How to Build Your Own Payment Gateway

In today's digital landscape, the development of a secure and efficient payment solution holds immense significance, whether you decide to build your own payment gateway or explore alternative options. By making well-informed decisions and capitalizing on the expertise of industry professionals, businesses can position themselves at the forefront of payment processing, fostering growth and achieving success in their operations.

In our previous articles of the series, we delved into an Overview of the Payment Gateway Market and explored the Benefits and Challenges associated with building a payment gateway. If you've been contemplating the idea and are ready to explore the logistics of bringing it to life, this article is for you.

We will address the most commonly asked questions regarding costs, time estimates, and the required tech stack. Additionally, we will outline the crucial aspects you need to consider when formulating your development strategy.

Where do I Start

You might think you need to speak with developers or fintech consultants when thinking about building a payment gateway. After all, it is a digital solution for accepting credit card payments.

However, this belief is misguided; the first thing you will need to do is build business relationships with either a payment processor or an acquiring bank.

Why do I need a payment processor?
If you wish to offer a payment gateway as a service, you need something to connect it to. This something is the payment processor. A payment processor, sometimes called a merchant service, moves the transaction through the payment network. Sometimes an acquiring bank can be a payment processor.

The processor you choose to partner with will provide you with technical information to integrate your gateway with their system. Depending on the payment types you wish to be able to accept, you may need to partner and integrate with several processors.

Why do I need an acquiring bank?

For merchants aspiring to have their own payment gateway, two essential components are required: a payment processor and an acquiring bank. Merchants already need a merchant account, which is provided by acquiring banks, to accept digital payments.

An acquiring partner refers to a bank or financial institution responsible for processing credit or debit card payments on behalf of a merchant. The acquiring bank you select will assume a certain level of risk associated with your business, which entails specific financial commitments related to chargebacks, refunds, ACH returns, and potential fraud.

It's important to note that an acquiring bank differs from a commercial bank, which primarily offers checking and savings accounts. While a commercial bank may have a division dedicated to acquiring services, not all commercial banks are capable of underwriting merchant accounts. Therefore, ensure that the financial institution you intend to partner with can facilitate the setup of a merchant account for your needs.

What technical specifications will I need?
Your payment processor of choice will provide the specifications necessary to integrate your payment gateway with their system and the overall payment network. If you plan to accept many different payment types, you may need to get additional specifications from other acquirers or processors.

These technical specifications will inform what technology you can or should use to build your payment gateway.

What if I want to sell in multiple geographic locations?
To effectively conduct business in multiple locations, it is essential to establish a relationship with a processor that operates in all of those locations. This can be achieved through a partnership with a processor that has a widespread presence or by forming partnerships with multiple processors.

The choice of technology for your payment gateway will also be influenced by the local regulations governing the regions where you intend to operate. Compliance with these regulations is crucial.

We have received requests to assist in the creation of gateways for regions such as Latin America and Malaysia. It is worth noting that local laws and standards can present challenges for popular payment providers like PayPal, potentially creating opportunities for other providers to fill the gap.

However, it is important to acknowledge that obstacles faced by larger companies exist for a reason and may not be easily overcome by others.

How much does it cost to build a payment gateway?
Our ballpark estimation for creating a payment gateway minimum viable product (MVP) is between $200K and $250K. This is of course dependent on the functionality you wish to incorporate into your gateway. The MVP described here would at least get you set up in accepting credit and debit card payments.

How long does it take to build a payment gateway?
It can take years to build a payment gateway from scratch. A faster solution is to license a white label product, which can be up and running in just a few months. Many white label products can be customized to your company’s needs.

It can also take months or years for processors or acquirers to decide to integrate with your payment gateway, making it viable for market use.

To build an MVP payment gateway from scratch, we roughly estimate up to six months. This estimate will likely fluctuate depending on the specifics of your request.

Aspects to Keep in Mind for Developing a Payment Gateway
Developing a payment gateway is not a walk in the park, however, with the knowledge of what it takes to build a payment gateway, you are one step closer to understanding what is required of this undertaking. Before you get started on creating your payment gateway, have a plan in mind for how the following core aspects factor into your payment gateway solution.

