Are you considering joining the payment market, but not sure what’s the best way to do it? We hope this article would serve as a great starting point for you, sorting things out about the payment processing industry and business models available.
Why start a payment processing business?
Payment processing is one of those rare industries that managed to gain an additional boost from the COVID-19 pandemic. While being already on the rise due to the gradual switch to a cashless economy in many countries, online payments got fueled by lockdown restrictions worldwide. The need to stay safe at home forced consumers to make purchases online instead of going to physical stores. In its turn, it resulted in the payment processing business getting increasingly prosperous.
In 2020-2021, while some industries struggled to make ends meet, the payment processing market hit the headlines with major deals. To name a few, Worldline’s $8.6 billion acquisition of Ingenico, which ended up creating the largest acquirer and payment processor in Europe. Or $5.3 billion Nexi’s acquisition of SIA, with the first one having an ambitious goal of becoming Europe’s biggest payment provider. And of course, we have to mention Stripe, a company that closed the latest funding round this March, which values it at a staggering $95 billion. Having a $36 billion valuation in spring 2020, the company grew almost threefold in a year!
Though becoming more and more competitive, the global digital payment market is still up-and-coming, attracting new players to join it. It is expected to grow at a CAGR of 19.4% from 2021 to 2028. If you’re looking to join this growing industry, proceed to the next part!
What are the options?
There are three ways to enter the payment processing market and start your own business.
The first one is developing your own payment software or product. It’s a very courageous path, requiring lots of time, money, and resources.
Another option is choosing a white label model, meaning you buy a ready-made payment software from a vendor and offer it to merchants under your brand and on your conditions.
And there’s one more way to go for those who’d like to make money without development – the affiliate model. You’ll sign a contract with a PSP to bring them new clients for a reward you agreed upon. It’s an excellent choice for networking pros, but today we’ll focus on the first two that allow getting the sense of the payment business better.
Going the hard way: building payment software from scratch
As with any other business, before taking any further action, it’s essential to research the market and craft a business plan, figuring out what your functionality and services will be, how much you’ll charge, and how you’re going to attract clients. Once you’re ready, it’s time to act:
- Register your business and trademark according to your jurisdiction requirements.
- Partner with a bank and get an account for your activity. That’s where your business plan will come in handy!
- Acquire a domain name and the equipment needed. You can buy it, rent it, or lease it, depending on your funds.
- Hire a Development team who’ll build the payment software.
- Design your payment solution and develop it. It seems like a tiny little step in the list, but in fact, it will account for the largest share of your resources. Your success largely depends on its quality!
- You’ll need a decent server infrastructure and security appliance as you proceed with the development.
- As a payment business dealing with card transactions processing, you’re subject to PCI DSS certification.
- Partner and integrate with banks, payment providers, gateways, systems, processors, and other solutions to make your offering competitive.
All in all, you’ll need more than 2 years to complete all the steps and launch the MVP (minimum viable product). Next, you’ll have to deal with maintenance, support, and upgrades, as well as passing regular security and financial audits. To promote your product and make it sustainable, you’ll also have to hire legal, marketing, sales, and support specialists.
Taking a shortcut: working with a white label solution
White label payment solution is more than twelve times faster way to start a payment business. That’s because you’ll have advanced payment software from the start, without having to spend money, time and resources on developing one.
In this scenario, the market research step becomes vitally important for you because you need to find a robust and trustworthy solution provider to work with. We’d be delighted to show you a demo of our white label payment processing. Seeing how it works and getting answers to all your questions from our specialists will help you make a well-informed decision.
What also remains on you are business registration and bank account opening steps. But instead of all other steps, all you have to do once you’ve settled on the white label payment solution vendor is integrating it and onboarding your merchants.
Keeping the software up to date and stable will be taken care of by your solution provider, sparing your resources for business development and attracting new clients.
How much does it cost to start a payment processing business
It isn’t easy to estimate expenses for a self-developed payment solution. It depends on numerous factors, from the features you want your solution to have, to equipment prices, salaries, regulatory framework, etc. By rough estimates, it can be from $250k to $1M or more. This figure includes basic MVP creating steps, such as registration, domain, hosting, design and development, security appliances, licensing, and certifications.
In the white label model, the solution provider sets the price, and you’ll know it in advance by looking at the vendor’s website or asking them for a quote. For example, the pricing for Ikajo’s white label payment gateway starts from 5000$ .
As for the affiliate model, it won’t cost you anything except for time and effort. You’ll just have to find a provider with a partner program and bring them clients to earn a certain percentage. Of course, unlike the first two options, it doesn’t make you the owner of a payment company.
Main risks and challenges of a PSP business
Despite industry’s attractiveness and profitability, payment companies also face certain challenges, such as:
- Keeping up with the pace of innovation in the industry. To remain competitive, it’s important to innovate and expand functionality, offering robust and versatile services.
- Maintaining security, as it is crucial when it comes to payments.
- Preventing fraud and minimising chargebacks.
- Complying with regulations. It’s especially burdensome for cross-border businesses.
The extent to which these challenges may affect you depends on the payment business model you’ll choose. Choose wisely, and don’t hesitate to contact us for assistance.