A report released by Deloitte in March 2022 predicted that the global transaction value of digital transactions will reach $11.3 trillion by 2026. This is expected to grow by 13 percent. With the help of an online payment platform, businesses can take advantage of the opportunity to be part of this massive change. The payment system online that is made up of several important stakeholders, including consumers and merchants is now proving to be the basis of the modern world.
In becoming part of the online payment system businesses and startups can benefit from the growing digitalization of payments. A vital component in this nearly flawless digital payment system is the payment gateway. There are payment point (POS) terminals that perform various essential functions, helping to facilitate the digital payment ecosystem. Before we dive into the construction of an online payment gateway, we must first learn the way payment gateways function.
What is a Payment Gateway, and how do they work?
If we enter an offline store, the process of completing the (non-cash) transaction requires us to swipe cards at the POS terminal, which records the card details while sharing it with the appropriate parties to authorize the transaction.
If we reproduce this in a digital storefront, the payment gateway is the POS terminal that captures the consumer’s credit card details. But, many other important functions are taking place simultaneously.
Let’s take a look at the step-by-step process of how digital transactions occur:
Step 1. When the customer adds the item (or product or service) to their shopping cart and then proceeds to checkout the item, they are directed to the payment gateway, either via the merchant’s servers or third-party servers (the differences are explained further in this article). The customer selects the preferred method of payment (taking credit cards as an instance). After entering the card’s details and clicking on something that reads make payment.’
Step 2. When the user submits their card information The payment gateway then tags the transaction as card, not present (CNP), and then encrypts and secures the data so that it can be sent to various parties. In addition, the payment gateway checks the card’s details as well as authenticates your card.
Step 3. This encrypted information is transmitted through processing. It is the payment processing technologies that connect with banks to process payments.
Step 4. A payment processor connects to both the acquiring bank (merchant’s bank) and the bank that issued the transaction (customer’s bank) to review the transaction.
Step 5. The bank that issued the transaction and the appropriate card network (Visa or Mastercard typically) decides whether or not to approve the transaction. The approval or denial will be sent to the processor, who transmits the transaction’s status to the gateway to which it is.
Step 6. A payment processor sends the transaction’s status information to the merchant’s site and then displays the status on the screen for the user. This is the point at which the transaction is concluded.
How can I set up an online payment gateway?
A quick overview of the processing of a payment gateway will look it in an easy step-by-step guide to go about developing a customized payment gateway.
1. Research and Ideate
Before embarking on developing your payment gateway you must first determine the business goal you intend to achieve with this payment method. Also, you should identify your audience’s needs and complete a thorough due diligence process before designing the gateway. After this is done you can move on to creating the product.
2. Create the infrastructure
This involves building the necessary networks and systems to process, authorize, and secure payments. These are the essential components that make up your gateway. They should be designed by a well-known payment gateway software development firm such as iTechnolabs.
3. Implement measures to detect fraud
As already mentioned the concept of the detection of fraud is something the customers of your gateway are likely to anticipate. Thus, implementing this method is just as important as establishing an account on your payment gateway. Take steps to identify and avoid fraudulent transactions.
4. Get licenses and certificates
Creating a payment gateway is a process that requires compliance, which is discussed earlier. Before you can launch your product on the market, you’ll need to acquire all necessary certifications for compliance, which you can obtain with the help of a development firm.
5. Integration with the payments processing system
Your gateway needs to connect with the payment processing network to approve and settle transactions.
6. Test and open your payment gateway
Be sure to check your payment gateway’s functionality to make sure that it works properly and safely before releasing it for public use.
When you design the payment system, it will be constructed using various programming languages like PHP, Java, Ruby on Rails, Python, and .NET according to the needs of the gateway as well as the experience of the developer responsible for the payment gateway. As a rule, when developing a website or web application, PHP or Ruby on Rails could be a suitable option. Java or Swift may be a better alternative for mobile applications.
Important Article: 5 Challenges and Principles to Digital Transformation in Business
What are the benefits of a payment gateway?
Digital transactions are part of the world of globalization. When you create an electronic payment system, companies and startups can reap the benefits of development benefits. Some of them are given below.
One-time development costs
While using third-party payment gateways such as PayPal and Stripe, you have to pay a cost for each transaction that can add up to a significant sum over several transactions. With your custom pay gateway, you put money into creating the payment gateway once and you never spend a penny on the payment gateway service.
Save 3 percent on each purchase
As mentioned above using your personal payments gateway you won’t need to spend the gateway cost that you normally would. This means that you’ll be saving as much as three percent for each transaction.
Simple refund and query management
One aspect that businesses require assistance with when using third-party payment processors is processing refunds because the claim settlement time is often slow when refunds become in play. With an integrated payment system, you’ll be able to monitor refunds and receive real-time information regarding the same.
Your first foray into the business of collection for payments
With your custom payment gateway, it is not just about saving costs on fees, but also earning passive income by letting other merchants utilize your gateway for payment. Merchants can be charged between 2 and 3 percent per transaction when you let them make use of their payment processing.
However the world of digital payment is plagued by particular, deeply-rooted issues that are proving to be a blockade in the acceptance of these technologies.
