Payment Gateway Development: The Ultimate Guide

Payment gateway development has emerged as a cornerstone for seamless and secure transactions.

Over 55% of US consumers use credit cards, and over 52% use debit cards for online transactions (source ). Many people also pay offline with POS systems. All these transactions require building a payment gateway. Payment gateways connect customers with merchants to enable smooth operations between their banks.

Given the continuously increasing volume of transactions and the number of merchants, the payment gateway market steadily grows. Valued at $17.2 billion in 2019, it will reach $42.9 billion by 2025 (source ). Hence, the need for quality payment gateway software development is also acute.

Binariks, as a fintech software development provider , is ready to back you up. In this guide, we will dive into payment gateway development ins and outs and learn more about:

• Who needs custom development;
• The benefits of using a payment gateway;
• Custom vs. white-label;
• Payment gateway software development best practices;
• Development cost.

How a payment gateway works

The financial operations through a payment gateway connect several stakeholders. The parties that initiate, process, and receive transactions include:

• Merchant. The company or an individual that sells something.
• Cardholder. The customer that makes the purchase.
• Issuing bank. The bank that holds the customer's account. It may be a credit card account or a checking account with a debit card.
• Card schemes. These are credit card companies that support the card (e.g., Visa, Mastercard, Discover, American Express)
• Acquiring bank. The bank that holds the merchant's account.

Source

When considering the technical architecture of a payment gateway, it follows these essential stages:

• User interaction and order placement: A user visits a website and makes an order, which is visible to the website owner. The user is redirected to the payment gateway page to select a payment method and complete the transaction.
• Payment completion and confirmation: Once the user's payment is made, they are redirected back to the website's "Thank You" page. Simultaneously, the website owner awaits a callback notification from the payment gateway containing vital transaction details.
• Transaction verification and finalization: Callbacks include information such as order ID, transaction ID, amount, and currency. This data is used to verify if the order is paid, enabling the transaction's finalization.

7 steps to develop a payment gateway

Creating a payment gateway involves a series of meticulous steps that culminate in a secure and efficient solution to set up a payment gateway. Below, we provide an in-depth look into the comprehensive process of developing a payment gateway, from inception to deployment.

1. Feasibility study: 1-3 weeks

Conduct a comprehensive feasibility study to assess the economic viability of a custom payment gateway. Analyze existing IT infrastructure to align payment handling needs with technical capabilities. Evaluate potential ROI by estimating benefits and costs. Identify challenges and opportunities to make an informed decision.

Experts involved: Collaborate with business analysts and consultants to ensure accurate ROI calculations and informed decision-making.

2. Payment gateway design and project planning: 4-7 weeks

Define functional and non-functional requirements, including data types to be processed (customer information, payment credentials), security and compliance standards (PCI DSS), and visual aspects of the checkout page. Outline architecture, integration APIs, and project timeline.

Experts involved: Use solution architects and UX/UI designers to create a comprehensive blueprint.

3. Tech stack selection: 2-3 weeks

Choose the right tech stack based on documented requirements. Optimize for project priorities like rapid development and cost-effectiveness. Leverage frameworks and ready-made components to streamline payment system development and maintain quality.

Experts involved: Solution architects and tech specialists.

4. Payment gateway development and quality assurance: 4-7 months

Build core components, establish automation environments for CI/CD, develop back end with integration APIs, design customer-facing pages and admin interface, and implement secure data storage. Run QA procedures alongside creating payment gateway software to ensure functionality and resolve defects.

Experts involved: Collaborate with back-end and front-end developers, QA engineers, and DevOps specialists.

5. Payment gateway deployment: 1-2 weeks

Configure solution infrastructure, establish backup and recovery procedures for business continuity. Implement security measures like authorization controls, firewalls, IDSs/IPSs, and DLP systems. Set up automated deployment processes for consistency.

Experts involved: Engage DevOps engineers and security specialists.

6. Integration with other systems: 1-8 weeks

Develop and test integrations with checkout page hosts, payment processors, and accounting software. Ensure smooth and secure data flow between involved parties for payment initiation and settlement processes.

Experts involved: Integration specialists and software engineers.

7. Support and evolution (optional): continuous

Provide ongoing support by monitoring gateway performance and addressing issues. Scale solution for growing transaction volumes. Introduce updates to accommodate new payment methods and features. Conduct regular audits to ensure compliance with security standards.

Experts involved: Involve DevOps engineers, maintenance specialists, and compliance experts.

By following these steps, you can navigate the whole process and successfully set up a payment gateway, resulting in a tailor-made solution. This approach effectively addresses specific needs while ensuring a secure and efficient payment processing system.

Payment gateway software development best practices

How to build a payment gateway? If you consider developing a payment gateway, some things are essential. Payment gateway solutions must have specific characteristics to perform their tasks and ensure personal data security. Hence, you will need to follow the best practices.

Features payment gateway solutions should have

The functionality of payment gateway solutions affects the cost of the software and its market success. While sophisticated systems are too expensive, primitive solutions cannot meet users' expectations. Therefore, you need to plan the features carefully from the very beginning.

