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Over 55% of US consumers use credit cards, and over 52% use debit cards for online transactions. 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 .9 billion by 2025 . 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. Use our guide to learn payment gateway development ins and outs.
What is a payment gateway?
A payment gateway is a merchant service that authorizes the processing of card or direct payments. It's an intermediary between a customer (their issuing bank) and a merchant (their acquiring bank) used to transfer payment information and enable secure transactions. Its main job is to ensure the customer has the money and pays the merchant.
Payment gateway software enables merchants to initiate eCommerce, in-app, and point-of-sale transactions. It's usually a web server connected with the website or POS system of the merchant. A payment gateway often unites several acquiring banks and payment methods into one solution.
Payment gateway software is provided by an e-commerce application service provider (ASP) for e-businesses, online retailers, and traditional offline stores. Other providers are banks or specialized financial services offering a payment gateway as a separate service.
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.
A payment gateway completes operations in several stages, uniting all these parties. The Forbes Advisor describes it as a five-step process, starting with a 'Buy Now' click of the customer and finishing with a money transfer to the merchant's account. Building a payment gateway, you will need to consider these phases.
Based on these steps, the payment gateway technical architecture looks as follows. Once a user visits a website and places an order, the website owner sees it in the system. The website redirects the user to the payment gateway page, where they can choose the payment method and complete the payment (if the user cancels, they are redirected to the cancel URL). When the payment is made, the website redirects the user to the Thank you page while the website owner waits for the payment gateway to notify the callback URL. Callbacks include all the necessary details (order ID, transaction ID, amount, and currency) to check whether the order is paid and finalize the transaction.
Payment gateway vs. payment processor
Since people often mix these notions, we want to distinguish between a payment gateway and a payment processor. The payment gateway is software that transmits the payment information from the point of entry to the payment processor. It also approves or declines transactions.
The payment processor, on the other hand, forwards the transaction details to and from the banks of the customer and the merchant. Popular payment gateways are PayPal, Stripe, Square, SecurePay, whereas payment processors include Omaha, Elavon, BuyPass, Vantiv. Overall, the payment gateway and the payment processor complement each other and work jointly.
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.
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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.
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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.
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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.
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:
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
Cost of custom payment gateway development
If you wonder how to develop a payment gateway, you probably worry about the 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.
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.
Learn more about our completed projects here , or contact us for a talk.