Solutions to the most difficult challenge of the creation of a payment gateway Security
The U.S. government’s Federal Trade Commission, in its report released the month of February in 2022 pointed out that the majority of the crimes that were reported throughout the United States during 2021 involved digital transactions. The graph above illustrates that checks, cash, and money orders accounted for a small percentage of the frauds that were discovered in 2021.
The frequency of these types of mistakes and frauds shows the fact that the world of digital payments is complex and requires comprehensive security measures to safeguard consumer and merchant information.
This is the reason that governments around the world have mandated payment gateways to use strong security measures. One of these measures is the Payment card industry data security standard commonly referred to as PCI DSS. To comply with the security requirements all payment gateway providers must adhere to PCI requirements for data security.
PCI Security Standards Council is the sole agency that monitors compliance and, in effect, helps keep our transactions on the internet secure across devices, platforms, and interfaces.
Another measure of security to safeguard our information is called ‘3-D Secure’. It refers to the Three-domain secure protocols, 3DS adds an extra layer of security using two-factor authentication in each transaction. Services such as Visa and Mastercard already utilize 3DS in the majority of transactions. The single-time passwords (OTP) that we get on our mobiles every when we make an online purchase is an example of 3DS playing.
Tokenization is the process of the replacement of card information with tokens that protect the user from fraud or data breaches. The Western world, specifically that of the US as well as European marketplaces, has implemented tokenization on a massive size, especially on the blockchain.
Different types of payment gateways
Based on the location of the payment gateways they can be divided into three categories that are described below.
1. Hosted gateways
Hosted gateways are where a client is directed to a payment processing site away from the merchant’s site. This hosted gateway is the place where the transaction will occur. Hosted gateways can be used by businesses that don’t have the resources to comply with the required security standards needed for hosting the gateway to their servers. However, this can also result in the merchant not having any control over the customer’s purchasing experience. In addition, it diverts the user away from the merchant’s website, resulting in the time required order to process the purchase. These sacrifices are needed to safeguard the transaction as well as the information of the consumer.
2. Payment gateways that are self-hosted
Self-hosted payment gateways are hosted on merchant’s servers but transmit the data to a third-party payment gateway’s URL for processing and authentication. This allows the merchant to have more control over the purchase experience of the user.
3. API-hosted payment gateways
These gateways hosted on APIs are among the most desired by merchants of all sizes, as they give the merchant total control over their buying or payment transactions. However, this means that merchants must be PCI DSS conformant as their servers can store every customer’s personal information about their payments.
The features you’d like to see in your payment gateway and what will it cost you?
A payment gateway needs to be efficient, quick, and safe enough to handle many thousands of transactions. The development of a payment gateway or an MVP of it is around $150,000 to $250,000. The price is just to have a basic gateway created. Development costs for payment gateways will increase until you have one that is most popular and utilized by the majority of people.
There are a variety of options for payment gateways that you’d like to discuss with a development company. Some of them are given below.
1. Pay methods
The days are gone when debit and credit cards were all the methods of digital payment. With the advent of mobile wallets as well as other digital payment options payment methods, consumers are expecting merchants to support the majority of, if not all of these payment options. So, when you design a payment gateway or mobile wallet application make sure that it can accept the majority of payment methods that are digitally.
The payment gateways must be operational during 24 hours a day, all days of the year, so any downtime will be seen as a problem. While designing your gateway for payments, be sure the system is reliable and able to be quickly scaled to accommodate the increased demand. A study released by the Asian Bureau of Finance and Economic Research in May 2022 revealed the following “payment via PayPal decreases by approximately 10% during PayPal outages,” which amounts to a huge loss in revenue.
3. Real-time transaction
Increasingly, merchants and entrepreneurs are seeking solutions that provide instant claims settlement. While designing the payment system, you should try to figure out the best way to offer real-time payment without risking security.
4. User-friendly UI/UX
When you are designing your gateway for payment, be sure that the interface is user-friendly and easily accessible to all potential consumers.
5. The mechanism for detecting fraud
A crucially important feature of Fraud detection systems make use of rules-based systems, machine-learning algorithms, and behavioral analytics to spot patterns and irregularities that are likely to be a sign of fraud. In general, fraud detection systems within payment gateways have been designed to shield both consumers and merchants from financial loss and to safeguard the security of the payment system.
6. A solution that is scalable
Online shopping is not linear. Merchants often experience spikes in sales during certain days such as Black Friday. So, payment gateways must be designed with these spikes in mind and can be scaled up as and as needed.
7. Support for different currencies
Digital transactions do not have to be confined by geographic boundaries therefore, customers from many countries can utilize your payment processor. That’s why it’s important to consider multi-currency payment gateways to make the gateway as broad as it is.
Related Article: 10 Popular Mobile App Payment Gateways – A Complete Guide
What is iTechnolabs? How do you think iTechnolabs assist you in your efforts to develop an online payment system?
A complex piece of technology such as an online payment processor requires expert knowledge as well as business intelligence to provide the most effective product. At iTechnolabs; we are a leading FinTech development business with over a decade of expertise and expertise, we have helped hundreds of our clients realize their full potential in digital technology.
From the creation of a P2P Payment App or the integration of the payment gateway, Our team is equipped with the technical expertise and understanding of the concepts that will allow users to elevate their company to the highest level.
If you’re looking to create a payment gateway, our team is willing to help you with any questions. Contact us now.