Many businesses are now considering building their own payment gateway due to increasing customer expectations for diverse payment methods and smooth payment experiences. Building a custom payment gateway gives you more control over transactions, improves customer satisfaction, and reduces transaction costs. However, developing a payment gateway is a complex process that requires careful planning and execution.

In this article, we’ll provide all the information you need to create a payment gateway system. We’ll cover the requirements, the benefits of developing a custom solution, and the potential challenges you may face along the way.

Introduction to Payment Gateways

A payment gateway is a technology that handles electronic transactions, often used for online shopping or when the card is not physically present. It acts as a bridge between customers, businesses, and payment processors. Customers enter their payment details on a secure checkout page provided by the retailer’s website. The gateway encrypts the cardholder data and sends it to the bank that processes payments for the merchant. The bank then sends the transaction data to the customer’s card issuer for approval.

Once approved, the payment gateway completes the transaction process. It also shares transaction details with the acquiring bank, which deposits the money into the merchant’s account. Besides transmitting payment data, the gateway checks if customers have enough funds and uses encryption to protect sensitive information during processing. For more in-depth information on payment gateways, click here.

Payment Gateway and Payment Processor

Understanding the difference between a payment gateway and a payment processor is key to navigating and making informed decisions related to the electronic payment system.

A payment gateway is a software used by businesses to connect their website with the financial institution handling payments from customers. Payment gateways act as a bridge between the customers, the merchant, and the financial institution. A custom payment gateway usually helps with payment processes for e-commerce, card-not-present, and mobile commerce transactions.

On the other hand, a payment processor is a bank or financial body that helps with the electronic transfer of funds between merchants and customers. This service is essential for all businesses that take credit card payments. A payment processing system manages the technical side of transactions, ensuring they are sent to the right card issuer for approval and then to the banking networks to complete the payment. They also handle the money side, such as putting funds into merchants’ accounts and handling refunds if needed.

Payment gateways and processors can be offered by the same company, but they can also come from different providers.

Create Your Own Payment Gateway Solution – Is It Worth Doing That?

If you’re considering adding a mobile payment gateway to your application, then you’ve likely noticed two main options: using third-party payment gateways or building a custom payment gateway for your business. Which is better? We’ll be honest here – in most cases, building custom payment systems for your company has more drawbacks than benefits. It is typically expensive and complicated to create a new payment gateway solution just to accept payments.

You would have to build a partnership with a payment processing company, create tech specifications from scratch, and take care of all required security standards such as PCI DSS, EMV, EMV 3D, Tokenization, and P2PE. If you want your gateway to support multiple payment methods, including international digital payments, then you would have to negotiate contracts with multiple acquirers (banks or financial institutions).

And that’s just the tip of the iceberg – owning a payment gateway would mean you also have to pass regular audits on how you’re storing and managing cardholder information and what tools you use to secure payments going through your gateway.

So, unless you plan to build your business around the new payment gateway and have a well-thought-out strategy for how you’ll make, secure, and maintain your new product, creating a gateway from scratch is hardly worth it. You’ll also need to hire an expert in payment regulations and fintech to design the application and ensure compliance with payment processor guidelines. Keep in mind that the development process will be both time-consuming and expensive.

If you’re only looking to offer in-app payments, opting for a third-party payment gateway solution is a better choice. They are quicker to implement and more affordable.

A Step-by-step Guide on How to Create a Payment Gateway

Developing a custom payment gateway requires careful consideration of your business needs. It also involves investing considerable time, technical knowledge, and resources. Here’s a guide on custom payment gateway development:

1. Research and Planning

Before going deep into payment gateway implementation, you should first clearly outline your business requirements. This involves identifying your target market, estimating the number of transactions you can handle, identifying user preferences, and deciding on the payment methods and currencies to accommodate.

2. Build Your Payment Gateway Infrastructure

To create your payment gateway, start by engaging a software development company to set up a robust server infrastructure capable of handling heavy traffic and maintaining optimal uptime. Cloud-based solutions offer scalability and redundancy advantages worth considering.

Additionally, implement a secure database management strategy to safely store user data, transaction records, and other crucial information. For a successful custom payment gateway development, you also need to develop APIs that facilitate seamless integration of your payment gateway system into various merchant platforms, ensuring ease of use and compatibility.

3. Select a Payment Processor

A payment gateway works closely with a processor to finalize online transactions. This could be a financial institution, an independent entity, or a card network. Choosing a reliable and flexible payment processor is vital to optimize your gateway’s performance.

