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A payment gateway is a technology that enables businesses to accept online transactions securely.
While there are many established payment gateways available, some businesses may prefer to create their own to gain greater control, reduce transaction fees, or offer custom payment solutions.
This guide will walk you through how to create your own payment gateway from scratch.
Step 1: Understand the Regulatory Requirements
The first step to payment gateway building is to ensure you understand and meet all regulatory requirements.
If choosing to build a custom payment gateway, you will be solely responsible for ensuring the protection of sensitive payment data.
This may include obtaining certificates and regularly auditing systems to ensure ongoing compliance.
Failure to adhere to such regulations can have serious consequences, including fines and the inability to process future credit card payments. Also, this could damage your business's reputation, limiting future growth.
If choosing to build a custom payment gateway, you will be solely responsible for ensuring the protection of sensitive payment data.
A few essential financial regulations to understand are listed below:
PCI DSS (Payment Card Industry Data Security Standard)
PCI DSS was established in 2006 by major card brands, including Visa, Mastercard, and American Express, to minimise the risk of data breaches and protect sensitive customer data.
The standard was designed to ensure that all companies accepting, processing, storing, or transmitting credit card information do so securely.
KYC (Know Your Customer) Requirements
KYC requirements refer to a document used to verify a customer's identity and personal details.
The regulation was designed to protect financial institutions against fraud, corruption, money laundering, and terrorist financing.
It is a mandatory process in the UK, requiring banks or financial institutions to ensure their clients are who they claim to be by identifying and verifying clients' identities.
For UK banks and financial institutions, this can include:
- Proof of identity, e.g. passport, driver's license, or other form of government-issued ID.
- Proof of address, e.g. a phone, tax, or rent bill.
- Proof of income, e.g. a tax statement, recent bank statement, or tax return.
GDPR Compliance
The General Data Protection Regulation (GDPR)is Europe's data privacy law, implemented in May 2018.
The law applies even if your business is not based in the EU due to its extraterritorial scope.
As such, it can apply to any organisation worldwide that processes the personal data of individuals within the EU.
GDPR mandates the protection of personal data and upholds the data rights of individuals, levying harsh fines on those who violate its privacy and security standards.
Penalties can be as high as tens of millions of euros, making it incredibly important to comply with.
Step 2: Choose the Right Technology Stack
The second step is to choose the right technology stack for your payment gateway.
Your business should consider programming languages, frameworks, infrastructure, and tools that align with your business needs and development goals.
It may be beneficial to use a technology services provider who can offer a custom solution. However, this will likely come at a cost.
Step 3: Establish Secure Payment Processing
The next step to building a payment gateway solution is to implement robust security measures to protect sensitive payment data.
A multi-faceted approach to security ensures that data is protected from breaches and cyberattacks, protecting your business and customers.
Before deciding which security measures to take, it's important to consider the following:
- User Experience: Your payment gateway should aim to balance security with user experience, ensuring that any authentication and security measures are manageable and accessible.
- Integration: Data protection methods should also integrate seamlessly with any existing systems your business uses, including your payment gateway's infrastructure.
- Flexibility: Consider offering security measures that accommodate user preferences and devices, providing a series of alternative options in case the primary authentication method is unavailable.
The most effective security will guard every piece of sensitive customer data, e.g. credit card details and personal identification information, from any malicious attempts to exploit vulnerabilities in your system.
A secure payment system requires multiple security measures to protect payment data. Here are a few examples:
Multi-Factor Authentication (MFA) & Two-Factor Authentication (2FA)
MFA and 2FA require users to provide multiple forms of identification before a transaction is approved.
These usually include something the user knows (e.g. a password), something the user has (e.g. their mobile device), or something the user is (e.g. biometric data).
Common MFA and 2FA methods for secure payment gateways include:
- SMS-based Authentication: This method sends a one-time password to the user's registered mobile number, which they must enter to complete the authentication process.
- Biometric Authentication: Verifies the user's identity by utilising biometric data, such as fingerprints or facial recognition.
