How to Start a Payment Processing Business

The payment processing industry is a broad term used to describe the acceptance and funding for credit and debit cards at a point of sale. The payment processor makes a point-of-sale device available at the storefront for capturing the electronic data, provides a gateway in which to process that information and produce an approval code, and generally provides for a method of payment to the merchant for the transaction, minus processing fees. Banks generally provide this service, however there are many other non-financial institutions that can provide these services as well.

Things You'll Need

• Agreement with payment gateway providers
• Point of sale devices
• Merchant agreements
• Bank agreements
• Internal database
• Business license

Instructions

1. Obtain a business license and sales and use tax number. Register your business with the municipality where you live by applying for a business license. This is required of any business before opening the doors. You will also need to apply for a sales and use tax number in order to purchase your equipment without having to pay sales tax.

2. Obtain credit card machines. In order to become a payment processor, you will need to be able to supply your customers with a point-of-sale device to capture electronic credit and debit card information with. You can purchase credit card machines from many different entities, though buying them directly from the manufacturer is generally cheaper. Major manufacturers of payment processing equipment include Verifone, Hypercom and Lipman.

3. Sign an agreement with a gateway provider. In order to process credit card transactions, you will need to be able to send the credit card information to the card-issuing bank for approval. This is accomplished with a gateway, or electronic highway. You can sign an agreement with a gateway provider in order to get started, however, after your business grows, you may wish to create your own gateway. Global Payment Systems, First Data Resources and Heartland Payments are all well-known gateway processors.

4. Develop a standard merchant contract. The merchant-processor relationship should always be documented by a signed, written contract. This prevents any disputes regarding pricing, deposit time frames, and disputed withdrawals from the customer's checking account.

5. Create an internal merchant database. In order to keep tabs on the transactions of your clients and ensure each one received proper payment, you will need to develop an internal database. Each merchant record should include the name of the business, the type of credit card machine they own and a unique identifier or terminal identification number assigned to each point-of-sale device so that transactions can be easily identified as well as the checking account information where deposits and withdrawals should be made.

6. Develop a back-end funding platform. This can be accomplished with the cooperation of your bank. The idea is that your customers need to be paid for the credit card transactions they process. The money from these transactions will actually be deposited into your business bank account after being completed by the gateway processor. You will need to pass the deposits on to your customers by sending a series of ACH (automated clearing house) payments to each client based on the transactions they have processed, minus the processing fee. The processing fee is usually an agreed upon percentage of each transaction paid to the processor for facilitating the transaction. You can deduct the fee per deposit or all at once at the end of the month.

7. Develop a dispute resolution process. Visa and Mastercard have strict rules that regulate the acceptance of electronic payments. In the event the cardholder has a dispute, they have the right to dispute the charge with the card-issuing bank, which will immediately debit the processor's account for the amount of the charge until the dispute is resolved. Dispute resolution can include providing a copy of the sales draft and proof of signature or other documentation, with no guarantees of victory. A payment processor must have a process in place to debit the merchant that generated the disputed transaction in order to avoid absorbing a loss. The debit to the merchant usually occurs via ACH, much like the transaction deposits.

Tips & Warnings

• Electronic payment processing is an extremely complicated business that requires intimate knowledge of Visa and Mastercard acceptance guidelines, diligent fraud detection and outstanding customer service. It is advisable to spend a few years as an apprentice in the payments industry before embarking on this endeavor.

References

• Prostores.com:Payment Processing
• Globalpaymentsinc.com:World Class Transaction Processing