Nowadays, many businesses have become interested in creating a payment gateway to process payments safely, but many of them do not fully understand the size and scope of building a payment gateway from scratch. This is the main reason why several businesses have misconceptions about the steps involved in setting up and running a payment gateway.
What is a payment gateway?
A payment gateway is a robust system that enables debit/credit card payments for online and offline merchants. It ensures that such transactions run smoothly by encrypting sensitive information and moving it between a buyer, an online store, and a bank. The bank serves as a payment processor, while the store serves as a payment portal. As a result, the payment gateway establishes communication between the three parties involved in the transaction. It uses a variety of anti-fraud tactics and adheres to PCI compliance to guarantee that every transaction is secure.
Why would you want to create a payment gateway?
There are a variety of ready-to-use payment methods that you can easily integrate into your business. None of these alternatives, however, will give you complete control over the purchase process. Furthermore, there will always be things you want to change or add, that’s why a custom payment gateway can be a better solution. But let’s see some of the advantages and disadvantages of building a custom payment gateway.
Even the world’s best payment processor won’t be able to meet all of your unique requirements. When looking at the list of payment methods, you’ll notice that some don’t support multi-currency transactions, others don’t work with recurring charges, and others still are incredibly expensive. The point is that you can get that specific product you want if you choose custom development.
Lower transaction processing fees
Most payment gateways have transaction costs that vary depending on the payment method and location of the clients, as well as your monthly turnover/transaction volume. These expenses can quickly add up. While a custom payment gateway system is more costly to develop, it will save you money in the long run.
Many of your costs can be reduced or eliminated with a customized solution.
You can become a provider if you own a payment gateway. It implies you can charge other retailers for registration and transaction fees. As a result, you will come up with a new method of business growth that will help you increase your profit.
Data breaches are not a frequent phenomenon among payment gateway solutions, as most providers invest massively in security.
But prevention is better than cure, that’s why such breaches are less likely to occur with a custom payment gateway, as your IT security team has full power and visibility into all the payment end-points. Furthermore, you can implement anytime more advanced customer authentication mechanisms.
You must be ready to spend some time on the planning stage, development, testing, and maintenance. When compared to implementing a ready-to-use solution, it will take much longer. However, you will greatly benefit in the long run because you will be free of recurring charges and will have an additional source of income.
You must connect to the payment processor and comply with PCI standards in order to operate your gateway. Let’s be clear: this can be a difficult journey, but manageable.
You are solely responsible for transaction security as a payment service provider. You must ensure that cardholder data is protected and that the risk of fraud is kept to the minimum.
All in all, we believe that the advantages outweigh the disadvantages in an obvious way.
Who needs a custom gateway?
The following are the types of businesses that could greatly benefit from developing a custom gateway:
- Large retailers with a high volume of transactions who do not want to rely on a third-party supplier
- Companies with existing billing software that want to substitute or upgrade it
- Payment providers with a high rate of growth who need a more advanced payment processing system
- IT companies that want to expand their business by providing payment services
- Acquiring banks looking to increase their front-end solution
Main steps to become a payment service provider
Setting up the infrastructure
You can either use a third-party server to host your gateway or set up your own server. The latter option grants you complete control, but you must keep the data center and submit it to an annual PCI audit. If you decide to host externally, AWS (Amazon Web Services) is a good option. They have a well-developed infrastructure base and can provide solutions for a variety of industries.
Integrate with a payment processor
A payment processor is a business or financial institution that handles online payments. It may be a bank or a payment system like Visa, Mastercard, or American Express. To work with a processor, you must first obtain their API documentation and follow the instructions. For your customers, you’ll also need to create an external API. They’ll use it to send one-time or regular payments to be processed and receive payment status updates.
A customer relationship management system (CRM) is a useful tool for storing client information, managing transactions, and monitoring managers. It will allow you to make more informed forecasts and avoid common blunders. It will be extremely beneficial to you as a payment provider in terms of managing new and existing customers.
Tokenization should be implemented
Tokenization means that credit card data is kept on the gateway side rather than on the server of the shop. Tokenization is designed to eliminate the need for merchants to store sensitive data when recurring charges. The buyer’s credit card number is substituted with a token, which is then used by the online store.
If you’re going to run the gateway on your server, you’ll need to set up tokenization, but if you choose to host elsewhere, the server provider is responsible for these issues.
You should go through an approval process in order to get a 3DS certificate from EMV (Europay + Mastercard+ Visa)
The PCI DSS standard helps to mitigate fraud by establishing twelve mandatory rules for credit card software. Furthermore, it categorizes businesses into 4 categories based on transaction volume. You should order a PCI audit to get permission. It is important to note that this is an expensive event that you should reiterate at least once a year.
These are the main steps that can help you to become a payment service provider.
Owning a payment gateway that is specially developed can be a beneficial tool for your business. It enables you to provide a single, integrated solution for point of sale (POS) and payment processing, which you can offer as to merchants as a replacement for their existing payment gateway.
To convince merchants to leave their current provider, your payment gateway must be secure, reducing the risk of chargebacks, and offering a multitude of options for selecting an acquiring bank for establishing settlement accounts. It should also provide reasonable fees, prompt payment, outstanding customer service, and high-quality reporting.
Developing a custom payment gateway will definitely improve your commercial capabilities. Incorporating features to support business transactions, such as settlements, account balances, and payout features, into your payment platform will boost the cost of your custom solution.
Selecting and integrating the right payment gateway provider is shouldn’t be difficult or expensive, as long as you understand your specific business needs. If you do it correctly, you can have a positive impact on your brand’s customer experience and profitability.
You should also hire a professional development team to handle all of the technical aspects of implementing a payment gateway.
Please contact us if you have any questions about how payment gateways will benefit your company.