From e-commerce platforms and mobile applications to subscription-based services, payment gateways serve as a powerful bridge between consumers and merchants, enabling secure and fast financial transactions. The development of payment gateways requires not only technical expertise but also an understanding of project functionalities, essential requirements, and specific compliance regulations.
In this article, we will look at the core components of payment gateways, and key development trends, and explore how to develop a payment gateway.
Table of contents
What is a payment gateway?
A payment gateway is a technology that facilitates the secure and smooth transfer of funds between a customer and a merchant during an online transaction. It acts as an intermediary between the customer’s financial institution (usually a bank) and the merchant’s bank, ensuring that sensitive payment information is encrypted and protected throughout the process.
Watch this video to learn more about a payment gateway development:
How does a payment gateway work?
To gain a comprehensive understanding of how to develop a payment gateway, it is important to study how the system works.
- Customers initiate a transaction by entering their details on the merchant’s e-commerce website or using their credit card in a retail store.
- The payment gateway forwards the customer’s credit card information to the acquiring bank (i.e., the entity that processes payments on behalf of the merchant).
- The payment processor interfaces with the customer’s card network (e.g., Visa, Mastercard), which forwards the transaction to the card-issuing bank (the bank that issued the credit card to the customer).
- The card-issuing bank checks whether the balance on the customer’s account is sufficient to cover the purchase amount. This step also determines whether the transaction is fraudulent or not. After that, the bank will approve or reject the transaction.
Source: Choco Up
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Payment gateway vs payment service provider
A payment gateway is a specific technology that enables the secure transmission of payment data between the merchant’s platform and the payment processor. A payment processor, on the other hand, offers a more comprehensive package of payment-related services that often includes a payment gateway and additional features and tools to simplify the payment process for merchants.
The key differences between a payment gateway and a payment service provider are explained below.
|Payment service provider
|Acts as an intermediary between the merchant and payment networks.
|Offers a broader range of payment processing services and tools to merchants.
|Transmits customer payment data securely from the merchant to the payment processor and acquiring bank.
|Provides a comprehensive suite of payment-related services beyond just data transmission.
|Encrypts payment data to ensure secure transmission during the transaction.
|Emphasizes security measures and fraud management along with payment processing.
|Primarily focused on payment data transmission and validation.
|Offers a range of services like payment processing, currency conversion, subscription management, fraud prevention, and reporting.
|PayPal, Stripe, Authorize.Net, Braintree, etc.
|Adyen, Square, Worldpay, PayU, etc.
Payment gateway development is the process of creating a secure software application that authorizes credit card payments or other forms of electronic payments for e-commerce transactions. Payment gateways facilitate the transfer of funds between the customer’s bank account and the merchant’s bank account.
The payment gateway development involves integration with various payment processors, banks and other financial institutions to ensure secure and seamless payment transactions. It must also ensure compliance with industry standards and regulations to protect the sensitive data of customers and merchants.
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Payment gateway market overview
The payment gateway market is experiencing significant growth. The global market size was estimated at USD 26.79 billion in 2022 and is expected to grow at a CAGR of 22.2% from 2023 to 2030. The expansion of the market can be attributed to the increasing demand for mobile payments globally.
Moreover, the market is expected to be boosted by the increase in e-commerce sales and the widespread use of the Internet across the globe. The rising preference of merchants and consumers for digital channels to facilitate online remittances is also expected to play an important role in the growth of the market in the coming years.
Source: Grand View Research
The key payment gateway development trends
The growing adoption of smartphones and mobile devices has increased the demand for mobile payment solutions. Payment gateways that offer seamless mobile integration and support various mobile wallets and apps are in high demand.
Contactless payment methods such as Near Field Communication (NFC) and QR codes became increasingly popular payment gateway development trend due to their convenience and security during the COVID -19 pandemic. Payment gateways that enabled contactless transactions saw a surge in usage.
The expansion of the e-commerce sector has significantly increased the demand for secure and effective payment gateways to facilitate online transactions. During the lockdown, e-commerce sales experienced significant growth, particularly in food and health products, although some retailers struggled with logistical issues. In the UK, for example, online retail orders for selected products increased by more than 200% since the outbreak of COVID-19.
