just been leafing through the forum - looking at the usual questions about payment processors, etc and i thought...

how hard is it to set up a payment processor that can process credit card payments?

a lot of us are in the business of needing these services, and most of us don't like how costly it is to simply get money off our clients.

maybe someone on here more intelligent than me can give an idea on what companys like paypal, paysystems, 2co have to do to offer the services they do...

maybe this will help me justify why worldpay must take 5.5% of my money + many other costs :)

To setup as a payment processor require:

1 - Good financial backing
2 - Good banking relashionships
3 - Good techincal infasructor to devlop fraud systems (Good ones cost around the $1m to create)
4 - Remeber the risk factor. What happens if one of your clients runs $50,000 worth of bad transaction and resaults in chargebacks.
5 - Visa / Mastercard fee's for becoming a processor
6 - FSA Regulations for european processing (Around £150,000)

Sundenly 5.5 percent doesnt sound so expensive :)

G

If you are asking how difficult it is to setup a company -like- a 2CO or PaySystems, etc. --- the answer is: VERY. This barrier to entry is one of the reasons that you don't see a huge number of companies doing this and only maybe a half dozen well known ones.

First and foremost, you have the issue of even being approved to conduct third party processing. This is a practice is generally frowned upon and an automatic decline by just about every bank these days. So even getting approved would be a major hurdle.

Secondly, you will need to have significant financials to back up the above approval process - provided it is sucessful - and on top of that, your fee structure from the bank would likely require a rolling reserve which you would need to pass on to your merchants. (Such as the 5% rolling reserve that 2CO has for all of their accounts, I believe the same is true for PS)

On top of that, you have the complexity of managing your risk and chargebacks over a large number of accounts that are not segmented by merchant ID's but rather all under one account.

Thus, if your aggregate chargeback % goes too high - you can incur significant financial penalties, be placed on the VISA high-risk monitoring programs and also potentially be terminated.

And if your merchant account is terminated, all of the "sub-merchants" you have setup are also out of business which means law suits, judgements and a nightmare situation. This has happened in the past to a number of 3rd party processors and it is always ugly and never a happy ending.

It is also important to keep in mind that the VISA/MC interchange costs, dues & assessments easily eat up to 2-3% on transactions... and with a 3rd party processor, you are NOT a Bank or ISO but rather a Merchant... so the cost to the 3PP is even higher.

So - the concept may certainly seem appealing but when you add up all of the logistical hurdles, costs and hidden costs such as the staff to maintain the server & network, the risk management team and the software to manage all of that - it really adds up.

Unless of course you win the lottery. $19m should be enough :)

Yes, a budget of $19M would be sufficient. ;)

have you won the lottery then 74s3? :)

He must have, and I think he's going to start a new 3rd party processor with the proceeds. ;)

I wish :)

If I had 19m in my pocket i would not invest it in a risky business. I'd buy fastcars and fast girls :)

G

:)

thanks for the info cdg.. it was a good insight and may help to explain to people (me included) what the fees are for...