How to Create a Payment Gateway in 2024? Benefits, Cost, Process & Challenges

The popularity of digital payment is surging, with Statista predicting a total transaction value is expected to show an annual growth rate (CAGR 2024-2028) of 9.52% resulting in a projected total amount of US$16.59tn by 2028.

This boom is fueled by the convenience and security of payment gateways, the silent guardians behind every online purchase.

However, a crucial question arises for businesses looking to tap into this potential: How can they create a payment gateway?

If you, too, are searching for an answer, this guide is all you need. In this blog, we'll explore the complete step-by-step process of how to create a payment gateway and the cost involved.

We'll also analyze the benefits and challenges of owning a custom payment solution. So, without any further ado, let's get started!

What is a Payment Gateway?

Before you decide how to create a payment gateway, it’s helpful to understand the basics properly.

A payment gateway is essentially an online service that works as a secure middleman between customers and businesses during online transactions. The system allows a website to collect credit and debit card payments.

This involves providing a payment portal or checkout page for customers to submit their payment details, encrypting this sensitive data, and passing it on to the payment processor or bank.

When you create a payment gateway for your business, you must keep these functions in mind and ensure it complies with PCI requirements and the latest anti-fraud legislation.

Typically, larger companies choose to create their custom payment gateway as they don’t want to depend on third-party solutions. We have also developed the best UPI app 2024, which highlights our capability in creating secure and efficient payment solutions tailored to meet specific business needs. By focusing on these essential functions and leveraging our experience in developing top-notch financial applications, you can build a reliable and secure payment gateway that aligns with your business goals.

Also Read: What is a Mobile Wallet & Why You Should Use it? Everything Explained

Types of Payment Gateways

Understanding the types of payment gateways can help you, as a business owner, determine what kind of gateway can fulfill your needs when you create one.

Based on their positioning, payment gateways can be classified into three categories, which are explained below.

1. Hosted Gateways

To complete transactions, a hosted payment gateway redirects customers to the third-party payment service provider (PSP), such as PayPal from the merchant’s website.

This type of gateway can be the right option for merchants who don’t have the resources to meet the requirements to host the payment gateway on their server.

But this will also result in the business having little control over the consumer’s payment experience.

Moreover, it redirects the consumer from the website adding in the time it takes to complete the translation. However, these sacrifices are necessary to secure the transaction and the consumer data.

2. Self-hosted Payment Gateways

 As the name suggests, these payment gateways are placed on the merchant servers; however, they send the information to a third-party payment gateway URL for processing and authentication. This setup gives businesses more control over the payment experience of the customer. We have also developed the best UPI app in India 2024, showcasing our ability to create secure and user-friendly payment solutions that provide an excellent customer experience.

3. API-hosted Payment Gateways

These payment gateways are the most sought-after by merchants of all sizes because they give the merchant complete control of the buying and payment experience.

However, for API-hosted payment gateways, merchants are required to be PCI DSS compliant, as their servers will store every customer’s payment information.

Benefits of Developing a Payment Gateway for Your Business

Before entrepreneurs and business owners search for how to create a payment gateway, one of the most common questions that arise is whether investing in one is worth it. If they decide to create one, what benefits will it offer?

To answer all those questions, let’s look at some of the benefits businesses will enjoy when building their custom e-payment gateway rather than purchasing a payment button service or white-label product.

1. Custom-Made Features

For businesses with distinct requirements, building your own payment gateway grants you access to a comprehensive range of desired features.

Whether facilitating recurring payments, supporting marketing campaigns, or allowing cryptocurrency transactions, a custom-built payment gateway empowers you to incorporate all the functionalities and UX/UI design that align with your unique business requirements.

By leveraging this level of customization, your platform can truly stand apart and cater to the specific needs of your target audience.

2. No Vendor Lock-In

Creating your custom e-payment gateway provides the significant benefit of independence from pay service providers. You will no longer have to rely on an external provider, which can result in vendor lock-in.

