Starting a Payment Processing Company in 2023 Guide
12 June, 2023 15 min read
- Basic definitions to know when starting payment processing company
- Main stages to start a payment processing company
- Cost of starting a payment processing company
- What’s the difference between starting a PSP and an acquiring business?
- How Boxopay helps you start a payment processing company
Table of contents:
In today’s world of digital technology and the widespread use of online shopping, working in the FinTech industry can bring a huge amount of profit. Convenient and fast payment processing services are a sure way to win a large number of customers who will constantly generate revenue. Becoming a payment service provider is an extremely tempting and lucrative business that will definitely not lose relevance in the near future. McKinsey estimates that the payment services industry will reach $3 trillion by 2026.
But how do you start a payment processing company and become a licensed provider? And how do you launch a PSP or acquirer business? In this article, we’ll take a closer look at these questions.
Basic definitions to know when starting payment processing company
To start a payment processing business, you first need to clearly understand what type of payment service provider you are going to be. To understand how to start a merchant processing company, let’s first clearly define what these mean. There are a lot of different types of payment processing companies including payment facilitators, ISO/MSP, etc. However, in the framework of this article we will consider only PSPs and acquirers.
What is a payment service provider (PSP)?
A payment service provider is an intermediary that handles payment processing for businesses. Its tasks include verifying payments as well as accepting money from credit cards and other customers’ means of payment. Unlike acquirers, PSPs are usually more technologically advanced, more customer-oriented, and provide more options for accepting and processing payments.
What is a payment service provider responsible for?
The work of a payment service provider implies the following operations:
- Provide a convenient platform so that every online store or any other online business could connect its site to the Internet acquiring service. That is, there should be convenient conditions to accept card payment, verify it, get a response, process it, etc.
- Protect merchants from fraud by providing the necessary protection tools.
- Provide technical and customer support: answer all of the merchant’s questions, even the most unusual ones.
- Helping to understand the technical nuances and provide support in case of various disputes with customers, for example, if the customer decided to cheat and demanded a refund for allegedly undelivered goods.
What is an acquirer?
An acquirer is a financial institution that carries out the acquiring process. This is the provision of equipment to commercial outlets, as well as conducting a full range of financial turnover.
If you consider acquiring as a service for commercial organizations, it is a procedure of accepting plastic cards for payment. Technically, it is performed as an automated series of payments through the Bank Processing Center, which in turn is connected to the centers of Mastercard, Visa, etc.
The functions of an acquiring bank are as follows:
- When a customer swipes a card through a terminal (or attaches any device connected to the account), the acquiring bank performs authorization;
- Money from the customer’s account with the card-issuing bank (this can be the acquirer itself, or any other bank) is transferred to the merchant’s account through the payment system.
Main stages to start a payment processing company
Creating a payment processing company is a complex task that consists of several steps. If you wonder how to establish a payment processing company you should be aware of each of them.
Stage 1: Find a reliable software vendor
Next comes the most important step, and that is choosing a software vendor. As we said before, you can build your solution from scratch, but it will cost you a fortune. At the same time, you can choose a white-label solution that will be much cheaper and won’t be inferior to an API of a payment gateway developed from scratch in any way. White-label solutions also often lend themselves to customization, so you don’t have to worry about missing an important feature. You can also find a good technology partner in a software vendor who can help you with the many steps of establishing a payment processing company.
Stage 2: Set up the infrastructure
So, first of all, you will need to buy all the necessary equipment and create a reliable infrastructure, which will be the foundation for your business. Specifically, you will need:
- Console server
- DNS/account control
- System repository
- Database management tools
- Log server
- Monitoring system
- Application servers
- Docker repository
- Outbound proxy
To choose the ideal configuration, it is highly recommended to get in touch with experts. Competent specialists will also help you to choose everything in compliance with the regulatory documents.
Stage 3: Hire a team
Of course, you shouldn’t and can’t do everything alone. You also need to hire a team to take care of all operations while you strategically manage the business. You need to find and hire technology, legal, and support staff to keep everything running properly. In total, you need to recruit:
- Finance department
- Sales department
- Customer support
- AML compliance team
Stage 4: Obtain an EMI/PI license
A very important step is to obtain a license to conduct business in the payment acceptance industry. You can get a payment institution (PI) license or an electronic money institution (EMI) license. The main difference is that EMIs are authorized to issue their own digital money. Like an EMI, a payment institution can initiate and process payments and transfer customer funds. At the same time, a payment institution cannot authorize the issuance of electronic money or the holding of customer funds without an identifiable payment order.