Interactions Between Buyers, Sellers, and Marketplace Operators
The foundation of your payment gateway solution should be built around the basic interactions between your buyers, sellers, and the platform itself. Before programming even starts, you will want to carefully consider what interaction flows should be set up, including how your consumers and sellers will use the payment gateway.

To get started on this thought process, take into account the following questions:
How much data will your platform collect from buyers?

• Will your customers be private, corporate, or both?
• Is your marketplace C2C, B2C, or B2B?
• Will you be onboarding private consumers or other companies?
• What legal requirements do you need to adhere to?
• Will your platform accept multi-party transactions?
• Will your features include multi-currency support?

Data Collecting
A key consideration before diving too deeply into design and development is how your system will handle customer and financial transaction data securely. In the case of development, this means using secure coding procedures. The payment gateway system you build must also comply with financial regulations and data protection policies, which may vary across countries.
Integration

If you offer online payment on your marketplace, you will come to a crossroads during development, where you must decide how to integrate payment service providers into your payment gateway. This will usually look like the following:

1. PSP integration via API which uses an internal checkout page as a part of your platform’s frontend. Remember, designing this type of integration is the responsibility of your frontend team.
2. Redirection, which leads the user to the Payment Provider’s designated, external checkout page.
3. Neither of these options is necessarily better nor worse than the other, but before choosing, you should consider technical practicability and useability for consumers. Will customers want to be redirected outside of your site and deal with entering credit card credentials and waiting lines you can’t control? Additionally, keep in mind that various platforms may refuse some payment methods.

Scalability

If you choose to develop a payment gateway from scratch, it is smart to have a good idea of potential transaction numbers, to make sure your system can adequately and efficiently support forecasted growth. It would be a shame to have your system work perfectly during your beginning phases, but fail to support a greater number of transactions in the future, as your business grows.

You must build your system to scale to your future transaction needs and workload; making accurate estimates is the key to functionality. Here are a couple of numbers to consider:

• Forecasted max, peak load in a day, an hour, and a minute, or at certain times (e.g. Black Friday and Cyber Monday sales windows)
• Predicted quantity of transactions in 12 months, in a few years, and beyond.

Time to Market
The implementation of a payment gateway varies quite a lot and is most influenced by the addition of various functionalities, flexibility, and scalability of your system.

Our advice is the more complex the system and the more smoothly it will scale, the more time it’ll take to create it, and this ultimately means a prolonged launch. If you need a quick time to market, you might aim for creating a simpler system or use an already existing payment gateway.

System Architecture
After you have given consideration to interaction flows, data collection, scalability, and time to market, the next step is to outline your payment gateway in detail. On a technical level, that means laying down proper system architecture. To do this, your team must consider several crucial aspects, such as deployment, monitoring, and security.

Development
During the development process, you will have new design decisions to consider. With clear goals in mind, you will need to make various development choices:

1. Choosing the Right Team: If you plan to create a payment gateway with many different features, we advise you to work with experienced professionals who specialize in developing those functions. If you do not already have staff members with expertise in these specialties, you can hire experts who can provide a consultation on what features to include in your system and a team who can develop and implement them. Hiring skilled specialists externally can greatly speed up the development of your payment gateway and get you to market faster than you’d think.

2. Coding the Solution: Your team and consultants should focus on automation to increase productivity, and will likely ensure the code’s quality through implementing integration, security examinations, and end-to-end (E2E).

3. Integrating Safety & Security: Security should always be prioritized - you can start by getting acquainted with AML and KYC requirements and local laws, as well as following global guidelines, like the standard PCI DSS. Payment gateway developers should obey safe coding procedures while working on a custom payment gateway. Approaches to guarantee privacy and security of personal and financial information, such as SSL encryption and two-factor authentication, should be factored in as well.

4. Adding a Dispute Resolution Interface: Consider providing your users with a simple and convenient interface so they can quickly contact and connect with the issuing bank. This will minimize customer frustration and keep them happy with your service.

5. Product Launch: When your feature-ready MVP is ready to go, taking care of infrastructure becomes a top priority. This means making sure all features work without delay or bugs, thorough security testing, auto-E2E, load examinations, and penetration tests.

