Guide to Building a Custom Payment Gateway System 2024

There’s a primary reason why working out how to develop an online payment gateway is worth it. While the market continues to shift from in-person to electronic contactless transactions, many companies seek methods to capitalize on the new trends.

A study conducted by an analysis by the Federal Reserve shows that cash and check transactions have gradually decreased in importance since 2019, coinciding with the pandemic in 2020 and due to the increasing use of transactions using contactless technology, experts predicted that the value of transactions in digital transactions to rise to $15 trillion in 2027.

If you’re a company owner or software developer, learning how to design an effective gateway system lets you make the most of this shift and gain financial benefits. Read on to discover how to construct an online payment gateway completely from scratch and then compete with the top companies.

What is a Payment Gateway?

A payment gateway serves as a “middleman” between clients and merchants. It’s a program that allows online transactions by sending sensitive information about payment from the customer to the payment processors, who deposit money into the merchant’s account. In addition, a payment gateway can do more than transfer information.

The first step is to verify that the purchaser has enough money in their account, card wallet, or other payment method to pay for the cost of the purchase. The system then uses encryption technology to guarantee the security of information processed by the system. Additionally, a payment processor shields the merchant from potential fraudulent activity. These systems usually have anti-fraud and chargeback protection systems to protect clients from financial loss.

Benefits of Payment Gateway Development

After you’ve learned the meaning of a payment processor and the reason it’s essential, we can look into the actual advantages of fintech software development. The creation of your gateway may provide you with that edge. So, what are the benefits of a custom-designed payment gateway? Let’s take a look.

Full Control Over Transactions

If you set up an online payment system, you control how payments are handled. This allows you to tailor the user experience to suit your business’s needs. There is no need to adhere to third-party regulations, and you can quickly adjust to the latest payment methods. Additionally, lower transaction costs result in savings directly to your wallet.

Enhanced Security and Compliance

The security of sensitive data is a must in today’s digital world. Investing in developing payment gateway software to ensure top-of-the-line encryption, fraud prevention, and conformity with the industry’s regulations is not just about keeping hackers away but also creating trust with your customers by ensuring their data is secure.

Seamless Integration Existing Systems

A customized payment gateway works seamlessly with your current business systems, whether they’re an ERP or e-commerce platform. No more cumbersome third-party applications can slow your processes. An efficient payment gateway implementation improves your workflow and customers’ overall experience.

Flexibility for Future Growth

As your business expands, so do your payment needs. Creating your own system for payment processing will allow you to expand quickly. If you’re adding new products or entering global markets, your customized fintech solutions will grow to meet your needs, unlike standard gateways that may hinder your progress.

Competitive Advantage

Finally, having a customized payment gateway is an important selling factor. By providing improved, faster service and a more secure payment system, you not only make yourself known but also show that you are focused on the latest technology. Customers appreciate when things run smoothly, and with your own system, you will be able to achieve that every time.

These advantages are only examples of what’s possible once you control your payment processing. Let’s examine the key elements of payment gateways.

Challenges of Custom Payment System Development

Making your payment processor has things that you need to consider. Here are a few possible challenges:

Development Cost

The development of payment gateway architecture can take a long time. It involves substantial costs, including the salary of the team that develops and experts, infrastructure costs, security certification costs, and many more. These can add up to many thousands. Thus, independent development is not viable for businesses with tight budgets.

Maintenance Cost

Since maintenance for payment gateways isn’t a once-in-a-lifetime event but rather a constant process, being aware of security standards, integrating new payment methods, and performing routine software maintenance will be one of your most essential tasks in the highly competitive e-payments industry. When estimating internally developed software costs, you must think about maintenance costs that typically amount to 20% of the initial development costs annually.

Time-Consuming Development

Making software from scratch will require a long-term commitment. In addition to investing time into the development process, it is also necessary to find experienced specialists with a vast knowledge of developing software security protocols, security, and conformity with financial regulations. So, creating payment gateways is an expensive process that could end up slowing the revenue-generating capabilities of your business.

PCI DSS Certification

Payment gateways should obtain the necessary security certificates to ensure customers’ credit card information security. The Payment Card Industry Data Security Standards (PCI DSS) is a requirement-based certification. As the operator of a payment processor, you must verify that your software complies with PCI DSS standards and undergo the renewal process each year, which can be pretty expensive and complex.