With the rise of digital transactions, security has become a primary concern. Payment gateways that offer robust encryption, fraud prevention measures, and compliance with industry security standards are gaining the trust of businesses and consumers.
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As companies expanded internationally, payment gateways were needed that accepted multiple currencies and enabled cross-border transactions without unnecessary complications.
Payment gateways market-growth rate by regions
Source: Mordor Intelligence
- Integration and APIs
Organizations are looking for payment gateways that easily integrate with their existing systems and provide robust APIs for customization and automation.
APIs designed for payment gateway development
Developing APIs for payment gateways requires careful consideration and adherence to industry standards for security, reliability, and ease of integration. Below are some key principles and best practices to keep in mind for payment gateway development APIs:
The most important features to look for in payment gateway APIs
- Comprehensive documentation and secure payment procedures
- Improved user experience and modern design
- Integration with multiple payment gateways
- Robust security measures
Read this article to find more information about payment APIs.
SDK.finance FinTech Platform with 400+ API endpoints lets you connect a broad set of payment providers and other services and process transactions fast and cost-effectively. With our API-first approach, you can save on feature development and speed up the releases for payment products like digital wallets, payment acceptance platforms, neobanks, money transfer systems, and currency exchange services.
Why build a payment gateway?
A payment gateway development is a complex and resource-intensive process. It requires a solid understanding of security, compliance, financial regulations, and payment processing protocols.
However, developing a payment gateway solution can be beneficial, especially for companies involved in e-commerce and online transactions.
Who might need a payment gateway solution?
- Online businesses that have a high volume of transactions.
- Businesses that want to be independent of third-party providers.
- Payment providers looking to expand their business.
- Companies that want to become payment service providers (PSPs).
If you want to become a payment service provider for other merchants, you can start by developing a payment gateway. The payment gateway will allow you to accept online payments, allowing you to serve as POS for virtual merchants. By charging registration and transaction fees, you provide yourself with an additional source of revenue.
SDK.finance PayTech software serves as a powerful backbone for building payment gateway faster with a pre-developed solution. With our payment processing system, you can provide payment services without starting from scratch.
How to start payment gateway software development?
Developing a payment gateway requires expertise in software development and security protocols. It involves integrating with various payment processors, banks, and financial institutions to facilitate transactions. The development process includes designing an intuitive user interface, implementing secure payment processing, and ensuring compliance with industry standards and regulations.
It’s important to partner with trusted third-party providers for fraud detection, chargeback management, and risk assessment. SDK.finance offers a comprehensive FinTech Platform that covers a wide range of financial services, including payment processing. Additionally, a robust testing and quality assurance process is necessary to ensure the payment gateway is functioning properly and securely.
Basic components of payment gateway development
Payment gateways are complex systems that facilitate the secure transfer of payment information between customers, merchants, and financial institutions. These gateways serve as the intermediary between the front-end user interface (e.g., website or mobile app) and the back-end payment processing infrastructure. The basic components of payment gateways are explained below.
|Payment request interface
|This is the user-facing component allowing customers to enter their payment information, such as credit card details, bank account numbers, or digital wallet credentials. It usually includes a checkout page or payment form where the required data is provided by the user.
|Encryption and security
|Payment gateways use robust encryption protocols (e.g. SSL/TLS) to secure data transmitted during the payment process.
|After receiving the payment information, the gateway forwards the transaction to the appropriate payment processor or acquiring bank. In this step, the encrypted payment data is securely routed through various networks to reach the payment processor.
|Payment processor integration
|The payment gateway must be integrated with one or more payment processors or acquiring banks. The system communicates with the customer’s issuing bank and the merchant’s acquiring bank to facilitate the transfer of funds.
|Once the payment processor has processed the transaction, it sends a response back to the payment gateway. The gateway then forwards this response to the merchant and the customer, indicating whether the transaction was successful or declined.
|These systems analyze various data points and patterns to identify potentially fraudulent transactions and help reduce chargebacks and financial losses.
|Payment method support
|Payment gateways must support various payment methods, including credit/debit cards, bank transfers, digital wallets (e.g., PayPal, Apple Pay, Google Pay), and cryptocurrencies.
|After a successful transaction, the payment gateway sends a confirmation message to both the merchant and the customer that includes details such as the transaction ID, the amount, and the date/time.
|Payment gateway API
|Many payment gateways offer APIs that allow merchants to integrate the payment system directly into their websites or applications to provide users with a seamless payment experience.
