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A report published by Deloitte in March 2022 estimated that the total worldwide transaction value of digital payments is expected to reach $11.3 trillion by the year 2026, growing at a CAGR of 13%. By creating a payment gateway, entrepreneurs can grab the opportunity of being part of this monumental shift. The online payment system, which consists of several key stakeholders, such as the merchant and the consumer, is proving to be the backbone of the globalized world.
By becoming a part of the online payment ecosystem, startups and enterprises can benefit from this increasing digitization of payments. A crucially important cog in this near-flawless digital payments system, payment gateways are digital point of sale (POS) terminals that serve several vital functions facilitating the digital payment ecosystem. Before diving deep into building a payment gateway, let us first understand how payment gateways work.
When we walk into a brick-and-mortar store, completing a (non-cash) transaction involves swiping a card on the POS terminal, which captures our card information while sharing it with the relevant parties for authorization and completing the transaction.
When we replicate this on a digital storefront, the payment gateway acts as the POS terminal capturing the consumer’s card information. However, other vital functions are happening simultaneously. Let us examine in a step-by-step process how digital transactions take place.
Step 1: After the consumer adds the product (or service) to their cart and proceeds to checkout, they are then taken to the payment gateway either on the merchant’s server or on third-party servers (the difference is explained below in the article). The consumer selects the preferred mode of payment (taking a credit card as an example). After entering the card details, the consumer clicks on something like ‘make payment.’
Step 2: Once the consumer submits their card details, the payment gateway first tags the transaction as card-not-present (CNP) and encrypts and secures the information to be transmitted to multiple parties. Simultaneously the payment gateway also verifies the card details and authenticates the card.
Step 3: The encrypted data is sent to the payment processor. The payment processor is a tech that communicates with the banks to settle the payment.
Step 4: The payment processor communicates with the acquiring bank (merchant’s bank) and the issuing bank (customer’s bank), which evaluate the transaction.
Step 5: The issuing bank and the appropriate card network (Visa or Mastercard, in most cases) approve or decline the transaction. This approval or denial is communicated to the payment processor, which sends the status to the payment gateway.
Step 6: The payment gateway communicates the transaction’s status to the merchant’s website, which is then displayed on the screen to the consumer. And this is where the transaction is completed.
And all of this happens within three seconds!
A snapshot of a payment gateway development process, let us examine in a step-by-step guide how to approach the development of a custom payment gateway.
When you create your payment gateway, it can be built on various programming languages, such as PHP, Java, Ruby on Rails, Python, and .NET, depending on the gateway’s requirements and the payment gateway developer’s expertise. As a general rule, however, if building a website or web application, PHP or Ruby on Rails might be a good choice. Java or Swift might be a better-suited alternative for a mobile application.
Digital transactions are synonymous with the globalized world. By creating a payment gateway, enterprises and startups can take advantage of the payment gateway development benefits, some of which are listed below.
However, the digital payment industry is mire with particular deep-rooted challenges proving to be a bottleneck in the mass adoption of such systems.
The United State Government’s Federal Trade Commission, in its report published in February 2022, noted that most of the frauds reported in the United States during 2021 involved digital transactions. The graph above shows that cash, check, and money orders accounted for a minuscule percentage of fraud reported in 2021.
The prevalence of such frauds and malpractices highlights that the digital payment landscape is tricky and needs comprehensive security measures to protect consumer and merchant data.
That is why governments worldwide have mandated payment gateways with robust security measures. One of these measures is the ‘Payment Card Industry Data Security Standard,’ known as ‘PCI DSS.’ To meet the necessary security standards, every payment gateway provider must comply with PCI data security requirements.
PCI Security Standards Council is the nodal agency that checks this compliance and, as an effect, keeps our digital transactions secure throughout platforms, devices, and interfaces.
Another security measure protecting our data is ‘3-D Secure’. Referring to Three-domain secure protocol, 3DS adds an extra layer of security with two-factor authentication for every transaction. Services like Visa and Mastercard already use 3DS in most transactions, and the one-time passwords (OTP) we receive on our mobile numbers every time we make an online purchase is a live example of 3DS in play. (Also read other ways to secure user’s data with Multifactor Authentication System)
In its July 2022 circular, the Reserve Bank of India restricted payment providers throughout the country from keeping customers’ card data, commonly known as Card-on-File data. The circular meant that all card details would be tokenized, and the actual card details stored with the entities (except card issuers and card networks) would be purged. By doing this, India became the latest example of tokenization happening in the digital payment landscape.
Tokenization refers to replacing card details with tokens to secure the customer from fraudulent activities or data breaches. The western world, namely the US and European markets, have already adopted tokenization on a large scale, especially on the blockchain.
Based on the positioning of the payment gateways, these can be classified into three categories which are explained below.
A payment gateway must be quick, efficient, and secure enough to carry out hundreds of thousands of transactions. Building a payment gateway, or an MVP of it will cost you in the range of $150,000-$250,000. But that range is to get a primary gateway developed. Payment gateway development costs will increase to create the one that is preferred and used by the masses.
There are numerous payment gateway features you would want to discuss with a payment gateway development services company, which are listed below.
A complicated piece of technology, such as a payment gateway, requires technical expertise and business intelligence to deliver the best product. At Appinventiv, as a leading FinTech software development company with nearly a decade of experience, we have helped thousands of our clients unlock their digital potential.
From building a P2P Payment App to integrating a payment gateway, our team has the technical know-how and the mastery of the concepts that can enable you to take your business to the next level. If you are interested in creating a payment gateway, our team will be happy to assist you with any queries. Get in touch today.
Q. How to build a payment gateway?
A. When building a payment gateway, the first step is to zero in on business objectives. Then after creating a rough plan and selecting a development agency, discuss the features and add-ons you want. You’ll also have to take care of compliance and security, and after careful testing and debugging, you can start accepting payments from your customers.
Q. How much does it cost to build a payment gateway?
A. The average cost of getting a payment gateway MVP is in the range of $150,000-$250,000. However, with advanced features, and capabilities, the cost will go up.
Q. How long does it take to build a payment gateway?
A. On average, it can take anywhere from several weeks to several months to build a payment gateway, depending on multiple factors. Still, some more complex systems can take longer to develop.