Consider factors such as transaction fees, the variety of payment methods supported, speed of settlement, and the processor’s reputation in the industry. Obtain the processor’s API documentation and follow their integration guidelines. Additionally, develop an external API to securely manage the transfer of customer payment information.

4. Take Care of Compliance and Security

To operate your payment gateway effectively, you should ensure it complies with relevant financial regulations. This includes obtaining certifications such as 3DS certification from EMV (Europay, Mastercard, and Visa) and conducting regular PCI audits.

Additionally, implement strong security measures to safeguard sensitive data and prevent fraud. Focus on encryption methods like Secure Socket Layer (SSL) and adhere to PCI DSS (Payment Card Industry Data Security Standard) to maintain high standards of information security, verifying the validity of new payment methods and effective risk management practices.

5. Form Partnerships with Financial Institutions

Your custom payment gateway will need to partner with banks and card networks like Mastercard and Visa. This involves setting up a dedicated merchant account and meeting specific criteria set by each acquiring bank. This process usually includes negotiating and signing detailed contracts.

6. Develop a User-friendly Interface

Creating a user-friendly interface for your payment gateway involves designing an intuitive and accessible platform that simplifies the payment process for customers and merchants. It focuses on optimizing usability, providing clear navigation, and ensuring a seamless experience from start to finish.

7. Test

Once the software is developed, it needs to undergo thorough testing to verify the payment gateway functionality and ability to manage expected transaction volumes. This phase may require addressing any bugs or issues discovered during testing.

8. Maintain and Update

You’ll need to consistently maintain and update the payment gateway to tackle new security risks, add new payment options, and improve user satisfaction. Building a custom payment gateway involves committing to its ongoing maintenance, which will demand continuous dedication of resources and effort.

9. Provide Customer Support

Establishing effective customer support is a crucial step in custom payment gateway development. This involves setting up channels for users to seek assistance, such as email, live chat, or phone support. Providing clear documentation and guides ensures your customers understand how to integrate and use the payment gateway services effectively. Continuous improvement based on user feedback also helps refine the support process, enhancing overall user satisfaction and trust in the payment gateway.

Advantages and Disadvantages of Building a Custom Payment Gateway

Creating a custom payment system can offer unique opportunities for businesses, but it also presents significant challenges, such as implementing strong security measures and adhering to financial regulations. In this section, we’ll explore the main advantages and disadvantages of investing in your own payment gateway development, helping you decide if this is the right path for your online business.

Pros

Custom features
Full control of payment processing
Long-term cost savings
Source of revenue generation
Enhanced user experience

Custom Features

Custom payment gateways allow you to design and integrate specific functionalities tailored to meet the unique requirements of your business. You have the flexibility to include features such as a personalized user interface, advanced security protocols, specialized payment options (like recurring payments or support for cryptocurrencies, credit and debit cards, etc.), and seamless integration with existing systems or platforms.

Full Control of Payment Processing

When you build a payment gateway from scratch, you have complete control over how payments are managed in your business. You can customize transaction rules, manage fees, choose payment methods, and ensure compliance with regulations. This control allows you to address specific needs and adapt quickly to market changes. It also reduces reliance on external providers, minimizing risks from contracts and third-party issues.

Long-term Cost Savings

A custom payment gateway implementation costs more upfront but is a long-term investment in your company’s growth. Third-party payment providers add up costs like sign-up and payment service fees over time. Even with your gateway, you’ll still pay some fees. However, if you handle a large number of transactions, the savings can make building your own gateway worthwhile.

Source of Revenue Generation

You can decide to offer the payment gateway as a service to other businesses, thereby earning extra income. You can also license it or rent it to other companies that need similar features. Plus, you can use the same payment gateway for your other businesses.

Enhanced User Experience

Building a custom payment gateway involves tailoring the payment process to fit users’ needs. Creating intuitive interfaces and streamlined checkouts that make transactions smoother tends to appeal to customers. Similar to how API integration in iGaming enhances efficiency and players’ satisfaction, this approach boosts satisfaction, minimizes payment hassles, and strengthens customer relationships. It also allows for quicker issue resolution and better customer support, overall enhancing the user experience.

Cons

Time-consuming
Maintenance cost
Compliance requirements
Security concerns

Time-consuming

Developing your own payment gateway, especially with customized features, requires more time compared to integrating a third-party solution. This might delay other business projects. To minimize delays, prioritize your payment gateway development early on. You should also hire experienced developers who specialize in creating custom payment gateways for businesses like yours.

Development and Maintenance Cost

Creating a custom payment system requires a huge initial cost. You’ll also be responsible for regular maintenance, troubleshooting, and customer support. You also need to consider continuous updates to meet regulatory standards and enhance the gateway’s security. This commitment demands significant resources and might not be the best choice for small businesses with limited budgets.

