Starting a credit card processing company can be very profitable. With proper planning, execution and hard work, you can enjoy great success. Below you will learn the keys to launching a successful credit card processing company.
Importantly, a critical step in starting a credit card processing company is to complete your business plan. To help you out, you should download Growthink’s Ultimate Business Plan Template here.
How to Start a Payment Processing Company in 14 Steps
- Choose the Name for Your Credit Card Processing Company
- Develop Your Credit Card Processing Company Business Plan
- Choose the Legal Structure for Your Credit Card Processing Company
- Secure Startup Funding for Your Credit Card Processing Company (If Needed)
- Secure a Location for Your Business
- Register Your Credit Card Processing Company with the IRS
- Open a Business Bank Account
- Get a Business Credit Card
- Get the Required Business Licenses and Permits
- Get Business Insurance for Your Credit Card Processing Company
- Buy or Lease the Right Credit Card Processing Company Equipment
- Develop Your Credit Card Processing Company Marketing Materials
- Purchase and Setup the Software Needed to Run Your Credit Card Processing Company
- Open for Business
1. Choose the Name for Your Credit Card Processing Company
The first step to starting a credit card processing company is to choose your business’ name.
This is a very important choice since your company name is your brand and will last for the lifetime of your business. Ideally you choose a name that is meaningful and memorable. Here are some tips for choosing a name for your credit card processing company:
- Make sure the name is available. Check your desired name against trademark databases and your state’s list of registered business names to see if it’s available. Also check to see if a suitable domain name is available.
- Keep it simple. The best names are usually ones that are easy to remember, pronounce and spell.
- Think about marketing. Come up with a name that reflects the desired brand and/or focus of your credit card processing company.
2. Develop Your Credit Card Processing Company Business Plan
One of the most important steps in starting a credit card processing company is to develop your business plan. The process of creating your plan ensures that you fully understand your market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise capital for your business.
Your business plan should include the following sections:
- Executive Summary – this section should summarize your entire business plan so readers can quickly understand the key details of your credit card processing company.
- Company Overview – this section tells the reader about the history of your credit card processing company and what type of credit card processing company you operate. For example, are you a traditional credit card processor, merchant account provider, payment gateway, or a third-party processor?
- Industry Analysis – here you will document key information about the credit card processing industry. Conduct market research and document how big the industry is and what trends are affecting it.
- Customer Analysis – in this section, you will document who your ideal or target customers are and their demographics. For example, how old are they? Where do they live? What do they find important when purchasing credit card processing services like the ones you will offer?
- Competitive Analysis – here you will document the key direct and indirect competitors you will face and how you will build competitive advantage.
- Marketing Plan – your marketing plan should address the 4Ps: Product, Price, Promotions and Place.
- Product: Determine and document what products/services you will offer
- Prices: Document the prices of your products/services
- Place: Where will your business be located and how will that location help you increase sales?
- Promotions: What promotional methods will you use to attract customers to your own business? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization and/or social media marketing.
- Operations Plan – here you will determine the key processes you will need to run your day-to-day operations. You will also determine your staffing needs. Finally, in this section of your plan, you will create a projected growth timeline showing the milestones you hope to achieve in the coming years.
- Management Team – this section details the background of your company’s management team.
- Financial Plan – finally, the financial plan answers questions including the following:
- What startup costs will you incur?
- How will your credit card processing company make money?
- What are your projected sales and expenses for the next five years?
- Do you need to raise funding to launch your business?
3. Choose the Legal Structure for Your Credit Card Processing Company
Next you need to choose a legal structure for your payment processing company and register it and your business name with the Secretary of State in each state where you operate your business.
Below are the five most common legal structures:
1) Sole proprietorship
A sole proprietorship is a business entity in which the business owner and the business are the same legal person. The owner of a sole proprietorship is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the owner is liable for all debts and obligations of the business.
2) Partnerships
A partnership is a legal structure that is popular among small business owners. It is an agreement between two or more people who want to start a credit card processing company together. The business partners share in the profits and losses of the business.
The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.
3) Limited Liability Company (LLC)
A limited liability company, or LLC, is a type of business entity that provides limited liability to its owners. This means that the owners of an LLC are not personally responsible for the debts and liabilities of the business. The advantages of an LLC for a credit card processing business include flexibility in management, pass-through taxation (avoids double taxation as explained below), and limited personal liability. The disadvantages of an LLC include lack of availability in some states and self-employment taxes.
