One area in which the global rise of e-commerce business and online transactions is undeniable is the payment gateway market. Forecast to expand from US$32 billion in 2023 to over US$37 billion in 2024 (a compound annual growth rate of 17%), the global payment gateway market is becoming more and more important for businesses. Building a customised payment gateway gives a business more control over the payment process and the customer experience, compared with using a third-party gateway. However, it requires considerable investment up front.

Below, we'll look at what it costs to build a payment gateway – from the advantages of in-house or outsourced development to important security and compliance considerations.

What's in this article?

• What is a payment gateway?
  
• Overview of the payment gateway process
  
• Key components and features of a payment gateway
  
• Costs associated with building a payment gateway
  
• In-house payment gateway development vs outsourcing
  
• Security and compliance in payment gateway development
  
• Long-term maintenance and support costs
  

What is a payment gateway?

A payment gateway is a technology that accepts debit and credit card payments on behalf of businesses. It acts as an intermediary between a business's website and its acquirer, facilitating the secure transfer of payment information. When a customer enters their payment details on a website, the payment gateway encrypts this data, then communicates with the payment processor, which works with the card networks and issuing banks to approve or decline the transaction based on the customer's available funds and account status. Finally, the payment gateway sends the transaction status back to the business's website, completing the payment process.

Overview of the payment gateway process

Here's an overview of how the payment gateway process transmits payment information.

• Transaction initiation: The customer initiates the transaction, often by adding items to a shopping basket and proceeding to checkout.

• Online checkout: When the customer is ready to pay, they enter their payment details into the checkout interface on the business's website.

• Request forwarding: The payment gateway authorises and processes payments, serving as the intermediary between the business's website and the payment processors or banks. It encrypts the payment information and forwards it to the payment processor or acquiring bank.

• Payment authorisation: The payment processor forwards the payment request to the card network (such as Visa or Mastercard) associated with the customer's credit or debit card. These networks confirm with the issuing bank whether the transaction can be approved based on the customer's available funds, account status and the validity of their card.

• Payment result: The issuing bank sends a response (approval or decline) back through the card network to the payment processor and then to the payment gateway.

• Business notification: The payment gateway receives the response and communicates it back to the business's website. If the transaction is approved, the business can then complete the service or ship the product.

• Settlement: Once the transaction has been approved, the funds are transferred from the issuing bank to the business's account – a process known as settlement. This usually happens within a few days.

This infrastructure ensures that payment data is transmitted quickly and accurately, providing a smooth transaction experience for businesses and customers. The entire process typically takes just a few seconds.

Key components and features of a payment gateway

Security features

• Encryption: Encryption ensures the security of data transmission between the buyer, business and banks, thereby protecting sensitive information, such as credit card numbers, from unauthorised access.

• Tokenisation: Tokenisation replaces sensitive data with unique identification symbols (tokens) that retain all the necessary information without compromising security. This reduces the risk of data breaches.

• Fraud detection and prevention: Payment gateways employ a variety of tools and techniques to detect and prevent fraudulent activities. This includes monitoring for unusual transaction patterns, verifying the identity of the customer and implementing security measures, such as CAPTCHA or two-factor authentication.

• Authorisation: The gateway verifies each transaction with the issuing bank or card network to ensure that the customer has sufficient funds and the payment information is correct. This step determines whether the transaction should proceed.

• PCI DSS compliance: Payment gateways must adhere to the Payment Card Industry Data Security Standard (PCI DSS) to ensure secure handling of cardholder information.

Functional features

• API integration: Payment gateways provide application programming interfaces (APIs) for easy integration with different e-commerce platforms, allowing businesses to customise the payment process to fit their website's design and user experience.

• Multiple payment methods: Payment gateways typically support a variety of payment methods, including credit cards, debit cards, bank transfers and digital wallets.

• Reporting and analytics: Advanced reporting and analytics features help businesses to track transactions, understand payment patterns and make informed business decisions.