- Authenticator Apps: Generate time-based one-time passwords that the user is required to enter during the authentication process. Common applications include Google Authenticator.
Tokenisation
Tokenisation ensures that sensitive customer data remains safe, even if intercepted, by replacing confidential data with unique identification symbols.
The original data is securely stored in a centralised token vault, retaining all essential information without compromising security.
Whilst highly effective, this method requires some consideration of the life-cycle management of tokens.
It's best to establish policies and processes to protect tokens, including their generation, storage, and expiration.
Geolocation Checks
By determining the geographical location of each transaction, the system can flag any transactions that are deemed to be from high-risk locations or those that don't align with the user's typical activity.
This method ensures the security of each and every transaction, protecting consumers from fraudulent transactions.
Dynamic Monitoring
Dynamic monitoring refers to fraud detection systems that analyse every transaction, studying patterns and behaviour.
Step 4: Partner with Banks & Card Networks
The next step to creating a payment gateway is to partner with banks and card networks.
Merchants will already require a merchant account to accept digital payments, which are provided by acquiring banks, e.g. Visa, Mastercard and American Express.
To begin accepting credit card payments through your payment gateway, you should aim to establish secure and efficient communication channels with financial institutions.
Seamless connections with major banks and card networks will ensure smooth transaction processing, essential for the success of any payment gateway.
Step 5: Build an Intuitive Merchant Dashboard
The user interface has a significant impact on your customer's experience.
An intuitive, well-thought-out system will reduce cart abandonment rates and improve customer satisfaction.
Every element of your merchant dashboard should be developed with users in mind. A well-built system will reduce the burden on your customer support team.
To do so, conduct extensive market research to highlight the existing opportunities and understand where competitors are falling short.
A team of experienced payment gateway developers can help deliver a user interface that aligns with your brand's identity.
The easier it is for customers to use, the more likely a customer is to return. You should ensure the system can manage high traffic loads, with scalability capability.
It may also be beneficial to consider database management, developing a secure database system to store transaction records, sensitive data, and other vital information.
The more transparent your system is, the more customers will trust your business, improving customer retention.
Step 6: Develop an API for Integration
Payment request APIs connect the merchant's digital platform, e.g. a website or an app, with the payment gateway.
This works by communicating the customer's confirmation to buy a product or service to the gateway.
You can develop or request a ready-made API, each seamlessly integrated to your merchant account and platforms, to ensure customers experience an uninterrupted payment flow.
The smoother the transaction flow, the more satisfied a customer is.
Step 7: Test the Payment Gateway
Before going live with your payment gateway, it's essential to conduct thorough testing to check the resilience and reliability.
Aim to check for any possible vulnerabilities, as well as troubleshoot and ensure integrations work as intended.
You can also simulate transactions and stress test the system to ensure that payments are processed correctly, making sure that the system can handle peak loads.
Step 8: Deploy & Monitor Performance
Once you have tested the payment gateway, you can launch the system and monitor its performance for any unexpected issues.
Regularly conducting manual and automated tests can help ensure the custom payment gateway works reliably and any emerging cyber threats are detected.
Additionally, you should ensure the system remains compatible with changing technology, updating software components, and adapting to comply with new regulations.
Customer support is also vital for any payment gateway since issues directly impact your business's revenue.
A dedicated team to assist users, address emerging concerns, and offer round-the-clock support can enhance customer trust.
What are the Advantages of Building Your Payment Gateway?
Developing your payment gateway system can be challenging, with numerous complexities from regulatory compliance to security.
However, the process offers numerous benefits, especially for larger businesses or for those with more specialised requirements.
Greater Control Over the Payment Process
Third-party payment gateways are often 'one-size-fits-all', meaning your business may be required to compromise.
By designing your payment gateway solution, you also have full control over the payment process.
The payment processor can be customised to fit your specific customer and business needs. For example, prioritising additional security features or a unique user interface to match your brand's identity.
Cost Savings
Utilising third-party payment gateways often means paying a fee for each transaction processed.
