How to Build a Thriving Merchant Services Business: A Complete Guide for Entrepreneurs

Are you an entrepreneur looking for a lucrative new business opportunity? If so, starting a merchant services business could be perfect for you. Merchant services, also known as credit card processing, involve helping businesses accept credit and debit card payments from customers. It's a fast-growing, recession-proof industry that allows you to tap into the trillion-dollar payments market.

As a merchant services provider, you sign up businesses to accept credit cards, then earn a percentage of each transaction in fees. It's a scalable business model that can generate healthy profits once you build up a large enough client base. You don't need any special degrees or certifications to get started, just a drive to succeed and the ability to sell.

If you're ready to dive into the world of merchant services, here's how to start your own business in this exciting field...

The Merchant Services Market

The merchant services market is huge, with millions of businesses needing the ability to accept credit card payments from customers. Your target audience as a merchant services provider includes virtually any type of business, from local retailers and restaurants to ecommerce companies, professional service firms, and everything in between. It is not a niche market—it appeals to businesses of all sizes across all industries.

While the market is very broad, the most lucrative segments tend to be mid-size to large businesses with strong sales volumes. These companies process more transactions which means higher potential fees for you. However, don't overlook smaller local businesses either, as they are often eager to find an affordable merchant services solution and you can build up a loyal long-term client base.

The merchant services industry itself continues to grow at a healthy clip of 6-8% per year. It is also considered very recession-proof since businesses must accept credit cards regardless of economic conditions. All of this makes it an attractive market with plenty of opportunities for new providers to enter and find success.

Your Merchant Services Product

As a merchant services provider, your core product is the ability for businesses to accept credit card payments. However, you need to determine how you will differentiate your services and the specific solutions you will offer to stand out from competitors. Some options include:

•Niche-specific solutions - Focus on a particular industry like restaurants, retail, or ecommerce and become an expert in their unique needs. Offer tailored pricing and services for that niche.

•High-tech solutions - Provide the latest payment technologies like mobile payments, EMV chip cards, and point-of-sale systems. Appeal to businesses that want the most innovative options.

•Premium customer service - Build your brand around providing exceptional support and service. Assign each client a dedicated account manager and charge a premium for your high-touch model.

•Affordable simple pricing - Keep your fees very competitive by streamlining your services. Offer a simple, low-cost solution for small businesses on a budget.

You will need to develop relationships with credit card processors and payment gateways to deliver your services. You may choose to become a reseller of a processor like Chase Paymentech or First Data, or work with multiple processors to provide choice for your clients. You will also need to invest in sales and marketing to promote your services, secure new clients, and maintain your existing customer base.

Economics and Finances

The economics of a merchant services business are quite attractive. Your main costs include:

•Credit card processing fees - You will need to pay interchange fees and dues to the credit card processors you work with. These typically range from 0.2-2.5% per transaction depending on the card type. You will need to markup these fees when pricing your services to merchants.

•Sales and marketing - Expect to spend significantly on sales staff, marketing materials, advertising, and lead generation to acquire new clients. These costs can be $2,000-$5,000 per new merchant account.

•Customer service - Providing support for your merchants will require staff and resources, adding to your overhead. However, good service is key to client retention and renewal fees.

•Technology - You may need to invest in payment terminals, point-of-sale systems, and software to provide to your clients. You'll also have your own technology infrastructure costs.

For pricing, you will need to markup the wholesale credit card processing fees you are charged by at least 50-200% when billing your merchant clients. A typical small business may pay $20-$50 per month plus 0.5-2% per transaction in fees. You have flexibility in setting pricing tiers based on business size and volumes. Renewal fees, early termination fees, and additional services also provide revenue opportunities.

With the right pricing and cost control, a merchant services business can be very profitable. Gross margins of 30-50% are possible, with net profit potential of 15-30% for an established business. The key is to keep costs low while charging a premium price for your services based on the value you provide to clients. Recurring revenue from existing merchants also helps generate predictable cash flow month to month.

Marketing Your Merchant Services Business

There are several effective marketing strategies you can use to promote your merchant services business:

•Search Engine Optimization (SEO) - Optimize your website to rank highly in Google for keywords like "credit card processing" and "merchant services". Focus on your local area and surrounding cities. SEO is a low-cost strategy that can drive targeted traffic and leads over the long run.

•Pay-Per-Click (PPC) advertising - Run Google Ads and Facebook Ads promoting your services. Target local businesses in your area and their owners. PPC ads are a fast way to get in front of potential clients and generate calls and form submissions.

•Social media marketing - Build a presence on platforms like Facebook, LinkedIn, and Twitter to raise awareness of your brand. Post updates about your services, share industry news, and engage with your followers. Participate in local business groups on Facebook and LinkedIn to network and look for new clients.

•Email marketing - Start building an email list of small business owners and managers in your target market. Send regular newsletters with useful tips for accepting credit cards and updates on your latest offerings. Include promotions and special offers for your services. Email is a direct way to stay in front of your subscribers and encourage them to become customers.

•Direct mail - For a more traditional approach, you can do direct mail campaigns targeting small business addresses in your area. Mailers and postcards promoting your services and offers are a proven way to generate interest, especially with older business owners.

•Referral programs - Ask your happy clients to refer other businesses to you, and offer them incentives like account credits or gift cards for doing so. Referral marketing is an easy way to get new high-quality leads with a built-in level of trust.