This scenario severely limits your ability to switch payment gateways without facing substantial drawbacks.

When locked in with a specific vendor, your influence is limited, leaving you vulnerable to potential disadvantages such as evolving terms of use and fees that may work against your interests over time.

Additionally, if the provider faces economic or security issues, this can adversely impact your platform's reputation.

On the other hand, choosing how to create a payment gateway helps you to address any shortcomings directly and maintain control over critical aspects like security measures, fees, and terms of use.

3. Seamless User Experience

Developing a payment gateway for the website from scratch offers the advantage of fine-tuning the user experience to perfection.

By crafting user-friendly payment flows, interfaces, and navigation, you can ensure seamless interactions that satisfy your users.

Moreover, when you create your payment button, you can customize the onboarding process, reducing friction for merchants and facilitating their integration into your platform.

This level of control goes beyond the user experience. It includes all aspects of your marketplace business, allowing you to shape user and admin experiences according to your specific vision and requirements.

4. Control Over Data

Although self-hosting may involve certain expenses, data sovereignty brings forth several benefits.

Developing and managing a fintech solution like a payment gateway enables you to analyze valuable customer payment data, gaining insights into their usage patterns and marketplace behavior.

With this information, you can refine your platform’s usability, integrate new features that align with your customer’s preferences, and make informed decisions to optimize costs.

5. Long-Term Cost Savings

While the initial investment to build a payment processing service may be higher, viewing this as a long-term investment in your company's growth is crucial.

Third-party payment gateways usually come with additional costs, such as sign-up fees and per-transaction charges, accumulating over time.

The difference between using your gateway and a third-party gateway is approximately 20 cents per transaction.

Hence, if your business manages a substantial volume of business payments the cost savings of building your payment gateway can be significant.

On the other hand, for companies with lower transactions, choosing a third-party gateway may prove more cost-effective.

Read More: How Much Does E-commerce App Development Cost?

How to Build a Payment Gateway?

Now that you know why designing an electronic payment system is worth investing in, it’s time to delve into our main topic, how to create a payment gateway?

Generally, creating a payment gateway page involves many steps to ensure its functionality, security, and compliance with industry standards. Here’s a simplified guide outlining the payment gateway development process in five steps:

Let's understand each step in detail.

Step 1. Planning

The first step in building a custom e-payment gateway is to clearly define your business's requirements.

This includes identifying your target market, understanding the transaction volumes you expect to handle, and determining which payment methods and currencies you want to support, among other things.

Step 2. Compliance and security

When making an online payment solution, ensure your gateway compiles with all relevant financial regulations, including PCI DSS.

This will likely involve obtaining specific certifications and regularly auditing your systems to ensure ongoing compliance.

In addition, you'll need to implement robust security measures to protect sensitive customer data and prevent fraud.

Step 3. Partnering with financial institutions

This step involves integrating your payment gateway with various banks and credit card companies. Partnerships with these institutions can involve lengthy negotiations and complex contractual agreements.

Step 4. Software development

The next step in creating a payment gateway is developing the software for it. This will likely include recruiting a team of experienced developers (who can be sourced in-house or from external resources) and could take a significant amount of time, depending on the complexity of your requirements. We have also developed the best UPI app with cashback 2024, demonstrating our expertise in creating innovative and user-friendly financial solutions.

Step 5. Testing

Once the software has been developed and payment gateway API integration is done, it must be rigorously tested to ensure it works as expected and can handle the transaction volumes you anticipate. This stage may also involve resolving any identified bugs or issues.

Step 6. Deployment and maintenance

After testing, you can deploy your payment gateway. However, how to create a payment gateway doesn't end there.

You'll need to constantly maintain and update the software, troubleshoot any issues that arise, and provide customer support.

A big part of building your payment gateway is committing to its upkeep, which will continue to require bandwidth and internal resources over time.

Also Read: How to Develop a Share Market Website Like Moneycontrol in 2024

Biggest Challenge of Creating a Payment Gateway

While there are clear benefits to developing a free payment gateway for businesses as well as a payment gateway for individuals, there are also some major challenges you should consider before you handle your project with a reputable software or app development company.