• Customer support: Reliable customer support helps businesses and customers to address any issues that they may face during the payment process.

Costs associated with building a payment gateway

Building a payment gateway for a business can involve different costs, depending on the features required. The cost of developing a payment gateway, in terms of the minimum viable product, typically ranges from US$150,000 to US$250,000. Factors influencing the cost include the size and expertise of the development team; the chosen technology stack; security and compliance measures; and business needs for customisation, maintenance and support. Here's a breakdown of the primary phases and features associated with developing a payment gateway.

• Research and development (R&D): Initial R&D helps businesses understand the market requirements, regulatory standards and latest technologies in payment processing. This phase involves costs related to market analysis, feasibility studies and technology research.

• Compliance and security: Compliance with industry standards, such as PCI DSS, involves rigorous assessments, audits and certifications – which can be costly. Implementing advanced security measures, such as encryption, tokenisation and fraud detection systems, also involves substantial investment.

• Software development: The core development of the payment gateway includes designing, coding and testing the software, as well as creating APIs for integration and user interfaces for both businesses and customers. This process requires the recruitment of a team of skilled developers.

• Hardware and infrastructure: Building a payment gateway requires a reliable and scalable IT infrastructure, including servers, data centres and secure networks to handle transaction processing. The infrastructure must be capable of scaling to manage peak loads and ensure uptime.

• Integration with banks and payment networks: Payment gateways must be capable of connecting with banks, credit card networks and other financial institutions. This involves negotiation, partnership agreements and technical integration, which can be costly and time-consuming.

• Testing and quality assurance: Rigorous testing ensures the reliability, security and efficiency of the payment gateway. This includes functional testing, security testing and performance testing – all of which incur costs.

• Marketing and sales: Attracting business clients requires effective marketing and sales strategies, including promotional materials, sales teams, and partnerships or alliances in the payment environment.

• Customer support: Payment gateways should provide 24/7 customer support to address any issues that businesses or their customers may encounter. This requires setting up a support team, training and deploying customer service tools and technologies.

• Ongoing maintenance and updates: Continuous monitoring, updating and maintenance ensure that the gateway remains secure, compliant and in line with evolving industry standards and customer expectations.

• Legal and administrative tasks: Setting up contracts, dealing with legal compliance and managing business operations are all required gateway development steps that will incur costs.

Building a payment gateway is a major undertaking that requires substantial financial investment, technical expertise and strategic planning. Many businesses choose to integrate with existing payment gateways to avoid these costs.

In-house payment gateway development vs outsourcing

When comparing the development of a payment gateway in-house versus outsourcing, there are several factors to consider. In-house development can be a better choice for projects central to the company's business strategy or those requiring long-term support, while outsourcing is typically more suitable for short-term projects or for businesses that need access to specialised skills.

The key considerations for developing in-house versus outsourcing are outlined below.

In-house development

• Project control: In-house development offers complete control over the project. This ensures that the final product is closely aligned with the company's culture and that company data remains protected​​.

• Long-term support: In-house development is ideal for projects that require ongoing maintenance or involve sensitive information, as outsourced projects will have varying levels of long-term support.

• High costs: In-house development comes with high costs, including expenses related to recruiting, training and maintaining a dedicated team​​​​.

• Scalability challenges: In-house development can come with scalability challenges, as expanding the team quickly in response to project needs may not be feasible.

• Employee turnover: If there is high employee turnover, it may disrupt in-house development and lead to additional costs.

Outsourcing development

• Project control: Outsourcing could lead to challenges in communication or loss of direct control over the development process.

• Cost-effectiveness: Outsourcing generally involves lower costs because of competitive pricing in regions with lower labour costs.

• Global talent pool: Outsourcing provides access to a wide array of professionals with diverse skills and backgrounds.

• Flexibility and scalability: Outsourcing makes it easier to scale the team up or down based on project requirements.

• Faster project completion: Outsourced teams are already assembled and experienced, potentially leading to quicker project execution.