Compliance Requirements

Since you’ll be dealing with financial transactions, you’ll have to ensure PCI DSS compliance. Meeting these compliance requirements involves extensive documentation, rigorous security measures, and regular audits. Failure to comply can result in fines, penalties, or even the loss of ability to process payments. Navigating these complexities requires dedicated resources and expertise, which can be daunting and costly for businesses developing their own payment gateway.

Security Concerns

Creating a secure payment system requires prioritizing the protection of sensitive data (like credit card data). This involves setting up secure encryption, maintaining safe databases, and meeting standards like PCI DSS. These tasks demand significant time and resources. Plus, staying vigilant against evolving cyber threats is an ongoing challenge when building custom payment gateways. Managing these security issues can be complex and requires constant attention to minimize risks effectively.

Alternative for Building Your Own Payment Gateway – White Label Online Payment Systems

Building your own payment gateway isn’t really practical – getting an out-of-the-box gateway integration is more cost-effective and less time-consuming. But what if you still want to tailor the ready-made application to match your brand? In that case, consider choosing a payment gateway that is sold as a white label.

White-label gateways work like any other gateway – they have the same features, level of security, and certifications. However, as they are not branded by the provider, businesses can customize the online checkout process with their own names, logos, or brand elements or add new features they need.

Why, though, should you look in the direction of white-label gateways? Most importantly, those will save a lot of your time. When building your own payment gateway, you would have to spend time creating technical regulations, designing your token system, applying for certifications, and negotiating contracts with the payment processors. Meanwhile, third-party gateways already meet all technical requirements – you can just take the ready-made payment solution, configure and customize it to match your brand, and you’re all set.

Also:

You can leave handling all purchase-related issues, maintenance, security certifications, and audits to the gateway provider. Meanwhile, if you built a payment gateway yourself, all those things would be your responsibility.
White-label gateway providers regularly add new features, technologies, and payment methods to their platforms. As their partner, you can use those features immediately after implementation with no extra costs.
Gateway providers have several anti-fraud mechanisms and strategies already implemented, so you can be sure that the gateway and all data passing through it are fully secure. With your own payment gateway, you would have to design the security measures yourself. Also, most white-label gateways can be easily integrated with third-party security, anti-fraud, and KYC Solutions if you need an extra security layer.
White-label payment gateways can be easily integrated with your main system, back-office, and any applications you might need through an API. Plus, many of those platforms also have features that can help you with filing reports for tax and compliance purposes.

Of course, white-label gateways have their own drawbacks, but the benefits generally outweigh these minor issues. For example, when you build your own online payment gateway, you won’t have to pay transaction fees or any costs associated with using a third-party service.

That might seem like a reason to choose a custom gateway, but the third-party and per-transaction fees are minimal compared to the costs of building and maintaining your own payment gateway.

When developing your payment gateway, you have full control over the design, navigation, features, and integrations inside the gateway – which means you could create a custom-fit gateway for your business. Meanwhile, white-label applications are limited regarding what you can (and what you can’t) customize.

Also, creating such a custom-made gateway will take a large amount of time. You would need to first build a project software development team with members who specialize in creating financial applications and have enough experience to keep the entire process smooth, and then watch out for any unexpected issues during the development process. That kind of project could take months, if not years, to complete successfully while implementing an out-of-the-box gateway will take less time.

What Are Your White Label Payment Gateways Options?

With so many fintech companies already offering their own payment gateways, it would be faster and cheaper for you to just pick one of them rather than getting a custom application. So, what exactly can you find on the market? Let’s look at the available types of payment gateways.

Hosted or Onsite: A hosted gateway is a third-party checkout system that redirects users to the payment service provider’s (PSP) page when they want to make a purchase. Basically, this means that the user will have to leave your website to pay for the product and then be sent back to your website to finish the checkout process. Meanwhile, onsite gateways work as a part of your website.
Dedicated: If the regular white-label gateways don’t exactly match your needs, you should look into dedicated payment gateways. Besides having more checkout customization options and specific features added to the gateway at your request, you would also get a dedicated server (or servers) to host the gateway.
Licensed: This one is the “best of both worlds,” allowing you to customize the gateway to meet your specific needs without having to build one from scratch. However, you’ll still need to undergo the PCI audit and certification process. After you buy a license for a chosen payment gateway software, you can adapt it to suit your business needs. Since you also get access to the source code, you get full control over the gateway infrastructure and can change the source code as much as you need.