Generally, a good payment gateway must support the following payment gateway features:

1. Recurring payments. Recurring payments are a model that enables merchants to pull funds from customers' accounts for ongoing services automatically. You can configure it via dashboards (for hosted payment gateways), virtual terminal commands, or using APIs. This feature is suitable for subscription-based providers that request payment at regular intervals (e.g., monthly or annually). After the customer enters their card details and agrees to be charged automatically, a payment gateway runs recurrent transactions.

2. Tokenization. Tokenization involves replacing sensitive data (e.g., IBAN) with random alphanumeric tokens. They retain the original information but in the format that prevents attackers from compromising data security. Thanks to this, only the payment processor can handle transactions.

3. Fraud protection. Online payments increase the risk of card-not-present fraud and other misuses. Hence, developers of payment gateway solutions must rely on the best data protection and security practices. You can also integrate financial fraud detection using machine learning to get the necessary capabilities. It's an effective shortcut since fraud prevention software development is demanding.

4. Integration capabilities. Easy integration with multiple payment processors enables payment gateway owners to offer different options to end-users. You must also ensure integration with a CRM system and popular business software tools.

5. Virtual terminal. A virtual terminal allows merchants to accept payments with a credit card without its physical presence. It means buyers can pay over a mobile device instead of using an online credit card payment system. To turn a computer into a virtual POS terminal, you need to connect it to a cloud-based service.

6. Hosted payment gateways. These are third-party checkout systems that redirect buyers to the payment service provider's (PSP) page. Users complete the payment and then are sent back to the website's checkout. The redirect minimizes the attack surface and improves security. As it takes fractions of a second, users will see no difference.
7. Disputes and arbitration. The interface should enable users to handle disputes from banks. It would give you a significant competitive edge over other providers. Reporting dashboards. Reporting options for merchants let retailers check a single transaction and analyze trends. They are usually available through online portals, a flexible reporting API, or file transfers.

Legal and security requirements

Working on any fintech solution, you need to mind regulatory mobile banking compliance requirements and security. Custom payment gateway software development is not an exception. To avoid fines and penalties, software providers must meet a range of local and international standards, such as:

PCI-DSS

Payment Card Industry Data Security Standard regulates organizations that handle branded credit cards from the leading card schemes. Hence, it's one of the primary standards for payment gateway providers to follow. It requires the vendor to:

• Implement a firewall configuration to protect cardholders' data
• Encrypt transmission of cardholders' data through open, public networks
• Have a vulnerability management program and an information security policy
• Adopt and update anti-virus software
• Implement robust access control measures
• Apply need-to-know restrictions to cardholder data access
• Limit physical access to cardholder data
• Monitor, test, and limit all access to network resources, and more

EMV 3-D Secure

EMV (an abbreviation for EuroPay, Mastercard, and Visa) is a global standard regulating credit card transactions. 3D means that three domains secure each transaction: the payment acquirer's domain, the card issuer's domain, and the interoperability domain. You make online credit and debit card transactions more secure by meeting this standard.

P2PE encryption

Peer-to-peer encryption (P2PE) is a demand from the Payment Card Industry Security Standards Council. It requires immediate encryption of cardholder information after the use of the card at the merchant's POS. The data mustn't be decrypted until the payment processor processes it. Hence, you need to ensure reliable data encryption while developing a payment gateway.

By meeting these standards, you become regulatory compliant and ensure decent security. Security matters for every party involved in the payment gateway operations, from a payer to an acquiring bank.

What else to consider when developing a payment gateway

Apart from regulatory compliance, there are several other things to note before starting gateway development. You need to be ready for ongoing work, plan user interaction flows, and consider other subtleties:

User interactions

Gateways are always built around interactions between buyers, sellers, and marketplace providers. Thus, you must carefully plan how each party will use the platform and interact. User flows give you the foundation to decide what custom features are necessary.

Data processing practices

Before starting the development process, analyze how to securely handle user and financial transaction data. It will help you choose appropriate technologies and tools from the start.

Scalability

If your project is successful, the number of transactions it will handle will grow. It means you need to make it suitable for maximum loads.

Time to market

Creating a payment gateway from zero takes time. Thus, if you need to launch the platform fast, you should create a simple system or leverage ready-made solutions.

System architecture

Once you consider user flows, data processing practices, scalability, and features, outline the architecture. It will give you the big picture of the project.

Ongoing development

A payment gateway is a complex system that requires regular updates. Besides, fintech innovations happen too often to let you stop enhancing your platform. So be ready to keep working on the product as long as it exists.

Customer support

Customers may need assistance integrating your payment gateway or facing technical issues. Customer support is essential once you launch a payment gateway or even start marketing it.

Payment gateway development management

How to build a payment gateway? Think about the payment gateway development strategy apart from technical nuances. You need to decide whether you have enough resources to do it in-house or it's better to outsource.

In-house development may be challenging since assembling a team is a complex and multi-stage process. Besides, Western labor markets witness a significant shortage of tech specialists. Given these limitations, outsourcing is a way for payment gateway development companies to start the project shortly and optimize costs.

