How to Make a Payment Gateway

Nowadays, rapid technological progress transforms traditional services into digital processing. The payment gateway is one example of these tech improvements. This technology represents a digital interface that facilitates the secure transmission of payment information between a merchant’s website and the payment processor, maintaining cardholder data encryption throughout the process. 

Stripe is one of the ardent examples of custom payment gateways that crafted personalized payment processing algorithms, integrated intrusion detection systems, and regular penetration testing to ensure maximized data security by complying with PCI DSS. The article discusses how to build a payment gateway from scratch, underlining its benefits, features, and approximate costs. 

Benefits of Building a Custom Payment Gateway

Have you ever asked yourself questions like how to create my own payment gateway or why should I build own payment gateway if there are efficient third parties? Those questions are impossible to ignore, as building a payment gateway from scratch or using a third party will directly impact your budget. Let’s break down some of the benefits the custom variant presents. 

Cost-Effectiveness (Long-Term Perspective)

Indeed, to answer the question of how to create a payment gateway, it’s essential to consider financial input from the discovery phase up to the marketing launch and ongoing maintenance. Nevertheless, this investment will pay off for high-volume businesses in the long term as there won’t be any need to pay the transaction fees charged by third-party providers. Additionally, a custom solution eliminates vendor lock-in by providing cost predictability and customization flexibility, representing a decent argument for building a custom payment gateway rather than relying on a third-party provider.

Flexibility

Unlike an intermediary payment gateway, crafting a personal one from scratch will be a decent option as it boosts its overall payment-relevant processing, promotes brand customization, and optimizes checkout flows. 

• Dynamic Payment Routing

The custom payment gateway development can promote optimized route transactions through different processors (especially in a hybrid model).

The cost optimization routing represents choosing the lowest transaction fees. 

Geolocation-based routing or choosing the processor based on the client’s location. 

Note: The hybrid model indicates the interconnectedness of your custom payment gateway and multiple payment processors, which you can choose per unique payment-relevant case. 

• Improved Branding and White-Labeling

The customized payment gateway provider is about enhancing the payment page with the unique design patterns of your brand to boost client loyalty, which is impossible to implement within a third-party payment gateway. 

Additionally, you can contribute to personalizing user experience by providing your customers with individualized checkouts adjusted to different customer segments. 

In-Depth Business Insights

A custom payment gateway can streamline your business processes with advanced analytics possibilities on transaction evaluation and customer behavior patterns. 

Third-party providers usually enable business users to conduct finance-related functions like accepting, transmitting, and refunding finances. At the same time, their from-scratch personalized counterparts provide advanced real-time transaction monitoring, conversion rate assessment, and peak payment time evaluation (to optimize personalized promotions). 

Additionally, by developing a payment gateway, you can evaluate customer behavior, such as payment frequency, subscription/cancelation, preferred payment method, and refund frequency, to analyze the potential areas of improvement and policy reinforcement to minimize losses. 

Must-Have Features of Creating a Payment Gateway

Interested in how to build your own payment gateway? First, after decoding your business needs, you must pay close attention to the must-have elements that compose an efficient, customized gateway solution. 

Secure Transaction Processing 

Firstly, a decent payment gateway provider must maximize security for customers and merchants during transactions. Encryption and advanced security features are the core pillars of safe transmissions.

Encryption

Encryption is a security measure applied when the client enters their payment info. The data is then coded, which complicates cyberattacks during the transaction. Transport Layer Security (TLS) is an encryption technology that maintains data security during the full payment transaction cycle (from customer to merchant). Additionally, tokenization represents an advanced security measure you can consider implementing to build a payment gateway from scratch, as it transforms card details into tokens, which are of no value if intercepted.

Multi-Currency Support

Another feature required to create your own payment gateway is accepting various currencies, ensuring smooth conversion, and supporting international customers. Let’s examine the sub-element of the presented feature. 

• Settlement Process

This sub-element alleviates international financial management as the payment gateway can settle in multiple currencies.

• Transaction Fees

You can configure settings in your custom payment gateway solution to reduce costs for international transactions by updating transaction routing and using local acquiring banks. 

• Currency Support

Another must-have element of the custom payment gateway solution is accepting multiple currencies for transactions. 

• Currency Conversion

Lastly, a custom payment gateway ensures automatic currency conversion, promoting a better customer experience.