Stage 5: Ensure compliance with legal requirements
When you start an online payment processing company you have to make sure that it complies with all legal requirements. The first thing you’ll need to make sure is that your software is PCI DSS compliant. Only after you receive this certificate will the software be considered compliant to work with clients. An infrastructure audit for compliance with the certificate will be conducted every year. Also, you need to study the laws of the country you are in and make sure your infrastructure complies with the local laws. For example, some countries require that information about their citizens be kept exclusively within the state.
Stage 6: Integrate with acquirers or processing centers
The next step varies depending on whether you plan to open a PSP or acquirer business. If you plan to open a PSP business, you will need to integrate with the acquiring bank in order for it to transmit payments to the issuing bank. If you plan to open an acquiring business, you will need to make integration with the processing centers. These centers are the international payment systems Visa, MasterCard, and others. The processing center identifies the card issuer and sends a request to the issuing bank. The issuing bank, in its turn, checks whether the requested funds are on the card account, freezes them, and gives a positive response to the transaction.
Stage 7: Customize the software to your business needs
It’s crucial that the payment software you choose is customizable. If you choose software with a predefined set of features without the ability to add new ones, you risk losing out in the race for competitiveness. A customized solution can be adapted to your company’s business processes and data, allowing you to automate routine tasks and improve service and reduce your operating costs.
Stage 8: Add new features and functions
A solution that is too standard will have a hard time catching your customer’s attention. At the same time, a customized solution can fully reflect your business vision and help you gain a foothold in the market. You can do it gradually, first launching a minimum viable product, and then adding new features according to business requirements and market trends. In addition, payment software must be regularly updated in accordance with the mandates of Visa and Mastercard, as failure to comply with their mandates may result in fines.
Cost of starting a payment processing company
Before starting an online payment processing company, it is vital to determine how much it costs to open such a business. With even an approximate understanding of how much to budget, you can distribute the available funds as efficiently as possible. At the same time, it is quite difficult to name the exact cost, because it is influenced by many factors. In particular, you will have to spend money on hiring staff to ensure the functioning of the technical, financial, and legal parts of your business. In this case, everything depends on the region where the specialists are recruited, their number, and the volume of work.
In addition, you will have to spend on infrastructure. An essential part of it must be on-premise and cannot be replaced by cloud services due to regulatory acts. What kind of equipment you will take depends on your business requirements, but it is quite expensive to completely build the infrastructure from scratch.
At the same time, the main expense item is the payment software. If you decide to start developing payment software from scratch, you will also have to pay a pretty penny. Creating payment software is a very time-consuming process that will take a year at best. This time is needed for analysis of the market, design, prototype development, and then marketing activities to attract new customers. In total, the development of a solution from scratch includes:
- Development costs – about €1,000,000 or from €30,000 for a ready-made software license
- Integration with banks from €4,000
- Integration with payment schemes (for acquirers) – €5,000,000 deposit
- Software certification for about €15,000
- Annual PCI audit – €22,000 per year.
You would also have to pay for all the extra fees such as registration, domain, hosting, security appliances, licensing, etc. Altogether, the way from the idea to the first MVP of such a solution will take more than a year and you will have to pay more than €1,000,000
However, there is a way to significantly reduce all these costs if you have a good partner in the FinTech industry. For example, you can choose a white-label payment solution. The white-label payment gateway is a turnkey solution that you just need to put your brand label on and set up.
Not only do these solutions cost much less, but they also eliminate the time-consuming process of certification and compliance with safety standards. In addition, the provider of such a solution can help you with many aspects of starting a payment processing company, such as obtaining licenses, setting up and selecting infrastructure, maintenance, etc. In this case, you can be up and running within a few months and your budget will be significantly reduced while the level of expertise in your team will increase.
What’s the difference between starting a PSP and an acquiring business?
If you want to start a merchant processing company you may have noticed that the requirements for PSPs and acquirers are different. What is the main difference between these types of businesses?