How much does it cost to create a payment gateway

One of the main questions in this topic is payment gateway development cost. The cost of custom payment gateway software development depends on its complexity. Advanced solutions require a lot of time, large teams, and considerable investment. Without preliminary business research, you can never set the budget. You need to know the features, tech stack, team composition, and deadlines beforehand.

Generally, be ready to spend from $200,000 and up. You will also need to pay for software maintenance and regularly update it.

Custom payment gateway development vs. white-label gateways

Even though custom payment gateway development has significant advantages over ready-made solutions, in some cases, you don't need it. Pre-developed solutions are suitable for companies that want standard payment features or have limited budgets. Let's discuss developing a payment gateway from scratch and re-developed payment gateway solutions below.

Custom payment gateway development

Custom payment gateway development means you hire a team of engineers and other tech specialists that create software for you. Once launched, you can use it internally or sell it to other companies for additional revenue. This solution is 100% tailored to the needs of your business. It has custom features third-party services don't support.

Despite being expensive, custom payment gateway development frees you from never-ending fees. On the other hand, pre-developed payment gateway solutions mean you will have to pay for the registration and every subsequent operation.

Pre-developed payment gateway solutions

Third-party payment gateway solutions are readily available systems that small and medium merchants integrate to complete transactions. This software relies on API technology to connect the gateway to existing solutions. The integration involves the help of tech professionals since configuration requires specialized skills.

Pre-developed payment gateway solutions have standard functionality and don't allow much customization. Hence, such software effectively performs basic tasks but won't help you stand out from competitors.

Other alternatives for your own payment gateway

There is a shortcut if you cannot create your own payment gateway while white-label solutions don't meet your needs. You can license the code of an existing payment gateway to deploy it in the preferred PCI-certified environment and change some features. Even though custom payment app development is the best option, source code licensing may be suitable for companies with development resources that need to enter the market quickly.

Who needs custom payment gateway software development

As a software development company, Binariks knows there are several groups of customers that invest in payment gateway development. Building a payment gateway from scratch is a big step taken predominantly by large companies, including:

• Merchants that have high turnover and prefer to be independent of third-party software providers.
• Existing payment providers that want a more advanced payment processing system.
• Incumbent billing companies willing to replace or update their legacy software.
• Tech companies that intend to enter a new market niche as a payment service provider.
• Acquiring banks that aim to enhance their front-end software.

If you belong to these companies, chances are you will benefit from custom payment gateway software development. If you doubt whether you need it, check out the advantages of using a payment gateway below.

The benefits of using a payment gateway

A quality payment gateway will fit smoothly into your existing website, app, or platform to handle payments from debit and credit cards in a few clicks. It gives both the company using it and consumers some tangible benefits.

Advantages of payment gateway for merchants

First, payment gateway solutions are the fastest way to process card payments. It allows merchants to handle transactions quickly and offer the best experience to consumers. Second, payment gateway solutions make online stores internationally available. Buyers across the globe can pay with their cards and other supported methods with minimum decline rates. Finally, payment gateway solutions guarantee more secure transactions.

Advantages of payment gateway for tech companies

If you are a tech firm offering payment gateway solutions, your main benefit is the growing market. By 2025, China will have 1.2 billion digital commerce users. The US and Europe are projected to have 291.2 million and 569.8 million users. The number of POS payments that require payment gateway solutions also keeps increasing. Hence, once you design a reliable payment gateway, you will have many potential B2B customers to adopt it.

Besides, when tech companies create a custom payment gateway, they may benefit from:

• Custom functionality: When building your own payment gateway, you can create a combination of features off-the-shelf products don't offer.
• Competitive advantage: A custom online payment gateway is a highly demanded solution, so if you create a unique product, you are sure to have customers.
• Additional profit: When you develop your own payment gateway, you can sell it as a product or charge sign-up and transaction fees from users.
• Compliance: Custom payment solution software development allows you to comply with regional and global regulations since you decide how to create a payment gateway for maximum data security.

Thus, creating a payment gateway may be a profitable solution for tech companies that want to enter the fintech market with custom software or need it to power other financial products.

Final thoughts

Final thoughts

Custom payment gateway software development is an opportunity to enter the rapidly growing market segment. Whether you are a large merchant or a tech company willing to provide payment solutions, it's worth the investment. At the same time, payment gateway software development is a challenging process. You need to mind many technical, security, and regulatory requirements.

If you want tech assistance, Binariks can help. We are a software development company specializing in fintech solutions. Our team can create custom payment gateway solutions from scratch, upgrade a legacy system, or connect ready-made software for you. Visa, Google Wallet, PayPal, 2Checkout, Stripe are just a few integrations our web development services offer.

Our collaborative approach ensures that every step of the development journey aligns with your business goals. Our commitment to delivering high-quality, secure, and compliant solutions sets us apart as a trusted partner for transforming your payment processing capabilities.

Don't hesitate to explore our portfolio or get in touch with us for a conversation. Binariks stands ready to be your strategic partner in harnessing the potential of next-gen payment gateways.