A payment gateway is a sort of technology which captures and enables the transfers of payment data from the customers or users to the merchants or sellers. It then transfers the information of payment acceptance or declination back to the customers. A payment gateway is responsible for validating the customer’s card details securely and ensuring that the funds are available, thereby enabling the merchants to receive the payments. It plays the critical role of encrypting sensitive credit card or debit card details and passing the same securely from the customer to the acquiring bank through the merchants.,.
In simple words, it can be said that the payment gateway acts as the middleman between the customers and the merchant. It acts as an interface which simplifies the process of merchant integration with the necessary software.
People often confuse payment gateways and payment service providers. Payment Gateways are a mechanism which authenticates and triggers the actual transaction and passes on the transactional information to the Payment service providers. Thereby making the payment service provider’s processors active which then handles all the accounting, basically, the transfer of money from one account to another.
A good payment gateway is one which includes multiple payment service providers and which supports multiple payment methods. By multiple payment methods, we mean bank transfers, debit card, credit cards, cryptocurrency payments (in other countries), etc. There are few marketplaces which integrate payment gateways that support local payment methods. For example, in India it is Pay U, google pay, CC avenue, Insta mojo, in China it is Wechat Pay, in the US it is e-cheques; similarly, there are many in different countries.
Payment gateways are nothing more than integrators of different payment service providers. Payment gateways try to choose the best available payment service provider based on their payment flow and few other criteria like verification level, risk level, transaction costs, country or region, merchant category, etc.
In case you are looking forward to building and operating your own payment gateway, you must decide on the direction before writing the code or thinking about your payment application’s software architecture. This basically, hints on knowing where your starting point is.
It is a possibility that you find a perfect match with the third party solution for your business model. Nevertheless, if you run an online marketplace which deals in specialized commodities or services, building your own payment gateway is a viable option. Moreover, with your own payment gateway, you will always have a scope of expansion and advancement. You can also layout your own path while performing maintenance and operations.
While you have decided on developing a custom payment gateway, you will find that many possible roads are available for this particular goal. Since you are building a solution from scratch, you need to consider a high number of technical factors like layout, features and architecture aspects.
While you draft out the road-map or set a goal for your solution, there are some areas you need to give your thought to. It would be best if you considered the following aspects of payment gateway development before you start coding:
Put the fundamental interactions between the buyers, the sellers and the platform itself at the forefront, while you start designing your solution. The interaction flow needs to be properly set up before the programming begins. It would be best if you decided on who would play which role, for instance, who can play the role of buyer and who is suitable for the position of the seller. Since you are building the payment gateway, you will be the merchant of record (MoR). You will be solely responsible for financial authorities like calling in or triggering any customer’s payment.
While in the case of online marketplaces, the merchant role is played by the one who owns and runs the company. Thereby the selling party becomes the sub-merchant wherein he transfers the revenue earned to different marketplaces in the way of the fee for the service. On the other hand, if the online marketplace is willing to be the merchant, it can collect all the money from purchases and share the respective shares to the sellers.
Generally, customers are considered as the third party while you are designing your transaction flow. The architecture and the workflows depend on specific parameters like whether you will have corporate customers on your platform or private customers or the mixture of both. There is also an equal possibility where you can allow your users to transact or sell to each other. For example, Amazon India with Amazon Karigars enables its users to be sellers or buyers. In such scenarios, the customers can also be the merchants. So, the ball is in your court and can choose to be anything.
A lot depends on your business model like whether you have a C2C or B2C or B2B marketplace, few other aspects like onboarding processes, KYC processes, legal requirements for AML, etc. are also important. Also, not to forget about the data collection, data retention periods and data anonymization as these are crucial for structuring the payment gateway.
Data Collection – Your data protection policies will entirely depend on the type of user data collected and stored in your systems. You must build such a system that is able to handle customers and their financial data securely. This task can be reasonably performed by the developers through the secure coding procedures, meeting financial regulations and data protection rule sets. Data policies might require some technical inputs like data retention periods, data anonymization, restriction of access of data to your employees and third-party providers, what kind of personal data of customers is stored and for what purpose, customers have the rights to know.
While you are offering online payment on your marketplace, you need to decide on how you want to integrate the payment service providers into your payment gateway during the process of development. Generally, this integration has two forms:
Firstly, PSP integration via API having an internal checkout page from your platform’s frontend or redirection leading the user to the Payment Provider’s external page. The second option is building your own solution. Apart from that fundamental distinction, there is a lot that you can fine-tune. It is witnessed that certain platforms or devices are suitable for one approach while incompatible with another. For instance, a mobile payment flow may differ from the one accessed via desktop and terminal devices of smart car computers. While the user is in the parking lot, he would never want to access the same with a credit card like credential, that’s definitely not handy. Also, it would be best if you took note that Some PSPs would support either of these two integration forms. Thereby it is necessary that you decide on which checkout process you want to implement.
