Payment Gateway Software Development: Step-by-Step Guide

Fintech is literally the fastest-growing market in the world. According to Exploding Topics, it is projected to reach $492 billion by 2028, growing at a CAGR of 16.8%. This has undoubtedly influenced the development in this field; today, more and more companies offer innovative developments and constantly improve existing products. Developing payment gateway software requires robust security measures, seamless integration capabilities, and compliance with financial regulations to ensure secure and efficient business transactions. This article will provide a detailed overview of how to build a payment gateway most effectively, sharing some practical ideas from our technical experts.

What is a payment gateway?

In simple terms, a payment gateway is a technology that enables secure online payments by connecting the customer’s bank with the merchant’s bank. All the information transferred between buyers and sellers during the online payment process remains secure. All data is encrypted, the availability of funds is checked, and the payment is confirmed.

A payment gateway, often seen as a simple link between a buyer and a seller, actually plays a crucial role in the transaction process. It routes transactions to the most suitable payment provider, and importantly, it’s a key player in fraud detection. If the initial transaction attempt fails, the gateway can even redirect the transaction to alternative providers. It’s important to note that a gateway only directly processes payments if it holds a specific license. Exceptions like PayPal, which combine gateway and processing capabilities, provide a comprehensive solution for secure and convenient transactions.

How does a payment gateway work?

A payment gateway is, first of all, an intermediary between the seller’s website or application and the financial institutions involved.

This interaction looks like this:

This is the moment when the client goes to the site, places an order on the seller’s website, and specifies payment details. The payment gateway securely encrypts all credit card information and sends it for processing.

At this point, the payment information is transferred from the merchant’s website to the payment gateway, using SSL (Secure Sockets Layer) encryption for security.

The gateway forwards the payment information to the payment processor (aka acquirer), which forwards it to the customer’s bank (issuer) for subsequent approval.

The customer’s bank checks that the customer has the required amount of funds and approves or rejects the transaction. The result is then returned to the payment processor and gateway.

The payment gateway forwards the bank’s response to the merchant, and depending on a positive or negative response, the transaction continues, or the process is terminated, and an appropriate error is returned.

It is also important to note that payment gateways are equipped with various fraud detection mechanisms, which ensure the preservation of customers’ and merchants’ confidential data.

Main components of a payment gateway

After we have analyzed the steps, let’s pay attention to the direct components of a payment gateway, thanks to which the magic happens. So, despite the possibilities of custom approaches, developing a payment gateway includes several key stages.

1. Data encryption: SSL/TLS encryption is often used to protect information. These cryptographic protocols ensure a secure connection between the web server and the browser and protect data from interception.
2. Transaction authentication: the gateway must verify the data’s authenticity to ensure it is not dealing with fraudsters. Cryptographic protocols such as HMAC or digital certificates are also involved here, confirming the data’s authenticity during transmission.
3. Integration with the processing center: the gateway directly interacts with the processing centers for secure communication with banks to check the availability of funds on the buyer’s card and then confirm the transaction.
4. API and SDK: Gateways often offer APIs for integration with websites or applications, simplifying the process of sending requests.
5. Error handling and feedback: The gateway must correctly respond to errors and report them to the development side to record and process errors in real time (with error code and detailed information).

Step-by-step guide to developing payment gateway software

The payment gateway software development stages are generally similar to any other product or software development. You will still need to conduct a niche analysis, collect requirements, and think through all the steps in detail, considering technical and business requirements.

So, what does this include:

1. Architecture planning and selection: choosing between a monolith and a microservice-based on the potential need for scaling. Here, all essential functions are also immediately determined.
2. Backend development: here, in addition to writing the code itself, an API is developed and connected to interact with web applications that will accept payments, and all SSL/TLS protocols are implemented to ensure transaction security. Another important aspect at this stage is the use of protocols such as JSON, XML, and HTTP methods to facilitate communication with other systems.
3. Integration of systems to ensure security includes additional protection methods, such as 3D-Secure, and machine learning algorithms to prevent fraud. Two-factor authentication and CVV codes must also be addressed.
4. Database design: databases for storing sensitive information must be reliable and have several levels of protection.
5. Client interface development: This includes developing the interface itself, adaptive forms for various devices, and integration with multiple payment methods (cards, eWallet, etc.).
6. Testing and debugging: Believe me, you need all types of testing: functional, integration, load, and stress testing. Do not forget about Penetration Testing, which protects against hacking.
7. Integration with external systems includes anti-fraud and international payment systems such as Visa and MasterCard.
8. Launch and maintenance: We recommend immediately implementing the monitoring and notification system to track the gateway’s status in real-time. This will increase customer satisfaction and improve your product’s performance.
9. Certification: we are talking about PCI DSS certification for compliance with security standards in the payment industry.
10. Support and scaling: More is needed to release a product; it needs to be updated and bug-fixed so that everything meets the established standards.

So, a payment gateway is often perceived as a simple intermediary between the buyer and seller, but it performs many critical functions in reality. These include routing transactions to the most suitable payment provider, fraud detection, and even cascading transactions to alternate providers if the initial attempt fails. However, it’s important to note that while the gateway facilitates and enhances the transaction process, it only processes payments directly if it holds a specific license to do so.

