Any company strives to increase their profits. This is the rule of business. Payment service providers are no exception and constantly think how to reduce costs effectively for payment processing system software developing and support.
However, the payment acceptance and processing industry has its own peculiarities.
1. Firstly, it is generally a low-margin business. Processing companies who help conventional Internet merchants accept payments from buyers tend to get no more than 2% of the amount of each transaction they handle.
With the exception of only those payment services that cater to high risk traders. This niche historically considers normal to take and pay up to 10% of the amount of payment for the assistance in getting it.
2. Secondly, here one just can’t increase the cost of services for the clients, as it is happening now and then in other areas: mobile communications, Internet television services and so on.
It turns out that payment service providers involved in online payment acceptance and processing have only two ways to increase their profits: either to increase the customer base and to increase the volume of the processed payments respectively, or minimize the expenses where they can.
It’s perfect if they can do both at the same time though for new payment services cutting down on their expenditures is crucial. Just because the customer base, as a rule, takes some time to build up.
And, even if there is a solid data base, for example, when an acquiring bank launches its own payment service provider (to offer their existing customers full-featured service for accepting credit cards over the Internet), it still would take the new service some time first to break even, then to start making a profit, and, finally, to pay off all costs associated with its creation and launch.
On the other hand, even successful and profitable payment acceptance and processing companies would never miss an opportunity to reduce their expenses. After all, the money one saves can become a bonus for the company’s management and employees, or higher dividends for the owners, or an additional investment in further business development. When there’s money, there’s always a way to apply it.
Starting and expanding the customer base in any business is a question of sound marketing and experienced sales managers.
But, today we would like to discuss how to lower initial costs to prepare and launch business for the novice payment service provider, and reducing recurrent costs for an established company dealing in payment services.
What is the most expensive part of an electronic payment processor startup?
Do you know what the most costly thing while preparing to launch a new Internet payment service is?
- Not legal technicalities related to the registration of the company and obtaining the necessary permits and licenses, if required.
- Not a beautiful, convenient, informative web site of a future payment service provider, though it is important too.
- Not hiring experienced staff, although it is not cheap either.
- And not the rent of a cozy office, where the experienced staff will work.
No. The largest part of the budget allocated for preparing and launching an online payment acceptance and processing service will be taken up by the processing system which is indispensable for this service.
The processing system is the heart of any payment service provider. It consists of special software and at least several Web servers on which it is installed and running. Interestingly enough, it is the software that is the most important and the most expensive part of the processing system.
The payment service provider can chose from: in-house developing of the payment processing system software, ordering it from a third-party company, or buying a ready-made licensed copy. Whatever option, the cost of online payment processing software will work out at a six-digit number in euros. The exact amount depends on the functionality of the processing system. The more options it has, the more expensive it will be. And this is only fair.
Here are some figures based on our experience
eComCharge has noted that developing and coding of the simplest processing software designed exclusively for VISA and MasterCard credit card payments with the minimum basic functionality takes a highly trained programmer about 3.300 hours. That’s roughly 6 months for a 3-person development team.
If one multiplies the time by the specialist’s average salary in their country, one can get the approximate cost of the processing system software. Moreover, in theory such system can be used, of course, but in practice it does not make much sense, because the possibilities of processing system will be so few, that Internet merchants will connect to it, if at all, out of despair if there’s no other choice.
To develop a more or less competitive version of the processing software requires at least twice as much time.
And whoever develops the software for the future online payment acceptance and processing system must do it according to PCI DSS standard, which sets out security requirements when dealing with bank payment cards confidential data. This means that whoever assigns tasks for developers and oversees the implementation, will either have to go into the details of this standard, or hire a consultant, which will once again increase the cost of the entire project.
How much will it cost to prepare the technical base?
Have you settled the issue of the payment service provider processing software successfully?
Excellent! Now it’s time to think about the technical platform for the software to be installed and running on: server and data routing configuration, firewall setting, etc. for the technical infrastructure of the future processing system to comply with the PCI DSS standard.
Besides, it will be impossible to rent a VPS (Virtual Private Server) from any hosting provider for 10 euros per month. The thing is that the hosting service provider for payment services must meet certain requirements of the PCI DSS standard in terms of physical server security of the payment service provider.
