advanced merchant services for online businesses within a few weeks, having 130+ connections established for you.