Security and compliance in payment gateway development

• Data encryption: Payment gateways must employ strong encryption protocols, such as Secure Sockets Layer (SSL) and Transport Layer Security (TLS), to protect data during transmission. Encryption ensures that even if data is intercepted, it cannot be deciphered without the unique decryption key.

• Tokenisation: This process replaces sensitive data with non-sensitive equivalents, known as tokens, which have no exploitable value. Tokenisation helps minimise the risk of data breaches, as card details are not stored or transmitted during the transaction process.

• Fraud detection and prevention: Fraud detection and prevention systems include monitoring transactions for suspicious patterns, verifying user identities and employing advanced analytics to preemptively identify and mitigate potential fraud.

• Regular audits and monitoring: Regular security audits and continuous monitoring of the payment gateway infrastructure can help identify and address vulnerabilities promptly. These measures include updating software, patching known vulnerabilities and staying informed about emerging threats.

• Regulatory compliance: Payment gateways must comply with regulations and standards governing payment card information storage, data protection and more. These include the PCI DSS, which dictates how companies that interact with credit card information must maintain a secure environment; the General Data Protection Regulation (GDPR), which governs data protection and privacy in Europe; and the revised Payment Services Directive (PSD2), which regulates payment services and payment service providers within the European Union.

• Secure authentication and authorisation: Implementing secure authentication mechanisms (such as multifactor authentication) ensures that access to payment gateway systems is strictly controlled and monitored. Authorisation mechanisms ensure that users can only access data and functionalities that are relevant to their role.

• Network security measures: Firewalls, intrusion detection systems and other network security measures protect against unauthorised access. They also ensure data integrity and confidentiality.

• End-to-end security: By securing the business's website, the payment gateway and the communication channels used for transaction processing, the entire transaction is protected – from the customer's device to the bank's systems.

• Customer data protection: Customer data must be stored securely and only for as long as necessary. Access to this data should be restricted to authorised staff only, and proper data destruction policies should be in place for when the data is no longer needed.

Businesses that work with a third-party payment gateway can offload many of these security considerations. Stripe has a comprehensive payment gateway solution that addresses key security and compliance concerns, such as data encryption, tokenisation, fraud detection and compliance with the PCI DSS. Options such as these allow businesses to focus on their core activities while benefiting from a reliable and easy-to-integrate payment processing solution.

Long-term maintenance and support costs

Building your own payment gateway involves major long-term maintenance and support costs. Some of the issues that affect these costs are outlined below:

• Regular compliance updates: Maintaining compliance with evolving standards, such as PCI DSS, requires ongoing effort and investment. You'll need to update your systems regularly to adhere to the latest security protocols and regulations.

• Infrastructure upkeep: Maintaining and upgrading server infrastructure to ensure high availability, scalability and security can involve substantial costs.

• Fraud prevention: Fraud detection mechanisms must be updated and refined to adapt to new fraud patterns.

• Technical support: You'll need a dedicated team to provide technical support, address issues, and implement enhancements and integrations.

• Staff training: Staff will require ongoing training to stay informed about the latest payment security practices and technologies.

Stripe's payment gateway greatly reduces these burdens by taking over the following areas:

• Compliance and updates: Stripe handles compliance with payment industry standards and regulations.

• Infrastructure management: Stripe takes care of the payment gateway infrastructure, including its maintenance, upgrades and security.

• Fraud detection: Stripe has advanced fraud detection capabilities.

• Support: Stripe provides support and troubleshooting, reducing the need for a large in-house support team.

• Scalability: Stripe's infrastructure is designed to scale, accommodating business growth without the need for businesses to manage this scaling themselves.

Building and maintaining your own payment gateway is an ongoing commitment that requires continuous investment in technology, staff and compliance. Using a solution such as Stripe's payment gateway can be a more cost-effective, scalable and low-maintenance alternative – allowing you to focus on your business's core operations.