How to Design Your Payment Gateway: The Step-by-Step Method

Similar to other software development processes, developing a payment gateway requires careful planning and implementation. You must follow the fundamental steps to create an online payment gateway.

Ideation

Making up an idea to develop custom payment systems is just the first step. You’ll need to discuss the idea with experts to determine whether it’s feasible or requires modifications.

If you’re looking to establish an efficient financial system, it is essential to conduct thorough market research to identify opportunities, pinpoint the areas where your competitors fall short, and create pathways to differentiation.

Design

As your ideas become more unified, it’s time to hand your task over to designers. A team of experienced UI/UX designers will help you design the product’s interface and branding identity. They can also create a prototype that could be used as a proof of idea. After a few variations, you’ll have a viable product concept that developers can begin to build.

Development

During this time, the fundamental infrastructure for your payment system will begin developing. The team developing the system will collect the design elements from the prototypes and use them for product development. In accordance with the technical specifications, developers may also incorporate third-party APIs that comply with industry standards.

Most companies manage the backend and frontend development processes simultaneously, while some begin with frontend development before moving to the backend stage. Whatever method you prefer, choose the best tools to establish a solid system to support your gateway services.

Quality Assurance

Poorly crafted bugs and ineffective error handling could ruin any payment program before it takes off and cause you to lose significant money in the long run. To prevent these additional costs, ensure you give your QA experts the freedom to run a thorough test of the software to ensure everything is in good order. After testing, they need to prepare a comprehensive report for future changes.

Optimization

If the issues are severe, you should re-address them from earlier development phases to fill any loopholes. In the meantime, DevOps teams or DevOps engineers can tackle minor problems to create a flawless payment gateway. While you are optimising your final product, be sure to think about the compliance requirements.

Product Launch

Based on your chosen timeframe, you might have enough time to make the beta version available to gather users’ feedback. Once you have made the necessary changes, you can launch the standalone program — or even sell an alternative to banks as a white-label software solution.

Support and Maintenance

Following the product’s release, you must continue assisting customers who use the system for payment. Establish a live support team of agents who can answer user concerns and help resolve disputes. Chatbots can also respond to commonly asked queries. The developers must also keep developing updates to keep the platform operating without interruption for as long as possible.

Components of a Payment Gateway Architecture

You’ve got a concept of an electronic payment system that functions as an interconnected sandwich. However, a custom gateway is an intricate software that has a variety of functions that are built into its own. Here’s the listing of the essential layers, components and features that the majority of payment gateways include:

Payment Request API

The payment request API functions as an interface between the merchant’s digital platform—whether a website or an application—and the payments gateway. It standardizes the method by which payments are processed.

Once a client confirms that they intend to purchase the product, this API immediately communicates with the gateway, telling it to get into the process. The Seamless payment gateway integration ensures that customers have a smooth payment process, which is essential for maintaining trust with customers.

User Interface

The UI revolves around more than just visuals. Although it undoubtedly comprises elements like buttons, input fields, and confirmation screens, the UI is focused on creating an intuitive and seamless payment experience.

Each element must be created with the user in mind to ensure users can quickly navigate the process of making payments. This not only increases the number of successful transactions but also reduces the load on customer support.

Security Layer

The security layer covers sensitive information, including personal information and credit card number identification data, within various layers of encryption, usually SSL/TLS protocols. Beyond tokenization, encryption is a commonly used technique. It substitutes confidential information with unique identification symbols that conserve all vital information without compromising security.

This security strategy is multifaceted and guarantees that your data is safe from cyber-attacks and breaches. Customers’ financial information is most likely the most crucial information that needs to be secured and able to be. Failure to set up solid security measures will not only harm a business’s reputation, but it could also result in.

Payment Methods Support

The importance of allowing various payment methods increases as the payment ecosystem grows more diverse. Modern gateways must be able to cater to a variety of payment options:

• Traditional credit cards
• Traditional debit cards
• Digital wallets
• Direct Bank Transfers

This ensures that customers do not have to choose, allowing them to select the approach they’re at ease with, which increases the likelihood of completing transactions.