Fraud Detection & Prevention

Another crucial feature you need to consider to develop a payment gateway is robust fraud detection and prevention. Let’s check some core detection/prevention approaches.

Velocity & Pattern Analysis

This strategy for fraud detection is about checking the user’s number of transactions within a short period. 

The pattern analysis strategy evaluates cases of multiple failed payment attempts and blocks them to prevent an attack on the card. 

Geo-Blocking

This strategy is applied to limit transactions from black-listed countries. 

Device Fingerprinting

Device fingerprinting is the fraud prevention strategy that tracks user devices to identify suspicious behavioral patterns, such as multiple emails.

Compliance and Security Requirements

Although payment gateways alleviate transaction processing, bringing sophisticated convenience to both merchant and client, you don’t have to forget that to create a secure online payment gateway; you must comply with the following regulations. 

PCI DSS

PCI DSS represents a set of 12 requirements that organizations dealing with cardholder data storage and transmission must comply with. This applies to transaction processing relevant to the five debit/credit card brands: Visa, Mastercard, American Express, Discover, and JCB.

To provide your customers with a decent level of safety, you’ll have to ensure the secure storage and encryption of cardholder’s data, conduct regular security analysis and vulnerability scans, and implement access control measures to prevent unauthorized access. 

Explore PCI DSS 12 requirements, levels of compliance, and common mistakes.

PSD2

PSD2 (Revised Payment Services Directive) is a European regulation that obliges payment initiation service providers, payment gateways, and merchants processing electronic transactions to implement strong customer authentication and protect sensitive payment data against unauthorized access.

PSD2 functions within the following factors, which should be included to enhance the overall security of the cardholder’s data during the transaction processing:

• Factor 1: Something That User Knows

This factor relates to some user-knowledgable data, like PIN or secret answers. 

• Factor 2: Something That User Has

This factor represents elements in the user’s possessions. These may include OTP via SMS, authentication app, or mobile device. 

• Factor 3: Something the Client Is

This element refers to biometric authentication, such as fingerprint, voice recognition, etc.

If we are talking about remote transactions such as online payments, PSD2 requires a dynamic link to the payee’s account and transaction amount to reduce hacking attempts. 

How to Create Your Own Payment Gateway

Now, let’s move to the most intricate part of our conversation and clarify how to create a secure payment gateway that will handle large volumes of transactions, adhere to payment industry standards, and correspond with your business needs.

Planning & Requirements Gathering

How to make a payment gateway well thought-out and efficient? The starting phase of building this application requires you to consider its scope, considering the anticipated transaction volume, geolocation, and payment methods (debit/credit cards, digital wallets, BNPL). Additionally, don’t forget about research on regulatory compliance, including PCI-DSS, GDPR, and regional financial regulations.

The core challenge you might encounter at this step is the intricate nature of financial regulations. So before any project investment, we highly recommend you get a legal consultation on the regulation potential audits and create detailed documentation on requirements. 

Architecture Design

The next phase concerns system architecture planning, which includes designing a database schema, determining security measures, and planning API endpoints. 

Pay attention to the fact that the overall transaction volume may provoke issues with scalability. To overcome this challenge, consider implementing horizontal scaling from the start of development, as it can prevent bottlenecks by distributing load within multiple servers. 

Development

This part is about crafting front-end, back-end, and integrating APIs.

• Back-End

The back-end development phase covers building the payment processing logic, crafting database models, and applying security protocols. 

• Front-End

The sub-phase of front-end crafting touches upon UX/UI development. It includes designing payment forms, setting client validation, and creating the user interface elements. 

• APIs Development

During this development subphase, it’s time to create RESTful endpoints, build SDKs for merchant integrations, work on payment processor connections, and connect with banking institutions. 

Some of the challenges you can encounter at this phase are performance bottlenecks and complexities with API integrations. The first issue can be combated by conducting regular performance testing, and the second can be resolved by incorporating comprehensive API documentation.

Implementing Security Measures

To know how to create an online payment gateway, you need to launch SSL/TLC to encrypt the connection between the client and server to deliver maximized data protection. Additionally, the tokenization system will turn the client’s payment data into encrypted tokens by bringing an extra security layer. Finally, this step includes incorporating a multi-factor authentication. 