Each type has its benefits and drawbacks. For example, hosted gateways are the easiest to set up, but you don’t have any control over the gateway’s security. Dedicated and licensed gateways, meanwhile, can offer more features and customization options, but they also come with a higher price tag.

What Are the Most Popular Payment Providers?

One major drawback of setting up your own payment gateway architecture is connecting it to different banks, card providers, and a payment service provider. Given the number of payment methods available now (and the more the gateway can support, the better), you would have to negotiate with several issuing banks, payment services, and credit card processing companies and then integrate the payment gateway with all of them.

Meanwhile, the biggest payment service providers (PSP) already have those connections established and secured and can offer several different payment methods for your online store – from credit cards and e-wallets to cash cards, instant payments, and even cryptocurrency.

Let’s take a look at a few payment solutions that are especially popular with businesses.

Paypal

Paypal is an eCommerce payments platform that allows people to pay for their purchases without sharing any of their bank information (like their credit card number). It works in over 200 countries and accepts 25 currency types, making it one of the most popular gateways for online shopping. More than 1.6 million websites now use PayPal, and the gateway is equally popular for mobile purchases.

Stripe

Like Paypal, Stripe helps merchants accept and manage online transactions from anywhere in the world, including various types of credit cards, mobile wallets, and cryptocurrency. Plus, they offer buy now, pay later services. Currently, Stripe is available in 120 countries and can process over 130 different currencies, so it works great for international brands.

Skrill

Skrill (previously Moneybookers) is a payment gateway and digital wallet provider from the UK, established in 2001. Since its launch, Skrill has expanded to work in more than 120 countries and accepts over 135 different currencies and over 100+ local payment methods, including cards, digital wallets, instant bank transfers, and cryptocurrency. Skrill is also a very popular purchase method among online casino and sports betting players.

Braintree

Braintree was developed by PayPal as a payment system aimed at higher-volume eCommerce businesses that want more control over their transactions. Along with a payment gateway and merchant account, Braintree offers small-business customers tools and services to streamline internal processes, such as customizable sales reporting, recurring billing, and integration with third-party apps. Braintree operates in over 45 countries worldwide and supports 130+ currencies.

Authorize.net

Authorize.net processes over one billion transactions for more than 430,000 merchants every year. However, it has a short list of accepted currencies compared to its competitors. For US and Canadian businesses, Authorize.net only supports payments in USD and CAD. For UK and European businesses, it supports eight currencies, and for Australian companies, three. A plus for them is that they offer several features for merchants – recurring payments, invoicing, mobile purchases, a virtual point-of-sale (POS) system, and an optional card reader.

Apps Using Payment Gateway – Examples

Nearly every type of application, from productivity tools, e-learning apps, weather widgets, and games, has a built-in freemium model. Freemium means that the app is free to download and use, but if you want to access any of the extra features, then you need to pay for those. And since app users nowadays are not really eager to pay for an app they’ve never tried before, using a freemium model to let the users try the app before buying a subscription is an excellent way of convincing them the app is worth their money.

In fact, 97% of Google Play Store applications now work as free apps with optional in-app purchases.

80% of the mobile apps we’ve built in CrustLab have an integrated gateway for smooth in-app payments as well – take a look at a few examples.

BetMakers – A horse-racing betting system where users can bet through the payment gateway.
PelviFly – An app for regular kegel muscle exercises for women. Users here can make in-app purchases to access special exercise programs or schedule a consultation with a fitness expert.
Solver – An e-learning platform where users can schedule online lessons and pay for them using the Stripe payment gateway.
SmoothRemote – Application for adding remote work offers.

Are Google Pay and Apple Pay Available as Payment Methods in the Gateways?

Want to offer Google Pay or Apple Pay as a payment option in your app? Then you should look for gateways that support both methods – sadly, not all gateway providers have those on their supported list.

On the Apple Pay website, you can check which gateway providers for your region support this method of payment – Authorize.net, Stripe, and Braintree are, for example, listed as those that have added Apple Pay as an available method of payment.

The list of available gateways that accept Google Pay payments can be found on the Google Pay API website.

Conclusion

If you want to use in-app payments in your new product, adding a payment gateway to your app is a must. In most cases, just choosing one of the available gateway providers will be enough – that will take you less time, frustration, and budget than building an entirely new one.

If you feel confused just looking at the available payment gateway providers, or want to discuss which gateway would be best for your new product, then feel free to reach out to us. Many companies have already asked us for help selecting the right provider and integrating it into their applications, so there’s a good chance we can do the same for you. The easier and safer you make it for your users to pay for the in-app services, the better the chance you will convince them to click on the “Buy” button.

Dominik Szczygieł

COO

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