As you can see, developing a payment gateway is a complex and time-intensive process. It requires significant resource and time investment to ensure it meets industry standards and delivers a seamless payment experience.

Hope it is a little clearer now 🙂

Cost and terms of payment gateway development

Developing a payment gateway depends on many factors, so the cost can range from $150,000 to $300,000, while feature-rich and secure gateways with advanced integrations can cost from $300,000 to $700,000 and higher. It all depends on what you want to see, how complex and multi-level functionality you want, and how high your security requirements are. The development period is usually 6 to 12 months, but if the product is very complex, it can even be 18 months.

Common challenges in payment gateway development

Developing a payment gateway involves many complexities, from compliance with security standards (for example, PCI DSS) to ensuring stable operation under high load and protection against fraud. Moreover, more is needed to implement and remember them once; you must be ready to constantly keep your finger on the pulse and update the requirements if necessary.

In addition, you always need to be ready for a large number of integrations with banking and third-party systems while remaining understandable and straightforward for the user. It sounds contradictory, but the team’s professionalism often creates the solution.

Developing a payment gateway is a complex and time-intensive process. It requires significant resource and time investment to ensure it meets industry standards and delivers a seamless payment experience.

While building your gateway offers complete control and customization, it’s an expensive and lengthy endeavor not every business can afford. However, there’s a cost-efficient alternative: renting a white-label solution. This approach allows enterprises to leverage a ready-made, fully compliant infrastructure without the heavy lifting of development, enabling them to focus on their core operations.

In-house development of payment gateway software vs. renting a ready-made solution: pros and cons

So, we have come to a rather philosophical question: development or a ready-made solution. Most businesses prioritize budgets, but we suggest taking a step back and considering all aspects before deciding. To help, we’ve prepared a small comparison for you.

Before diving into the details, let’s clarify what a white-label solution is. A white-label solution is a ready-made product or service developed by one company but rebranded and used by another as its own. In the context of payment gateways, white-label solutions provide businesses with pre-built, customizable infrastructure that can be branded and tailored to meet their needs without starting from scratch. These solutions often include compliance, integrations, and support, offering a faster and more cost-effective alternative to in-house development.

So here you are again, choosing to save or not save time and money with minor restrictions and details.

How can Akurateco help?

Let’s start from the beginning — Akurateco is a white-label payment software vendor that provides a flexible, ready-made solution that allows businesses to quickly and easily launch a payment gateway under their own brand. The PCI DSS compliant platform comes equipped with over 400 integrations to banks and payment providers worldwide, offering businesses seamless global connectivity. Additionally, it supports multi-currency functionality and can be fully customized to suit specific business needs.

Using an API-first approach it can provide seamless integration, process automation, and a decent level of scalability. In other words, it is a straightforward and adaptable tool for those who want many features without complicating their lives. The platform gives you access to multiple payment methods, advanced fraud prevention tools, and seamless integration, helping businesses scale effectively. Akurateco also has excellent customer support and is always available to help.

FAQ

Is it a payment gateway software?

Yes, a payment gateway is specialized software that securely facilitates payment transactions between buyers and sellers. It encrypts customer data, routes transactions to payment processors, and ensures compliance with regulations like PCI DSS.

How to build a payment gateway software?

Building a payment gateway involves:

1. Research and Compliance: You must understand the market needs and compliance with legal requirements (e.g., PCI DSS).
2. Core Features: Payment routing, multi-currency, security, and API.
3. Development: From a secure backend and user-friendly interface to API integration.
4. Testing and Licensing: Comprehensive testing and obtaining financial licenses is mandatory.

Alternatively, White Label solutions offer a cost-effective way to launch a gateway without building one from scratch.

Who is the best fit for payment gateway development?

E-commerce businesses with a known high transaction volume require custom settings. The second group is fintech and payment service providers wanting complete independence and payment control.

How long does it take to develop a payment gateway?

On average, payment gateway development takes from 6 to 12 months. The time may increase when customizing the solution and adding complex multi-level functionality and integrations.

How much does it cost to develop a payment gateway?

The cost varies from $150,000 to $700,000 and more, depending on the complexity, requirements, cooperation format, and the payment gateway software development company team involved.

Are there any alternatives to developing your own payment gateway?

Yes, instead of developing your own payment gateway, you can opt for a ready-made solution or partner with an existing provider. This approach saves time and money while eliminating the expenses of creating payment solution software.

What technologies are used in the development of payment gateways?

When it comes to the development of payment gateways, we prioritize your security. We employ robust technologies such as data encryption (SSL / TLS), tokenization for safeguarding payment information, and APIs for seamless integration with other systems. Our use of database management systems (SQL / NoSQL) ensures efficient data handling. Furthermore, we utilize cloud solutions for easy scalability and various data analysis tools for comprehensive transaction monitoring.

What are the advantages of SaaS solutions for payment gateways?

SaaS solutions offer a ready-made infrastructure, automatic updates, and 24/7 technical support. They are optimal for small and medium businesses since they do not require significant initial investments and allow you to start accepting payments quickly.