Development and Maintenance Expenses

Building a payment gateway for the website requires significant upfront development costs. However, it is essential to acknowledge that payment gateways involve ongoing expenses, such as maintenance, insurance, and other related costs.

Moreover, to stay competitive in the market, you may also require compliance with new regulations and integration of new payment methods, which can incur substantial expenses.

While additional costs such as maintenance costs are necessary to ensure your payment gateway's proper functionality and competitiveness, they can pose challenges, especially for small businesses operating on tight budgets.

Given their financial constraints, developing their custom payment gateway may not be the most feasible solution for such businesses.

Hence, before committing to the endeavor, it is essential to carefully evaluate the financial implications and long-term sustainability of building and maintaining a payment gateway.

Responsibilities for Functionality and Compliance

Being the developer and owner of a payment gateway includes taking on significant responsibilities to ensure the functionality of your gateway system.

Your team must actively perform continuous testing, maintenance, and debugging to ensure a seamless user experience.

Addressing customer complaints, managing pending transactions, handling settlements, and resolving other client-facing issues will also fall under your purview.

Additionally, as the payment gateway owner, you will be responsible for maintaining PCI compliance and ensuring data security. This involves substantial costs and adherence to specific rules and restrictions.

In addition to PCI DSS, compliance with standards such as GDPR and CCPA, as well as protocols like EMV, SSL, TLS, and more, may be necessary. We have also developed the top UPI app in India 2024, showcasing our commitment to security and compliance.

How much does creating a Payment Gateway cost?

Understanding the associated costs is crucial when deciding how to create a payment gateway for you.

A payment gateway must be quick, efficient, and secure enough to carry out hundreds of thousands of transactions.

Developing a Minimum Viable Product (MVP) for a payment gateway can cost anywhere from $150,000 to $250,000. This is just an estimate, and the final cost can vary depending on several factors.

These factors, including the complexity of features, security measures, team size and location, and chosen development approach (in-house vs. outsourcing), all significantly impact the cost.

But that range is only a rough estimate for building a payment gateway.

To get a cost estimate for your custom payment gateway, it's best to contact an experienced app development agency or software development company.

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How can Arramton help you create a payment gateway?

A complicated technology like a payment gateway requires technical expertise and a proper strategy to deliver the best product.

At Arramton, a leading FinTech software development company with nearly five years of experience, we have helped thousands of clients leverage digital potential. We have even developed the most secure UPI app in 2024 to ensure top-notch transaction safety for users.

From building a P2P UPI Payment App to integrating a payment gateway, our team has the technical know-how and mastery of the concepts to enable you to take your business to the next level.

If you want to get a payment gateway, our team will gladly help you with any queries. Get in touch today.

Frequently Asked Questions

Q. How long does It take to build a payment gateway?

Ans. Building a payment gateway from scratch is a complex undertaking. It can take anywhere from 6 months to a year depending on the features, team size, and development approach.

Q. How to add a payment gateway in the app?

Ans. Integrating a payment gateway into your app involves working with the provider's API (application programming interface). This typically involves coding and following the provider's instructions for a smooth checkout experience.

Q. Can I create a payment gateway on my own?

Ans. Technically yes, but it's a challenging task. You'll need a skilled development team, security expertise, and significant investment. Partnering with existing providers is often a more realistic option.

Q. How much does it cost to start a payment gateway?

Ans. Developing a basic payment gateway can cost $150,000 to $250,000+.  Security, features, and development choices significantly impact the final cost.

Q. Is payment gateway profitable?

Ans. For established providers with a large user base, payment gateways can be profitable. However, the high initial investment and ongoing costs make it a competitive market.

Q. How do I create a UPI gateway?

Ans. Creating a UPI (Unified Payments Interface) gateway requires complex integration with the National Payments Corporation of India (NPCI) infrastructure. Partnering with a licensed UPI provider is recommended.