4) C Corporation
A C Corporation is a business entity that is separate from its owners. It has its own tax ID and can have shareholders. The main advantage of a C Corporation for a credit card processing company is that it offers limited liability to its owners. This means that the owners are not personally responsible for the debts and liabilities of the business. The disadvantage is that C Corporations are subject to double taxation. This means that the corporation pays taxes on its profits, and the shareholders also pay taxes on their dividends.
5) S Corporation
An S Corporation is a type of corporation that provides its owners with limited liability protection and allows them to pass their business income through to their personal income tax returns, thus avoiding double taxation. There are several limitations on S Corporations including the number of shareholders they can have among others.
Once you register your credit card processing company, your state will send you your official “Articles of Incorporation.” You will need this among other documentation when establishing your banking account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your company.
4. Secure Startup Funding for Your Credit Card Processing Company (If Needed)
In developing your credit card processing company business plan, you might have determined that you need to raise funding to launch your business.
If so, the main sources of funding for a credit card processing business to consider are personal savings, family and friends, credit card financing, bank loans, crowdfunding and angel investors. Angel investors are individuals who provide capital to early-stage businesses. Angel investors typically will invest in a credit card processing company that they believe has high potential for growth.
5. Secure a Location for Your Business
To find a location for your credit card processing business, you should first consider what type of credit card processing business you’ll operate. If you are a retail business, you will likely want to be in a high traffic area with a lot of foot traffic. If you are a service business, you may want to be in an office park or downtown area.
Once you have determined the type of business, you can start looking at areas that would best fit your company. You can use websites like Google Maps or Zillow to find potential locations. You can also look at commercial real estate listings to see what is available in your area.
Once you have found a few potential locations, you can contact the property owners or managers to see if they are interested in leasing space to your company. You can also get quotes from commercial real estate brokers on the monthly rent.
6. Register Your Credit Card Processing Company with the IRS
Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).
Most banks will require you to have an EIN in order to open up an account. In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.
Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.
7. Open a Business Bank Account
It is important to establish a bank account in your credit card processing company’ name. This process is fairly simple and involves the following steps:
- Identify and contact the bank you want to use
- Gather and present the required documents (generally include your company’s Articles of Incorporation, driver’s license or passport, and proof of address)
- Complete the bank’s application form and provide all relevant information
- Meet with a banker to discuss your business needs and establish a relationship with them
8. Get a Business Credit Card
You should get a business credit card for your credit card processing company to help you separate personal and business expenses.
You can either apply for a business credit card through your bank or apply for one through a credit card company.
When you’re applying for a business credit card, you’ll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you’re running. You’ll also need to provide some information about yourself, including your name, Social Security number, and date of birth.
Once you’ve been approved for a business credit card, you’ll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing loans and getting credit lines for your business in the future.
9. Get the Required Business Licenses and Permits
If you’re starting a credit card processing company, you’ll need to obtain a license from the state. You’ll also need to contract with an established credit card company such as Visa or Mastercard. You may also need to obtain other licenses and permits, depending on your state and local laws. For more information, consult your local Small Business Administration office or the state government website.
10. Get Business Insurance for Your Credit Card Processing Company
There are various types of insurance that are necessary to operate a credit card processing company.
Some business insurance policies you should consider for your credit card processing company include:
- General liability insurance: This covers accidents and injuries that occur on your property. It also covers damages caused by your employees or products.
- Workers’ compensation insurance: If you have employees, this type of policy works with your general liability policy to protect against workplace injuries and accidents. It also covers medical expenses and lost wages.
- Commercial property insurance: This covers damage to your property caused by fire, theft, or vandalism.
- Business interruption insurance: This covers lost income and expenses if your business is forced to close due to a covered event.
- Professional liability insurance: This protects your business against claims of professional negligence.
Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs.
11. Buy or Lease the Right Credit Card Processing Company Equipment
To run a credit card processing company, you will need a computer with reliable internet access, a merchant bank account, and a payment gateway.
12. Develop Your Credit Card Processing Company Marketing Materials
Marketing materials will be required to attract and retain customers to your credit card processing company.