After you are done with PSP integration, you are through with the bulk part of your payment gateway development while the add-ons may still need your attention. For instance, there are procedures which would require you to include your registration, KYC verification, payment validation and checkout, anti-fraud and risk management solutions, either from a third-party provider or your own solution.
Never miss out on another very important aspect, i.e. communication. You would require to integrate message providers as well. For example, SMS or email services for information communication to your customers and merchants.
The requirements mentioned above are simply the basic services while you can incorporate additional service providers as per your marketplace.
When you decide to develop a payment gateway from scratch, you must have a sound knowledge about the respective numbers as well. Also, the pace with which you want your system to scale should be decided in advance. So, getting a grip on the projected workload of your payment gateway is the solution. Basically, you need to determine the number of transactions it will have to process in a given period of time. For example, if you run a marketplace for banquets and lawns, you would undoubtedly see peaks during wedding season.
Few other factors include expected maximum peak load in a day, hour or minutes, whether you want to increase the capacity gradually. Your estimation has a direct impact on the payment gateways architecture and development process.
Scalability should be such which can handle peak times, for example, if you build a network of instances, it can be easily switched on and off to help scale up during peak times. Developing such a feature is quite complicated and challenging as the data has to be distributed all over the system while still maintaining consistency. The minute decisions can overcome this complexity while planning the scale of your marketplace’s payment operations.
We already pointed at the importance of the market, but the factor time is even more critical. The implementation of a particular payment gateway takes more or less time depending on the scalability, functionality and flexibility of the system. It is witnessed that the more complex the system, the more smoothly it scales also it takes more time to create it. Basically, there are two options,
In case you want your product to launch faster, you should make an educated guess about the expected amount of users and transactions. Having a qualified and experienced team of software developers can help you achieve these prerequisites. But they probably won’t be able to provide a full package of scalability options.
In case you choose to design a feature-complete payment gateway with all scalability options after spending a significant amount on infrastructure. There is a fraction of possibility that it may remain idle until your marketplace gains traction or is flooded with account registrations and transactions.
The first option is always preferable for most of the businesses. Thereby you can initially build a minimum viable product that can handle this amount. Later, if it surpasses your expectations, you can add additional features for more scalability.
The next step is to outline your payment gateway in detail; in technical terms, it means outlining a proper system architecture. This particular step contains several crucial aspects like deployment, monitoring and security, etc.
Deployment – while you have built a system consisting of distributed instances, your deployment would vary in case you launch a monolithic, i.e. single-instance product. That’s more prominent when you are willing to deploy your platform and payment gateway in more than one country, and so you need to add regulatory variables as well. Different countries have different rules on deployment of data centres.
It would be best if you decide on the data centres in deployment procedures. For instance, whether you want instances from one country to be connected with other countries, under one system or you want to be confined in one region.
Let’s take an example; Amazon.com and Amazon.in, they have separate instances for different countries. They did not allow merchants to have a global account; instead, the merchant needs to register a separate account for each nation or country. A legal consultation is a must before you give the nod to your software developers.
A payment gateway architecture flow chart is somewhat where marketplaces and online sellers provide API connections to be integrated with the payment gateway. In contrast, the payment gateway offers API connections for PSPs, PCI secure storage and subsystems.
Monitoring – Another important aspect of the workflow of the payment gateway is monitoring. This can broadly be divided into two kinds, i.e. technical monitoring and business monitoring. By technical monitoring, it means keeping track of the infrastructure, checking various components of the system, whether they are up and running at all times. At the same time, business monitoring means keeping a track on the number of transactions and new registrations in the flow of the system. This will ensure that your current system is able to handle the load when the numbers are relatively high.
Security – Security is the central plus point for the right product, which you should always strive to achieve. Coming to the security concerns, you must be aware of the KYC and AML regulations for the regions or areas your payment gateway will be active in. The knowledge of international rulebooks like standard PCI DSS credit card processing.
From two factor authentication to devising new strategies for data protection to following secure coding procedures, you must be abreast with dealing with any security breaches.
One of the crucial aspects of payment gateway building is designing functional API for internal use. Also, you can apply some additional restrictions which can add up as the other source of income for your company.
It is always preferable to design your API’s with maximum stability which can process different payment methods. It should also be quite flexible to integrate new payment methods as and when introduced. If you decide to give access to other businesses’ platforms of your solution, you might be unable to choose a point while changing the APIs, and it creates external dependencies.