Over time, transaction fees add up, especially for larger businesses that process high transaction volumes.
Creating your payment gateway will eliminate such fees, resulting in significant cost savings.
Revenue Generation
Once created, you can offer the payment gateway infrastructure and services to other businesses, potentially creating a further revenue stream.
To do so, your payment gateway should be feature-rich, reliable and secure.
Customer Experience
A further benefit of a custom payment gateway is the opportunity to tailor the checkout process to match your desired customer experience.
For some, this will be a simplified checkout process with minimal redirects to reduce basket abandonment.
Global Expansion
Third-party payment gateways may not support all the currencies or payment methods your business desires, limiting the number of international transactions.
This could be an obstacle for businesses aiming to expand internationally.
Building a payment gateway system will enable your business to accept multiple payment methods, making it even easier to do business globally.
Converting multiple currencies will allow your business to reach new, international levels.
An effective payment portal can handle local payment methods and currencies, and synchronise foreign exchange data to handle the complexities of currency conversion accurately for international transactions.
Multi-currency support and accessible currency conversion will eliminate confusion for your users, offering a transparent payment process.
Integration
A self-developed payment gateway service can be easily integrated with other internal systems, including Customer Relationship Management (CRM) or Enterprise Resource Planning (ERP) software.
This ensures that data is exchanged seamlessly for real-time reporting, data analysis, and customer support services.
What are the Disadvantages of Building Your Payment Gateway?
Payment gateway development can be challenging and comes with several responsibilities.
Navigating these roadblocks may be difficult, so it's important to know what to expect before choosing to create a payment gateway from scratch. Here are a few things to consider:
Compliance Requirements
Financial transactions are highly regulated. Achieving and maintaining financial compliance can be complex and time-consuming for your business.
Maintenance
Payment gateways require regular maintenance to ensure the service is running efficiently and as intended.
Furthermore, it's important to troubleshoot issues, provide customer support, continuously update software to meet evolving regulatory requirements, add new features and improve security- all of which are an ongoing drain on resources.
Security Measures
Implementing high-level security measures is essential to prevent fraud and data breaches. However, these require significant expertise and investment.
Payment service providers are solely responsible for maintaining security.
To counter emerging threats, it's essential to update security measures regularly.
Financial Partnerships
Custom payment gateway development will require your business to establish relationships with various financial institutions and acquiring banks, which can be especially challenging for smaller businesses.
Forging such relationships will also often require navigating complex contractual agreements.
Time & Cost
The initial payment gateway development services are costly, followed by further costs associated with compliance, security, and maintenance.
Furthermore, offering customer support will be a constant drain on time.
What is the Cost of Building Your Payment Gateway?
Creating a payment gateway from scratch comes with several costs, including:
Development Costs
Building your payment service can help avoid the payment service fees associated with either a payment processor or existing payment gateways. However, development can be costly.
Costs may involve significant expenses on salaries for the development team and regulatory specialists, as well as infrastructure costs and security certification fees.
These can vary based on your business's location and the payment services you hope to offer.
Maintenance Costs
As mentioned above, conducting routine software maintenance and remaining compliant with regulatory requirements can be a drain on resources.
It's essential to consider these maintenance costs before developing your payment gateway.
What Licences do I Need to Create a Payment Gateway?
The licenses and regulatory compliance required will vary based on your location.
Common regulatory requirements include PCI DSS, KYC requirements, and GDPR compliance - all are crucial for secure payment processing.
Do You Need a Merchant Account to Create a Payment Gateway?
Yes, to accept credit and debit card payments, merchants will require a merchant account, provided by acquiring banks, e.g. Visa, Mastercard, and American Express.
Payments Made Simple with Cardflo
Creating your payment gateway can offer numerous benefits, but the process is not easy or simple. Many businesses seek more cost-effective solutions.
Cardflo specialises in providing businesses with seamless payment gateway integrations. Our platforms make accepting card payments seamless and secure, helping to increase sales and build customer trust.
At Cardflo, we have all your payment needs covered. Find out more about our payment processing solutions.
