Creating a service to accept payments online entails solving a number of organizational and technical issues. Just like with any other business, the issues are numerous, diverse and depend on internal and external circumstances and conditions.
But I am going to dwell on four basic problems which affect – be it directly or indirectly – all other aspects related to the launch of a new payment service provider business:
- Choice of a business model.
- Identification of the target audience of the service.
- Choice of payment systems.
- Choice of processing platform.
By a business model of online payment acceptance enterprise, I do not mean the company’s development strategy and monetization of its services, but the answer to the question: “Does the future payment service provider plan to aggregate payments for their customers?”
Let me be more specific for those not in the know of what I am talking about. There are two basic models an online payment acceptance service can follow. I call them “The Processor” and “The Aggregator”, the names revealing the essence.
“The Processor” deals only with the technical aspect of online payment acceptance. The typical service range would be fast and easy interaction between the online merchant and one or several payment systems; fraud protection; transaction and payment data security; statistics; reporting.
What the Processor does not do, however, is deal with the clients’ money. All settlements on processed transactions between payment systems and online merchants are done directly, which means a merchant has to register in each payment system, through which they wish to accept money from their customers.
“The Aggregator” is an enhanced version of “the Processor” which combines the above mentioned technical functions with a financial service.
The essence of this financial service is that the Aggregator on their own behalf collects payments for their online merchants in all associated payment systems. The payments are credited to the Aggregator’s accounts. Then the Aggregator collects all payments scattered in different payment systems in a single sum of money and transfers it to the merchant in a single payment.
If a payment service provider plans to engage in payment aggregation, they should consider the following:
- Payment aggregation is a licensed activity in almost all countries of the world. A company that intends to engage in the aggregation of payments should get a payment organization license, i.e. the so-called PI license. In some Russian-speaking countries it is called an NKFO license.
- To get a PI license one should address the financial authorities or the administration of the country where the future payment service provider is registered as a legal entity.
- Obtaining a PI license is not easy, it requires a certain amount of effort and resources, and takes an average six months, or even a year.
- Aggregation means that book accounting and financial statements are going to become more complicated. Besides, it entails costs to audit the company regularly in accordance with the PI license requirements.
In short, if you choose the Aggregator business model, the process of creating the Internet payment acceptance service will take longer, be more complicated and expensive as compared to the Processor business model.
The target audience
I understand that, when asked who the customers of the new payment service are, one would like to say: “Everyone who wants to accept online payments!” It is great if you want to conquer the world. But I would recommend to think about the following questions:
- What kind of business do the potential customers of the future payment service provider run?
- In what countries or regions are their legal entities registered?
- To which countries or regions do they sell their products/services?
Having answered these questions you will understand what means of payment should be offered to online merchants to accept from the outset. You will decide what conditions and tariffs for payment acceptance services are competitive. Furthermore, you will see what payment service features the new processing platform should have and so on.
It is an open secret that the most popular means of payment online is a bank payment card. The leaders in this niche are VISA and MasterCard that are international payment systems. Consequently, the minimum that the payment service provider should secure for online merchants is to receive payments by cards of the aforementioned payment systems.
However, almost every country or region have their own local payment systems, which are often as popular among buyers and sellers as the international ones.
And they don’t have to be card systems. They can be e-wallets, inter-bank and intra-bank transfers, such as BankLink in the Baltic countries. Or they can be prepaid vouchers, such as Ukash in the UK.
Of course, one can offer to accept card payments only. But when combined with an option of processing popular local means of payment, the attractiveness of the novice payment service provider in the eyes of their potential customers is enhanced considerably.
The number and variety of payment instruments determines the requirements for the processing platform and technical infrastructure of the future online payment acceptance service.
Processing Platform is the basis and foundation for any payment service provider. It determines the possibilities, the quantity and the quality of the payment services provided. The reliability and stability of the Processor’s or Aggregator’s business depend on the platform.
The processing platform can become a competitive edge, even for a beginner in the payment services market. In short, the processing platform is very, very important.
Another important issue is to select the right processing platform right from the start. Because if you decide to change the platform when the company gets actively involved in payment acceptance and processing, it will be a pain in the neck, both for the management and technical support.
Option 1: Develop your own processing platform within the company.
A new payment service provider might be tempted to develop their own processing platform from scratch.
They are probably thinking something like this: “Let’s begin with card payments first. We’ll hire programmers to write a code for a payment gateway to connect the online store and the acquiring bank. We’ll start with a small basic set of services and then will gradually add new options and alternative means of payment. It will work. ”
It probably will. Eventually it definitely will. But for it to work, everyone will have to exert oneself. Another important thing is to have enough money, since development of a new processing platform is very long and very expensive.
I say it’s long because the basic processing platform alone, which can process card payments (card payments only), but still cannot attract customers, will take a team of 3 skilled programmers, at least one having experience in creating processing platforms, at least six months. Unfortunately, in this case an increase in the number of programmers will not significantly reduce the development time.
I say it’s expensive because skilled and experienced programmers seek a good salary. One should understand that at least the minimum staff of programmers have to be employed permanently, as platform development is a continuous process. There will always be something to add or something to improve to meet the needs of payment service provider’s customers.
Furthermore, there is PCI DSS. This standard describes the requirements for the payment service provider’s software, technical infrastructure and business processes related to card data processing.
For a processing platform to become operational, it must be certified according to PCI DSS. At first, the process can be quite complex and last up to 5-6 months. The certification costs dozens of thousands euros.
Besides, PCI DSS certification is annual. It will eventually take less time, but the cost will remain the same. On the other hand, the cost may increase if the standard requirements get tougher, which will lead to additional effort of the certifier.
However, developing a new processing platform has some advantages, too. Having access to the source code and developer’s documentation gives truly unlimited possibilities for modifications, flexible updates and development of the platform. There is nothing you cannot do. Although eventually the disadvantages (long and expensive launch, as well as the subsequent high maintenance costs) often outweigh the advantages.
Option 2: Buy a ready-made processing platform
One can drop the idea of developing a processing platform on their own and a buy ready-made one. This will significantly reduce the launch period of online payment processing service. But the cost is significant.
For one thing, the cost of a platform is a six-digit number. Secondly, every time you make changes to the platform you have to contact the developer and pay high hourly rate to their programmers.
You will still go through complex and expensive PCI DSS certification with the ready-made platform, as the payment service provider owns the platform and is responsible for its compliance with the standard. The developer will prepare the software for certification. But payment service will have to go through it on their own.
I would only consider buying ownership of a processing platform if other options are not available or if the payment service has a large budget and no time to spare. Or for some other internal reasons. Anyway, no matter how big the project budget is, it should be spent wisely.
Option 3: Rent a processing platform
Good news is that you can reduce costs, not having to compromise in quality of a processing platform, its technical infrastructure and maintenance. You can save money!
Pay attention to the WLS processing platforms by the SaaS model. One of them is beGateway from eComCharge.
The acronyms WLS and SaaS mean that a payment service provider rents an advanced, full-featured processing platform for a small (4-digit) monthly fee.
The platform interface and style meet the renter’s requirements. Physically, the platform is based on the developer’s servers who solves all issues related to PCI DSS certification and maintenance on their own and at their own expense.
Renting a payment processing platform means you can give up expensive programmers and avoid mandatory annual PCI DSS certification, and not spend a lot of money on technical support for your business. The setup and launch of a processing platform by beGateway takes no more than a month.