Once you have released the API, it is relatively fixed so you must avoid any unnecessary changes. And in future, if you decide to decommission your API, you should never do it overnight. You should always give your associated parties appropriate time and set a pre-deadline when it ceases to be in use. Before bringing any changes, you must discuss with your respective clients whether they will be receiving any benefit or not.
After you have clearly laid on every aspect, you can start the process of development by gathering your software engineers and commencing the coding process with structured goals. The very first step in the development process is:
Building up a team- since you are the product owner and you have outlined many features and functionalities as per your priorities. This will include your prediction of whether your product has reached the status of a minimum viable product before launch. If you have sketched out the SCRUM working method, it turns out as a feature-complete. Some practices for organizing your software development process are considered best. One among them is automating testing by providing a sample integration of your payment gateway and other related payment flows.
Once your team is able to identify the failures in the products at ease, error messages can be sent to your own team as well as external clients. Also, ensure that you build code reviews for all changes so that it has the least impact on your gateway as a quality assurance measure.
Coding your gateway- you can plan out the coding procedures along with your team and product owners owing to splitting up the stories into single tasks. The decision regarding high priorities stories and which one to affix as a current sprint is decided by the team. You might need the help of some external teams and technical consultants to implement this coding.
Automation – Leading Software consultancies like SoftVolt tap out the power of this automation. Automating parts of the development process like building it using Maven and Jenkins, integration, automated unit, end to end 2E and security testing can help to maintain consistency within your software. Automation also makes it easier to maintain the quality of your code and identify the bugs.
There goes the final moment when, eventually, the live deployment will happen. At this very point, you are ready with a feature-complete MVP (Minimal Viable Product). If you have a more prominent organization, you will definitely require more time to create something that is feature-complete. There is always a possibility that the feature that you want for your payment gateway will turn out a complete flop as opposed to your anticipation. It is better if you include automated E2E, security, penetration and load tests as these are important to prevent any nasty surprises after you go live with your payment gateway.
These testings will enable you to find any bugs or errors and thereby help you in making risk-based estimation on how severe the problem is. In case the issues are small, it can be fixed quickly, and you can go live with them. But if the problems are critical, you must postpone the launch, or it may cause severe financial consequences.
You must know that it is impossible to develop a perfect code product in the very first go. Your minimum viable product ought to have bugs and flaws when you first launch it. There can be innumerable reasons behind it, may be there are some errors during development or after launch. It may include workflow issues, missing data while reporting, scalability issues, etc. The scenarios that you have anticipated about your payment gateway and marketplace operations may be completely different in a practical approach. A quick response in such cases will work out.
You will find that your developers are faced with the challenge of making the best of this situation and keep on adding an improvement in your current minimum viable product after its release. To enable companies to launch effectively, you must put great effort into the delivery process to the customers. Your software architects must share insights to the client’s software teams so that they can set up, maintain and expand the product if required.
Once your payment gateway is launched and is live, it’s time for working on its smooth running. With your business running on a day to day basis, development as well is an ongoing process. Basically, there are two major tasks to be performed. Firstly,
Development Integration – As mentioned above, there is always a possibility that you might have planned additional features for your minimum viable product. There are no such criteria of feature-complete product in the field of software development. The architecture of the payment gateway is so versatile and vast that new features are introduced every now and then. So your coders will always have something to integrate within your payment gateway throughout its lifetime. Secondly,
Ongoing maintenance and operation work – it is essential that your current version of the product runs smoothly. Bugs are inevitable and will occur, which would require continuous maintenance and operation work from your team to resolve them. You can decide whether you want your own team to operate and maintain your software or assign the same to some external team. In case you have involved some external team of software engineers in developing your payment gateway, they might provide you with maintenance and support as well.
In the end, it is pretty obvious that building your own payment gateway is not a trivial task, but fortunately, it’s a fair decision when it comes to thinking in line with your business ideas. Now, that you and your team are aware of all the segments, you might understand that launching a good performing payment gateway depends on many departments starting from business to development.
Nevertheless, it’s not a kind of rocket science where the exact volume and condition is necessary. In software development, you enjoy the flexibility of trying different variants. If one thing is not working out for your business, you can simply make changes in the codes, in some cases, even after the launch.
The user experience on your payment gateway plays a significant role in its success. You must necessarily stick to the basic and prime requirement of your users, i.e. data protection, KYC, etc. Never be afraid to launch your own payment gateway as you can create big only if you think big. All you need is a professional and skilled software team to turn your vision into reality as your payment gateway is always judged on its security, functionality, and usability.
So, Let’s get started!