Operations and Maintenance
After the excitement of a successful product launch, you may be tempted to sit back and relax. However, along with building additional payment gateway services, your team should be providing ongoing support. It’s important to keep your system running well, and unfortunately, bugs will occur at some point, requiring your team to quickly resolve them.

At this stage, you can either have your internal teams provide maintenance, or hire external specialists to operate your software.

Keep in mind that continued operations may even be part of your contract if you had your payment gateway developed by external software engineers in the first place.

Ongoing Development
Your payment gateway may never be finished. Yes, you read that correctly! Chances are likely that you were unable to implement every feature you had planned into your MVP. Even if you did, in software, there is no such thing as “feature complete”.

The landscape for payment gateways is so versatile and dynamic that there will always be new features and payment methods for your programmers to integrate.

Optional: API Design
Designing functional APIs for internal use is an important aspect of payment gateway building. If you want to open up an additional source of revenue for your company, you can provide access to your solution to other businesses for their respective platforms.

Keep in mind that having others use your API can create external dependencies and requires a clear vision and strategies for upgrading. When it comes to APIs, design them with maximum stability, so one API can process as many different payment methods and as much data as possible. Also, make an API flexible enough for it to easily adapt to new payment methods since it is impossible to predict exactly what way of payment will hit the financial system next.

Will Your Payment Gateway be a Success?
In order to launch a successful, well-performing payment gateway, many aspects must be considered. Luckily, in software development, we have the flexibility to experiment, change what doesn’t work, and improve on things that do. If your payment gateway adheres closely to security, functionality, and useability requirements, plus it has a great user experience, it should triumph.

Building your own payment gateways can certainly be worth your time and effort, and may bring added value and profit to your business. If you are ready to build or update your legacy payment system, partnering with software providers that have domain experience will bring you one step closer to figuring out a solution. Softjourn has nearly 20 years of experience in the fintech industry and has helped countless clients create their very own custom-made payment gateway.

At Softjourn, we specialize in developing secure and efficient payment gateways tailored to your needs. We understand the importance of security, reliability, and seamless integration when it comes to payment processing. Partnering with experienced professionals can ensure you get a cost-effective, secure, and fully customized solution to your business needs.

Alternatives to Building Your Own Payment Gateway

1. White label service
A white label service offers a convenient and efficient way to establish your own payment solution. It can effectively reduce processing costs by minimizing intermediaries involved between your business and the acquirer/processor.

There are various variations of white label services available, ranging from hosted solutions to dedicated gateways and licensed open source payment gateway software.

If you have concerns about the level of customization provided by a white label service, there are alternatives to consider. For instance, a client we recently assisted faced similar concerns and discovered that building a payment gateway from scratch was not a cost-effective solution for their customization needs with their existing white label gateway.

Instead, they opted to negotiate for control over their source code, enabling them to implement necessary changes more swiftly. Alternatively, you can also collaborate with a technology services provider to implement changes at your preferred pace.

2. Replacement service provider
If you’re currently partnering with one of the well-known PSPs like Stripe, Paypal, or Square, there are alternatives out there. However, these providers have earned their market-leading position due to their remarkable technological innovations, setting them apart from their competitors.

As a result, if you decide to collaborate with one of their competitors, the pricing may not differ significantly from what you are currently paying. Additionally, it might be challenging to find an alternative that offers substantial technological advantages, considering the dominant status of these market leaders. It's important to note that many processors still rely on legacy platforms, which restrict you to a single connection point to the banking system.

Alternatively, if your company possesses development resources and requires a swift market entry, you have the option to license the source code of an existing payment gateway. This approach enables you to deploy it within a PCI-certified environment of your choice and customize the desired features accordingly.

Final Word

Whether you choose to build your own payment gateway or explore alternative options, the development of a secure and efficient payment solution is crucial in today's digital landscape. By making informed decisions and leveraging the expertise of industry professionals, businesses can stay at the forefront of payment processing and drive growth and success in their operations.

If you missed them, check out part one (Payment Gateway Market Overview) and part two (Is Building a Payment Gateway Worth It?) of this three part series about Payment Gateways.