This kind of hosting is more expensive. To rent such servers along with the traffic can cost anywhere from 700 to 1,000 euros per month. If you buy your own equipment and rent only the rack space for it from the hosting provider the costs will fall to 100 – 200 euros per month. But one will have to pay 12,000 to 15,000 euros for the hardware.
Finally, one more item of expenditure is the services of an experienced system administrator to configure all the server hardware. Not too much. No more than 2000 euros overall.
How much is PCI DSS certification?
So, the technical infrastructure is set, the software is installed and processing system is ready for launch. There is one step left – to pass PCI DSS certification.
To do this, a company called Qualified Security Assessor (QSA) accredited by VISA and MasterCard will hold a formal check of the PSP processing system and check its conformity with PCI DSS requirements.
If successful, the company will be granted a certificate for 1 year, and the name of the payment service provider will join the list of certified companies on the Internet portals of the above mentioned international payment systems. QSA certification services costs begin from 20.000 euros. Certification is an annual procedure.
To summarize: what do the numbers say?
To get some indicative cost estimation of a more or less competitive version of payment service provider processing software, let us set the hourly rate for a hypothetical programmer, who is experienced and knowledgeable enough to work on projects of this complexity, at 30 Euro per hour. It is more than computer programmers earn in developing countries, but less than the salaries of their counterparts in developed countries.
Then the payment service provider will spend at least 200’000 euros for the processing system acquisition, and another 20’000 for PCI DSS certification. The total indicative cost of preparing the technical basis for online payment acceptance and processing services may amount to an average of 220’000 euros.
For an independent payment service provider, especially for a beginner, it is a significant sum. For an acquiring bank that launches their own payment service provider, it can seem quite reasonable and even modest amid other banking software systems costs.
What if we say that it can be cut to a one tenth of the amount? Sure, this news will interest anyone who strives to launch an online payment acceptance and processing service.
How to reduce costs for payment processing system software developing and start business right now?
Just give up the idea of developing or buying a processing system and take advantage of our offer: lease a White-label processing platform for payment service providers. For example, the payment processing system software beGateway created by our company eComCharge.
BeGateway platform is a SaaS product. In fact it is a ready-made modern, full-featured, PCI DSS Level 1 certified payment-processing system. It can process not only bankcards, but also alternative means of payment, electronic cash, and bank transfers, etc. A copy of the platform is placed on our technical platform, is fully compliant with our customer’s brand and is available for rent.
We will not describe here what functions beGateway has. This calls for another article, or rather for a whole series of them. But it must be said that this is a really powerful platform for creating online payment acceptance and processing systems.
However, let us go back to reducing costs. The cost of turn-key preparation of a processing platform for a payment service provider depends on the individual wishes of the customer on its functionality, options for integration with the acquiring bank or the desired payment system, etc., but usually does not exceed 10,000 euros.
Our company undertakes all the work and it usually takes us about 1 month. Our customers won’t have any trouble with either technical setup or with PCI DSS certification. They can begin integration and provide service to online merchants right away.
Renting the platform not only reduces the payment service launch costs significantly, but also considerably reduces operating costs for an established company dealing in online payment acceptance and processing. How?
1. Firstly, the payment service provider who has rented the processing system does not need to pass PCI DSS certification, which in itself saves them 20’000 euros per year.
2. Secondly, when renting a processing system there is no need for a technical department (an experienced system administrator and highly skilled programmers) for technical support and payment acceptance and processing system development.
Just because this will be done for you. Round-the-clock monitoring of all processing systems, their maintenance, upgrade and adding new options and integration with new payment systems upon the client’s request – it all is carried out by the developer and in most cases at no extra charge. Giving up one’s own technicians a payment service provider can save over 100’000 per year on salary expenditures.
3. Finally, we have a flexible tariff policy. For example, the rental fee for the processing system based on beGateway, depends on the number of transactions the payment service processes. If you take the annual rental fee and compare it to in-house development and maintenance (within the company), it turns out that renting costs of the technical core of the payment service is at least twice lower.