An acquirer takes payment on the business side and passes it on to the issuing bank. In turn, the payment service provider processes the transaction. The requirements and permissions to open these types of businesses are different. At the same time, opening a PSP may be somewhat easier at first. Quite often business owners consider opening a PSP first and then taking on the functions of an acquirer. This is due to the fact that customers are usually looking for a partner who provides both services.
Basic differences are as follow:
- An acquirer has to integrate with one or more processing centers (acquirer processors) or directly with payment schemes (Visa, Mastercard). This is often the largest cost item, as it requires a deposit of several million. PSPs integrate with acquirers (one or more) or additionally with other PSPs.
- Usually, merchant onboarding takes place on the acquirer’s side, so it requires a larger compliance team that will check each merchant and open merchant accounts.
- PSPs need only a PI license to start, acquirers usually need an EMI license.
- While PSPs can use SaaS white-label software that is fully hosted by the vendor, acquirers in most cases host the software themselves. This means that they necessarily need additional infrastructure and PCI DSS Level 1 certification. A PSP can do without this, although it is also better to organize it according to the on-premises scheme, as it gives more control over the business.
How Boxopay helps you start a payment processing company
As you can see, starting your own PSP is quite a challenge, requiring a lot of time, resources, and most importantly expertise. Without proper expertise, each of the above-mentioned stages can drag on, and mistakes made can jeopardize the successful continuation of the entire project. Having a reliable partner with industry experience can dramatically change the start of your project for the better. That’s why Boxopay offers a comprehensive set of services to help you through most stages of the start of your credit card payment processing company.
White-label payment gateway
Working with Boxopay, you will first of all get high-quality white-label payment software. You’ll have a fully customizable payment gateway with all the features that suit your business needs and vision. You will always be able to remove or add the necessary functionality if the circumstances and business development plan require it.
The solution creators paid special attention to payment security and reliability, so it is equipped with both proven security tools and innovative AI-based solutions. In addition, our payment software has a convenient back office and a wide range of analytics tools. You will get everything you need to create a merchant processing company.
Setting up an infrastructure
Unlike our competitors, we offer more than just software. We offer maximum support at most stages of a payment processing company startup. By choosing Boxopay as your technology partner we’ll help you select and set up the hardware as part of our infrastructure setup service. We will:
- Analyze your business needs and then based on our experience, market, and competitors choose the optimal hardware configuration.
- Set up all the necessary equipment.
- Take all necessary security measures.
- Provide you with backups in case of unexpected issues.
Starting a payment processing company is a complicated process, especially with regard to complying with all regulations and obtaining licenses. But Boxopay can help you with that as well. We have a turnkey acquirer service where our experts can help you obtain all the necessary licenses and certificates.
Moreover, if you decide to open a PSP first, and then scale your business, Boxopay will make this process much easier. With our support, you’ll be able to transition into the acquirer category completely seamlessly and unobtrusively to your business processes.
So, starting a payment processing company is quite a complicated process consisting of several complex stages. To make it work properly, you have to take care of buying and configuring the hardware as well as the software. It is almost impossible to do that without having the necessary level of expertise and experience in the FinTech niche. Moreover, you will have to worry about obtaining appropriate licenses and compliance of your software and infrastructure with the requirements of regulatory acts.
However, even this complicated path will not be a serious challenge if you find a good technology partner to help you start your PSP or acquiring business. Contact Boxopay now and we’ll help you create a payment processing company in no time. We can help you with choosing and setting up the infrastructure and getting the necessary licenses. In addition, Boxopay will make sure you have the best custom payment software with the most advanced technology, including AI. Start a payment processing firm with the expertise of true professionals.
Is it hard to start an online payment processing company?
If you want to start a payment gateway company, you should understand it is a rather time-consuming process that consists of many steps. You need to get a team, infrastructure, and most importantly, reliable and functional software. Nevertheless, there are companies that will help you tackle these challenges by providing you with turnkey service and software.
How much does it cost to start a payment processing company?
It is hard to name the exact amount of money needed to start a digital payment company. It really depends on how big you are planning to start and how many features are in your payment processing solution. Generally, the start of an online payment service provider may cost around €250,000.
How do I become a payment processor?
To become a payment processor you need the physical infrastructure, the staff to maintain everything, and the software solution. You will also need to take care that all the software and hardware solutions will be in compliance with the regulations. It is highly recommended that you find a trusted technology partner who can help you find the best solution for your business needs.