Benefits and Challenges of Developing Your Own Payment Gateway

Last week, I provided an overview of the payment gateway market landscape, and today we'll shift our focus to the specific benefits businesses can experience and the potential hurdles they may encounter when embarking on the journey of creating their own payment gateway.

Building your own payment gateway offers a range of benefits as well as certain challenges. Prior to embarking on this endeavor, it is important to understand how constructing a payment gateway from scratch can positively impact your business, while also acknowledging the obstacles that may arise along the way.

Benefits of Developing Your Own Payment Gateway

First, let's take a look at some of the benefits businesses will enjoy when they build their own payment gateway, rather than purchasing a payment gateway service or white label product.

No Vendor Lock-In

Opting to construct your own payment gateway provides the significant benefit of independence from pay service companies. Relying on an external provider can result in vendor lock-in, a scenario that severely limits your ability to switch payment gateways without facing substantial drawbacks.

When locked in with a specific vendor, your influence is restricted, 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 encounters economic or security issues, it can adversely impact the reputation of your own platform. On the other hand, having your own payment gateway solution empowers you to address any shortcomings directly and maintain control over critical aspects like security measures, fees, and terms of use.

Custom-Made Features

Seeking to distinguish your platform from competitors and achieve success? The key lies in innovation and intelligent functionalities. For businesses with distinct needs, building your own payment gateway grants you the ability to access a comprehensive range of desired features.

Whether it's facilitating recurring payments, supporting marketing campaigns, or even enabling cryptocurrency transactions, a custom-built payment gateway empowers you to incorporate all the functionalities 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.

Seamless User Experience

Developing a payment gateway from the ground up 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 leave your users satisfied.

Furthermore, when you create your own payment gateway, you gain the ability to customize the onboarding process, reducing friction for merchants and facilitating their integration into your platform. This level of control extends beyond the user experience and encompasses all aspects of your marketplace business, enabling you to shape both the user and admin experiences according to your specific vision and requirements.

Control Over Data

While self-hosting may entail certain expenses, the concept of data sovereignty brings forth numerous advantages. Building and managing your own payment gateway grants you the ability to analyze valuable customer payment data, gaining insights into their usage patterns and marketplace behavior.

This information becomes invaluable as it enables you to refine the usability of your platform, integrate new features that align with your customers' preferences, and make informed decisions to optimize costs.

Additionally, by having control over your payment gateway, you can leverage smart routing capabilities to choose among different payment service providers, further enhancing cost efficiency and flexibility.

The combination of data sovereignty and smart routing empowers you to leverage customer insights and tailor your platform to their needs, leading to enhanced user experiences and improved business outcomes.

Long-Term Cost Savings

While the initial investment to build a payment gateway may be higher, it is crucial to view this as a long-term investment in your company's growth. Third-party payment gateways often come with additional costs, such as sign-up fees and per-transaction charges, which accumulate over time.

It is worth noting that even with your own payment gateway, you will still incur expenses such as access fees and interchange fees. However, the difference between using your own gateway and a third-party gateway is approximately 20 cents per transaction.

Therefore, if your business handles a substantial volume of transactions, the cost savings of building your own payment gateway can be significant. On the other hand, for businesses with lower transaction volumes, opting for a third-party gateway may prove more cost-effective.

Ultimately, the decision to build your own payment gateway should be based on the specific needs and transaction volumes of your business. Carefully assessing these factors will help determine whether the investment in developing your own gateway is a financially prudent choice for your company's long-term growth.

Extra Profits

Developing your own payment gateway not only offers the potential to recover your initial costs but can also generate profitable opportunities by running it as a separate business. Owning a payment gateway grants you the flexibility to monetize your investment in multiple ways.

One option is to sell or rent your payment gateway to other companies seeking solutions with similar feature sets. By offering your well-developed and reliable payment gateway to other businesses, you can generate additional revenue streams.

Having your own payment gateway opens doors to operating other businesses that rely on payment processing. You can leverage the infrastructure and capabilities of your payment gateway to support and streamline transactions for these additional ventures, maximizing efficiency and profitability.

By recognizing the potential for monetization beyond your core business, you can turn your payment gateway into a profitable side venture, creating opportunities to not only recover your costs but also generate additional income and expand your entrepreneurial endeavors.

Biggest Challenges for Building a Payment Gateway

While there are clear benefits of developing a payment gateway, there are some major challenges you should consider before taking the leap.

Development and Maintenance Expenses

It is well-known that building a payment gateway requires significant upfront development costs. However, it is crucial to acknowledge that payment gateways also involve ongoing expenses, such as maintenance, insurance, and other related costs.

Additionally, staying competitive in the market often requires compliance with new regulations and integration of new payment methods, which can incur substantial expenses.

While these additional costs are necessary to ensure the functionality and competitiveness of your payment gateway, they can pose challenges, particularly for small businesses operating on tight budgets. For such businesses, developing their own payment gateway may not be the most feasible solution given the financial constraints.

It is important to carefully evaluate the financial implications and long-term sustainability of building and maintaining a payment gateway before committing to the endeavor.

Alternative options, such as utilizing third-party payment gateways, may be more suitable for small businesses with limited resources, allowing them to focus on their core operations while still meeting their payment processing needs.

Slower Time to Market

Developing your own payment gateway, especially with customized features, entails a lengthier timeframe compared to integrating a third-party solution. As a result, it may take significantly more time to get your marketplace up and running at full capacity.

The process of developing a payment gateway from scratch involves various stages, including planning, designing, coding, testing, and ensuring security measures. Each step demands careful attention and meticulous execution, which can contribute to the overall time required to complete the development process.

To reduce development time, creating a payment gateway should be one of the first things your developers start to work on, once you have decided on how your marketplace should look. To speed up the process more, you can hire development teams that are experienced in creating custom payment gateways. 

Responsibilities for Functionality and Compliance

Being the developer and owner of a payment gateway entails taking on significant responsibilities for ensuring the functionality of your marketplace. Your team will need to actively engage in continuous testing, maintenance, and debugging to ensure a seamless user experience. Handling settlements, addressing customer complaints, managing pending transactions, and resolving other client-facing issues will also fall under your purview.

Moreover, as the owner of the payment gateway, you will bear the responsibility of maintaining PCI compliance and ensuring data security. This involves substantial costs and adherence to specific rules and restrictions. Besides PCI DSS, compliance with standards such as GDPR and CCPA, as well as protocols like EMV, SSL, TLS, and more, may be necessary.

To fulfill these obligations, you will likely require additional expertise either from your in-house team or a reliable external fintech partner. Softjourn has helped clients build and maintain payment gateways since we have a deep understanding of security measures and compliance protocols to safeguard sensitive financial information.

In an upcoming article, I will delve deeper into these topics, covering certification processes, security standards, and the associated challenges and considerations that come with building your own payment gateway.

Final Word

Now that you have a well-rounded perspective of the benefits and challenges of developing a payment gateway, are you still interested in building your own gateway?

If you are, stay tuned for next week's article about how to build your own payment gateway, which will include average costs, technical specifications, and security requirements. In the coming weeks, I'll also share the best alternatives to building a payment gateway.