A business struggles to operate in this modern world without having merchant services assisting them in some way. The most common form of this is through credit card processing. This is where knowing how to start a merchant services business can be profitable knowledge. This business will provide the equipment a business needs to process credit cards for payment. It may also provide and install the necessary communications systems that are required to approve transactions.
Don’t confuse the actual actions of processing a credit card payment with a merchant services business. You won’t be replacing the services of Visa, MasterCard, or independent providers like Square or Paypal. You will be providing the equipment and services needed for a business to contact these agencies instead. Here’s what you need to do.
1. Secure Your Product Lines.
You’ll need to form relationships with equipment providers in order to provide merchant services. This is specialized equipment that you’ll be installing and servicing, so knowing how they operate and what commonly tends to break down may give you a leg up on the competition. Your job is to facilitate secure information transfers between the company through the processor to the lender to determine if a purchase should be valid.
2. Find Your Niche.
There are three ways that you can break into this business locally. You can facilitate in-person transactions, online transactions, or both. Each business will require a specific gateway so that payments can be accepted and received and that’s the opportunity your business will have to make some money. Keep in mind that many financial institutions provide merchant services as part of their equipment practice, so instead of trying to serve everyone, try serving one specific local sector instead.
3. Don’t Forget About the Back End.
Relationships with financial institutions are also important to a merchant services business. The best relationships to form are with those institutions that already have memberships in place with companies like Discover or businesses like MasterCard, Visa, and American Express. Don’t ignore the online banks either, especially if you want to provide payment gateways. Once you become a preferred provider through your relationships, you’ll always have the chance to make some cash.
4. Get Technical.
A merchant services company makes money by facilitating the approval of a purchase. Every time a business secures an approval through your platform, you’ll take a small percentage of the amount that has been processed. This is why such a company can be so profitable. Once installed, passive income happens as long as maintenance contacts are maintained. If something breaks down in this chain, then items don’t get purchased and you don’t get paid. By understanding the entire process, it becomes easier to see where it breaks down so that it can be quickly fixed.
5. Installations Make Money Too.
You aren’t just going to be making passive money. When a business needs payment processing equipment, then you can charge an initial installation price and then a monthly fee for repairs or services that you may need to render. Some merchant services businesses charge $50 per month per machine for this. If your company can then secure a major retail contract locally, like with a large grocery store, that is thousands of dollars of revenues which will come your way every month.
6. Get The Right People.
You’ll need skilled, competent people working for you. Don’t settle for “warm bodies” if you don’t find these people at first. Make sure you’ve also applied for an EIN from the IRS or similar international agency outside the US so that hiring is legal to do. Independent contractors aren’t usually an option because you’ll need to oversee the installation to make sure it is correct.
7. Finalize The Process.
Your business will need to be licensed to operate. You may need local business licenses, certifications of knowledge from equipment providers, or both depending on how you structure your business. Some areas require a specific credit card processing licenses that has an enhanced cost. Check with your local regulations to make sure you stay in compliance. If you plan to directly sell machines, you’ll need an authorization to collect sales tax. Some areas may require taxes on leases as well.
Knowing how to start a merchant services business can help to provide you with active and passive income every month. Follow these steps and you will begin a journey that will hopefully lead to financial success.