Currency Conversion

A credit card gateway website’s capability to accept and convert different currencies extends its capabilities to an international scale. A good custom gateway does not simply display the currency in local currency but also seamlessly manages the intricate aspects of conversion. In the background, it is synchronized with data sources for foreign exchange to ensure that the conversion rates used are accurate.

This process is transparent, eliminates customer confusion, and helps businesses work smoothly across borders.

Payment Gateway Servers

You’ll require a server to serve as your gateway’s host, whether you own one or one supplied by a third party. If you have an internal server, it is essential to consider audits and maintenance for the related data centres.

The servers handle a massive volume of transactions, interact with banking systems, and ensure the transaction’s successful completion. The performance of the payment gateway servers affects the overall efficiency of the gateway, which is why they are essential for keeping the operation running smoothly and ensuring timely and efficient online payment processing.

Fraud Detection and Prevention

Mechanisms for detecting and preventing fraud are the sentinels in the way of criminals trying to exploit weaknesses. The measures that could be taken are:

• Dynamic Monitoring: A highly sophisticated system for fraud prevention that constantly examines every transaction and analyzes patterns and behaviour in real-time.
• Multi-Factor Authentication (MFA): MFA requires users to present various forms of identification before an order is accepted. These can be something they are familiar with (password), something they have (token or phone), or something that they own (biometric authentication).
• Geolocation Checks: By determining the geographic location of the person who initiated the transaction, Systems can flag transactions that originate from high-risk areas or that don’t match the typical user’s activity pattern.
• Tokenization: Instead of sending the actual account or card details, tokenization replaces the sensitive data with a unique identification symbol. This guarantees that even if the data is stolen, the information is inaccessible to thieves.

It is essential to recognize that many companies use services provided by third-party providers to create gateways with these security layers. For instance, transmitting the OTP code to a device’s user during multi-factor authentication might require the assistance of a communications service or bulk messaging provider. It’s crucial to confirm that these external providers are reliable.

Standards Compliance

Ensuring that a gateway complies with internationally recognized standards is not only about meeting regulatory requirements but also building the foundation for trust and confidence. Apart from the previously mentioned PCI DSS, as well as SSL and TLS, It is worth paying attention to the following aspects:

• General Data Protection Regulation (GDPR): Compliance with GDPR is essential for organizations operating inside the European Union or dealing with EU citizens. It requires the protection of personal information and safeguards individuals’ rights to data.
• Local Regulations: In addition to international standardization, payment gateways should comply with local laws and standards. These could include data storage, thresholds for data entry, or reporting requirements specific to the region.
• Regular Audits: Following standards isn’t a one-time process. Regular internal and external audits ensure that the gateway stays in compliance and that any possible vulnerabilities are detected and dealt with immediately.

By considering all this and adhering to the best practices, we can assure businesses that they can create highly secure payment processing software.

Payment Gateway Development Cost

In the case of payment gateway development costs, one significant element is the complexity of the development process. The more features you require, such as multicurrency assistance, fraud prevention and sophisticated security protocols – the higher the price. Another important factor is compliance with industry standards like PCI DSS, which requires particular infrastructure and skills to secure sensitive data.

The person you select is an essential factor. Expertly-trained payment gateway developers can have higher costs, but their experience ensures a seamless implementation of payment gateways and fewer issues later. The average price for creating a custom payment gateway could be between $50,000 and $250,000, depending on the features, the team’s location, and overall complexity.

Other factors that affect cost include:

• Regular maintenance and updates.
• Integration with third-party services such as bank acquiring or payment processors.
• Hosting and server fees.

Conclusion

If you plan to incorporate in-app payment in your new product, adding the payment gateway to your app is essential. In most cases, simply selecting one of the gateway providers will save you more time, effort, and cost than constructing the entire thing from scratch. If you need clarification, look at the different payment gateways or discuss which is best for your new product. Contact the best fintech software development company for help. Numerous companies have asked us for assistance in selecting the best provider and then integrating it into their apps. We’re highly likely to be able to assist you in the same way. The simpler and more secure your application makes it for customers to pay for the app’s services, the greater the chances are you’ll convince users to click the “Buy” button.