One of the core challenges at this stage is maintaining stable security by keeping up with threats. Automated security scanning tools and regular security audits must be utilized to handle this issue. 

Testing

Conducting versatility of testing procedures represents the penultimate stage of payment gateway development. Consider the following

• Unit testing is applied to check whether each of the features works correctly.

• Performance testing checks how the payment gateway will work under the peak load. 

• Security testing is performed to scan the vulnerabilities and check the payment gateway’s compliance with the security standards. 

During this development phase, you might experience the challenge of test data management, which can be resolved by implementing automated testing frameworks (JMeter for performance testing; JUnit for unit testing). 

Deployment & Ongoing Maintenance

The final step of crafting a custom payment gateway is deploying and monitoring its practical use to determine whether its functionality is secure, scalable, and correct. The core issue here is ensuring real-time detection and response to system issues. You can overcome this challenge by automating the deployment processes and conducting regular system health checks. 

Gain insights into integrating a payment gateway in an app.

Costs to Build a Payment Gateway

It’s time to explore the approximate cost range for crafting a payment gateway. The approximate price of a fully-fledged custom payment gateway development will range between $150,000 and $250,000+.

Planning Phase 

The approximate price for the planning phase ranges from $10,000 to $20,000+, as the factors that affect this development stage incorporate project scope definition, compliance research and analysis, and requirement elucidation. 

Architecture Design

The approximate price for the architecture design is $15,000 to $30,000+, and the factors that will influence the costs are: 

• System architecture planning, considering the complexity of the payment system architecture and microservice design

• Database schema design based on incorporated tools for caching, data transactions, logging, and analytics)

• Infrastructure setup planning considering the selection of cloud services and regarding infrastructure requirements to maintain high availability. 

Development

The development costs of a custom payment gateway can be distinguished into the following categories:

• Front-end development will cost between $30,000 and $50,000+, depending on the complexity of the user interface, payment forms, and design responsiveness requirements. 

• Back-end engineering can range from $40,000 to $70,000+, depending on the complexity of transaction processing, scalability needs, etc. 

• APIs can cost between $25,000 and $45,000+, depending on their endpoint complexity, number of integration points, etc. 

Security Implementation

The implementation of security system measures can range from $35,000 to $60,000+, depending on factors such as the launch of encryption systems (SSL/TLC, tokenization systems, etc.), the implementation of security measures, and the involvement of compliance measures. 

Testing

The total cost of the testing phase can range from $20,000 to $40,000+, while the influencing factors will depend on the testing types.

For instance, the number of integrations with third-party services & payment methods might affect unit testing.  

Security testing might be affected by the scope of penetration testing and vulnerability evaluation. 

The complexity of the infrastructure needed to conduct this type of testing might affect the price of performance testing. 

Launch and Ongoing Updates 

The launch of the custom payment gateway application can range from $15,000 - $30,000+ based on the environment configuration and the backup system's setup. Then, the monthly maintenance will cost between $5,000 - $10,000+ based on technical support services and regular system updates. 

Choose Agilie – Your Reliable Partner

When analyzing how to create own payment gateway that will be cost-effective and technically sophisticated, you need to consider hiring a development team that will make your idea come alive. Although the in-house team might be more aware of your needs, goals, and corporate mission, why not consider outsourcing? This cooperation model provides access to an affordable global talent pool for a well-developed custom solution. 

Explore the essence of outsourcing models.

Agilie is a European IT outsourcing organization that crafts unique, optimized, and from-scratch digital solutions for industries such as fintech, real estate, logistics, healthcare, etc. As a result-oriented partner, we are open to flexibility and adaptation and aspire to maximize efficiency within a short time.

Our services can benefit the development phases of your custom payment gateway building.  

• UX/UI Design

• Mobile App Development

• Web Development

• QA Testing

Conclusion

In the article, we discussed how to build a payment gateway from scratch, focusing on its benefits and must-have features. Based on customer segmentation, you can significantly optimize transaction processing costs and offer service personalization. However, a custom payment gateway might involve additional obligations like handling regulatory compliance. Finally, don’t forget that collaborating with decent IT professionals can help you create a payment gateway, emphasizing quality without compromising cost-effectiveness. 

Ready to create a unique & personalized payment gateway? We’re here to help!