These basic components form the foundation of a payment gateway. The complexity and additional features of a payment gateway can vary depending on the specific needs of merchants and the industries they serve.
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Critical factors to remember in payment gateway development
Payment gateway development is a complex undertaking that requires careful consideration of several critical factors to ensure a secure, efficient, and user-friendly payment processing system. Below, we present the most important factors to consider when developing payment gateways:
Security first approach
Security is paramount when it comes to payment gateway development. Implement strong encryption protocols, adhere to industry standards such as PCI DSS, and employ measures such as tokenization to protect sensitive payment data from unauthorized access and cyber threats.
Compliance with regulations
Stay up-to-date with relevant financial and data protection regulations in the regions where the payment gateway operates. Adhere to compliance requirements to avoid legal issues and penalties.
User experience optimization
Create a seamless and intuitive user experience to reduce abandonment rates. Simplify checkout, minimize the number of form fields, and provide clear instructions to guide users through the payment process.
Ensure that the payment gateway is optimized for mobile devices. Mobile commerce is growing rapidly, and a mobile-friendly payment gateway is essential for a smooth customer experience.
Scalability and performance
Design is critical in payment gateway development to handle higher transaction volumes as the business grows. Ensure that the system is scalable without compromising performance and response times.
Provide reliable and responsive customer service to handle inquiries, problems, and disputes related to payment processing.
How long does it take to build a payment gateway?
The time required to develop a payment gateway can vary significantly depending on the complexity of the gateway, the experience of the team, the desired features, and the level of integration required. Building a payment gateway is a complex task that involves several critical aspects such as security, compliance, and seamless integration with financial institutions and payment networks.
A simple payment gateway with basic functionality and limited payment options can take a few months to develop and deploy. In contrast, a more sophisticated and feature-rich payment gateway with support for multiple payment methods, international currencies, advanced security measures, and compliance with various regulatory requirements can take six months to a year or even longer.
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How much does payment gateway development cost?
The cost of developing a payment gateway can vary widely depending on a number of factors, including the scope of the project, the complexity of the features, the technology stack chosen, the location of the development team, and the level of security and compliance required.
When estimating the cost of building a payment gateway, consider the following key components: infrastructure and technology, security and compliance, and integration with payment service providers.
While a payment gateway development is challenging, the benefits to financial firms are immense. With greater control over the payment process, companies can offer personalized services, scale their operations, and establish themselves as reliable payment service providers.
By staying ahead of industry trends and best practices and continuously evolving, you can develop a robust, efficient, and future-proof payment gateway that provides a better digital transaction experience for merchants and customers alike.
How long does payment gateway development take?
The time it takes to build a payment gateway can vary significantly based on various factors, including the complexity of the gateway, the team's expertise, the desired features, and the level of integration required. Building a payment gateway is a complex task that involves several critical aspects, such as security, compliance, and seamless integration with financial institutions and payment networks.
For a simple payment gateway with basic features and limited payment options, it might take a few months to develop and deploy. On the other hand, a more sophisticated and feature-rich payment gateway with support for multiple payment methods, international currencies, advanced security measures, and compliance with various regulatory requirements can take six months to a year or even longer.
How much does it cost to build a payment gateway?
The cost of building a payment gateway can vary widely depending on several factors, including the scope of the project, the complexity of features, the technology stack chosen, the development team's location, and the level of security and compliance required.
Here are some key cost components to consider when estimating the cost of building a payment gateway: infrastructure and technology; security and compliance; integration with payment processors.
What is payment gateway development?
Payment gateway development is the process of creating a secure software application that authorizes credit card payments or other forms of electronic payments for e-commerce transactions.
Payment gateways facilitate the transfer of funds between the customer's bank account and the merchant's bank account.
How to develop a payment gateway?
The development process includes designing an intuitive user interface, implementing secure payment processing and ensuring compliance with industry standards and regulations.
This includes integration with various payment processors, banks and financial institutions to facilitate transactions.