The key marketing materials you will need are as follows:
- Logo: Spend some time developing a good logo for your credit card processing company. Your logo will be printed on company stationery, business cards, marketing materials and so forth. The right logo can increase customer trust and awareness of your brand.
- Website: Likewise, a professional credit card processing company website provides potential customers with information about the payment processing services you offer, your company’s history, and contact information. Importantly, remember that the look and feel of your website will affect how customers perceive you.
- Social Media Accounts: establish social media accounts in your company’s name. Accounts on Facebook, Twitter, LinkedIn and/or other social media networks will help customers and others find and interact with your credit card processing company.
13. Purchase and Setup the Software Needed to Run Your Credit Card Processing Company
To run a credit card processing company, you’ll need software that can manage customer information, process payments, and generate invoices. There are a number of different software options available, so you should research and find the software that fits your needs.
14. Open for Business
You are now ready to open your credit card processing company. If you followed the steps above, you should be in a great position to build a successful business and know everything you need about how to start a credit card company (or how to become a credit card processor). Below are answers to frequently asked questions that might further help you.
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How to Start a Credit Card Processing Company FAQs
Is it hard to start a credit card processing company?
Starting a credit card processing company is not too difficult. You will need to be licensed by the state and have a merchant account. You can find information about licensing and finding a merchant services company online. After that, it's simply a matter of setting up and marketing your business.
How can I start a credit card processing company with no experience?
If you have no experience in the credit card processing industry, you may want to consult with an experienced professional. There are many resources online that can help you get started, but it's always helpful to have someone who can guide you through the process. You can find mentors and other resources through industry associations, business networking groups, or online forums.
What type of credit card processing company is most profitable?
The most profitable type of credit card processing company is a high-volume, low-margin business. This type of company processes a high number of transactions at a low rate per transaction. However, you'll need to be able to handle a high volume of transactions.
How much does it cost to start a credit card processing company?
A credit card processing company typically costs between $5,000 and $10,000 to start. This includes the cost of a merchant services provider, software, and other necessary equipment.
What are the ongoing expenses for a credit card processing company?
The ongoing expenses for credit card processors can include setup fees, merchant account fees, and other related expenses.
Merchant account fees are charged by a credit card processing company to maintain a merchant account. These fees usually include a monthly maintenance fee and a per-transaction fee.
Other related expenses can include the cost of credit card terminals, software, and other equipment needed to process credit card transactions.
It is important to understand the ongoing expenses for credit card processing companies so that you can accurately compare the costs and benefits of various processing solutions.
How does a credit card processing company make money?
Credit card processing companies make money by taking a small percentage of each purchase that is made. This is usually around 2-3% of the total purchase. In addition, credit card processing companies may also charge monthly fees or per-transaction fees. This allows the company to make a profit on each transaction. They also charge early termination fees.
Credit card processing companies can also provide other services, such as fraud prevention and chargeback management. These services help to protect the merchant from fraudulent transactions and ensure that they are not held liable for any charges that are disputed by the customer. This can be a valuable service for businesses that accept credit card payments.
Is owning a credit card processing company profitable?
There is no one-size-fits-all answer to this question, as the profitability of a credit card processing company depends on a variety of factors, including the type of business it is processing credit cards for, the terms of its contracts with credit card companies, and the fees it charges its customers.
Owning a payment processing company can be profitable because there is a lot of demand for this type of service. Many businesses rely on credit card transactions to conduct their day-to-day operations, so there is a constant need for companies that can process these credit card payments. Additionally, the credit card processing fees are often quite high, providing another potential source of revenue for the owner of a processing company.
Also, if you find a niche and become, for example, the best credit card processing for small business, then you could be very profitable.
Why do credit card processing companies fail?
There are many reasons a credit card processing company could fail. The simplest reason is usually that the company doesn’t have enough business and cannot maintain its overhead.
Credit card fraud and system errors resulting in excessive chargebacks are among the most common reasons for a payment processor to close up shop. These chargebacks can cost a processor money they can't afford to lose because they rely on interchange fees from transactions. This is especially difficult for companies if they don't offer other value-added services.
Other less common reasons a credit card processing company could fail include mismanagement of funds or the company being targeted by cybercriminals.
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