•Local networking - Get out and network at local events like chamber of commerce mixers, small business meetups, and merchant association meetings. Meet business owners face to face, learn about their needs, and promote your services. Bring plenty of business cards and be ready to schedule follow-up meetings. Networking leads to new clients and partnerships.

Sales Strategies for Success

As a merchant services provider, sales is the lifeblood of your business. You need to actively sell your services to new merchants, as well as maintain your existing client base. Some key sales strategies include:

•Target your ideal clients - Focus your efforts on the types of businesses that will benefit most from your services and are willing to pay a premium price. Develop a niche to become an expert in a particular market segment.

•Create a sales process - Have a standardized process for turning prospects into new customers. This typically includes initial contact, a needs assessment, a proposal or contract, addressing objections, and closing the deal. Provide sales training to ensure your team follows the process.

•Build a sales team - For the best results, hire experienced salespeople to help sell your services. Offer a combination of salary, commission, and performance bonuses to properly motivate your team. Make sure they are well-versed in the merchant services industry and your particular solutions.

•Go on sales calls - Especially when you are first starting out, you need to be directly involved in sales. Meet face to face with potential clients, learn their needs, and show them the value of your offerings. Your involvement and enthusiasm can help close deals that your sales team alone may struggle with.

•Address objections - Come prepared to answer any objections a prospect may have, like cost, switching providers, or new technology. Have data and case studies ready to demonstrate the benefits of your services and put their concerns at ease. The ability to overcome objections is key to closing the sale.

•Ask for referrals - When you have a satisfied client, ask them for referrals to other businesses they know could benefit from your services. Referrals from existing clients are an excellent source of new leads since there is already a degree of trust built-in.

•Renewal and retention - Reach out to your existing clients before their contract is up for renewal. Explain any new features or services you now offer, and provide incentives for them to renew for another term. It is much easier to keep an existing client than find a new one, so focus significant effort on client retention and long-term relationships.

Operations and Execution

To operate a successful merchant services business, you need to focus on the following key areas:

•Recruiting and training - Hire experienced salespeople and customer service reps and provide ongoing training to ensure they are up to date with your services, pricing, and the industry. Well-trained staff are essential for acquiring and retaining clients.

•Technology - Provide your team with a CRM to manage prospects and clients. Use online tools to create proposals and contracts, communicate with clients, process payments, and monitor account activity. Stay up to date with the latest in payment processing technology to serve your merchants.

•Partnerships - Develop partnerships with credit card processors, payment gateways, and point-of-sale providers to deliver services to your clients. Maintain strong relationships with partners and negotiate the best possible terms on behalf of your merchants.

•Client services - Assign each new client an account manager to handle onboarding, training, technical support, and ongoing relationship management. Provide 24/7 customer service for any issues with payments or terminals. Strong service helps keep clients happy and renewing each year.

•Compliance - Stay up to date with PCI compliance standards and security regulations in the payments industry. Ensure your merchants are compliant as well, as non-compliance can lead to fines and a loss of ability to accept credit cards. Compliance is important for your reputation and success.

•Accounting - Use software to track income, expenses, merchant billing, commissions, and client payments. Provide financial reports to monitor the health and profitability of your business. Work with an accountant to handle taxes, audits, and other financial requirements.

•Contract management - Have standard contracts in place for your various service offerings. Track contract terms, renewal dates, and cancellations to make sure you are maximizing revenue opportunities with each client. Send renewal notices well in advance of any contract ending.

Legal Considerations

If you plan to start your own merchant services business, be sure to research all legal requirements and regulations. Some key things to consider include:

•Licensing - Merchant services providers typically need a business license to operate. Some states require additional licensing or registration. Check with your local government for details.

•PCI compliance - You and your clients will need to meet PCI Data Security Standard requirements to accept and process credit cards. PCI compliance helps ensure customer data is protected.

•Contract regulations - Carefully review laws around contract terms, cancellation periods, automatic renewals, and related regulations. Your client contracts must comply with all laws.

•Data privacy - Stay up to date with laws like GDPR regarding the collection, storage, and use of personal information. Have a privacy policy in place and systems to properly handle client and customer data.

•Insurance - Consider business insurance to protect against risks like errors and omissions, cyber liability, and business interruption. Insurance provides coverage in the event of a data breach, security issue, or other incident.

•Finance regulations - If providing merchant cash advances or loans, follow all federal and state lending laws. Requirements may include licensing, disclosures, underwriting standards, and limits on fees and interest rates charged.

•Employment law - Be aware of laws around hiring, compensation, termination, and other HR issues if you have employees. Follow regulations like the Fair Labor Standards Act regarding pay, overtime, and employee classification.

Start Your Merchant Services Business Today

The merchant services industry provides an exciting opportunity for entrepreneurs looking to build a scalable, profitable business. With hard work and dedication, you can develop a successful merchant services company that provides value to clients and generates healthy returns.

If you target the right niche markets, leverage a mix of marketing strategies, build a stellar sales team, and focus on world-class customer service, your merchant services business can thrive. While there are certainly challenges to overcome, the potential rewards of this fast-growing industry make it worth the effort.

Don't wait—start putting together your business plan, find partners, and take the first steps toward launching your merchant services company today. The opportunity is out there, you just have to seize it!