Want complete control over your payment experience? Whether you’re running a SaaS platform, a fintech app, or a multi-vendor marketplace, a custom payment gateway can give you the flexibility, security, and branding you need to tailor transactions to your unique business model.
In this guide, we’ll explain everything you need to know—from the “why” behind building a custom payment gateway to the “how,” with steps, technical architecture, security protocols, and testing best practices.
Why build a custom payment gateway?
With so many out-of-the-box payment solutions available, you might wonder: why go custom?
Here are four compelling reasons:
• Better control: Custom gateways give you more control over transaction flows, customer data, and branding.
• Cost savings: You save big on third-party fees and transaction limits. • Enhanced security: Multiple security mechanisms like tokenisation, PCI DSS compliance, fraud detection and more.
• Specific needs: Custom settings for tailored billing solutions like subscriptions, split payments, etc.
Building a custom payment gateway makes sense when you require specific features, integrations, and security measures in the transaction flows. Most standard solutions can’t provide a high level of customisation.
Core Components of a Custom Payment Gateway
To build a gateway from scratch, you’ll need to architect the following foundational elements:
• Payment Processor integration: Connection of your payment processor (like Stripe or the acquiring bank) with your business systems.
• Transaction routing and reconciliation: These are the processes that direct the transactions along the designed flow and reconcile the payments for accounting.
• Frontend form/ tokenisation modules: Frontend forms are presented to your customers to gather payment information, while the tokenisation modules encrypt and secure that data.
• Payment gateway APIs and database structure: API is a bridge for the payment processor to communicate with your apps, whereas the database structure commands how the payment data is handled and stored.
• Webhooks and error-handling mechanisms: Webhooks generate notifications about events in your payment workflow. Error-handling mechanisms identify, classify, and respond to transaction issues.
Understanding Payment Gateway APIs
An Application Programming Interface (API) is a set of rules and tools that allows the payment processor to communicate with your enterprise’s business systems (like your website). It facilitates the secure exchange of information and data across systems.
You can think of it as a secured channel or pipeline that bridges two separate apps together.
There are three endpoints in a payment gateway API where an app requests interaction with an API server:
- Payment initiation (front end)
- Payment confirmation (banking end)
- Issue refund (business end)
Every transaction carries a data package as a payload. The package contains payment information, customer data, and order details. Payloads are typically in JSON or XML format.
For example, API documentation for a refund of INR 50 would look like this:
POST /payments/refund
{
“transaction_id”: “txn_123456”,
“amount”: 50.00
}
Response:
{
“transaction_id”: “txn_123456”,
“refund_id”: “ref_789012”,
“status”: “processed”
}
Step-by-step Guide to Building Your Own Payment Gateway
Now that you understand the importance of building custom payment gateways and components of APIs, let’s look at the step-by-step guide to actually build one:
1. Define business requirements: Determine the types of payments your business accepts, such as subscriptions, EMIs, BNPL, etc.
2. Set up your accounts: Prepare your business accounts with the payment processors of your choice (like Stripe, Paypal, Amazon Pay, etc.).
3. Build API layer and transaction engine: For payment processing, build your API endpoints, atomic operations, concurrency control, transaction logging, rollback and retry mechanisms, etc.
4. Integrate frontend: Connect your customer UI with the backend transaction setup to enable checkouts.
5. Tokenise: Connect a tokeniser to the transaction flows to encrypt and secure payment and customer data.
6. Fraud and errors: Leverage real-time transaction screening, advanced algorithms, retry and response mechanisms, and security protocols for fraud detection and error handling.
7. Set up admin: Customise your dashboards for desired metrics and create admin and user accounts with the gateway and processor.
Alternatively, you can make use of Software Development Kits (SDKs), development frameworks like Python, Java, etc. for the frontend. Databases like Microsoft SQL or Oracle are good choices for data management in payment gateways.
Security and Compliance Essentials
Securing your payment gateway and ensuring compliance is critical to developing a custom solution.
Here is how you can do that:
• Incorporate PCI-DSS compliance according to the requirements prescribed. Read more here.
• Secure payment and customer data (static and in transit) using MFA, encryption, and tokenisation.
• Use cryptographic protocols like TLS/SSL to secure communications across computer networks.
• Consider logging and governance protocols to restrict and monitor access.
• Consider the regulatory requirements for setting up payments online, specifically for the regions in which you operate.
Testing and monitoring your payment gateway
Custom development practices require iterations and polishing before they can be perfected. Thus, testing and monitoring your custom payment gateway are important.
Sandbox environments are flexible environments for development and experimentation, giving you the freedom to try innovative payment features. You can test the functionality of all the gateway components here.
Be sure to conduct a load test to simulate heavy traffic periods (like sales) that cause spikes in payments. It is an excellent way to test your payment gateway’s performance during busy hours. Logging the transactions is a good testing exercise. It creates records of API failures or other problematic instances, which helps track them down for resolution quickly.
Set up alerts for error notices, downtime, and unexpected behaviour to monitor your API gateway’s performance in real time.
Challenges & considerations to consider
For all the convenience that payment gateways are worth, there are some associated challenges that you must navigate:
• Bank relationships: A bumpy relationship with your bank may impact the smoothness of your transactions. It may even impact data security and the efficiency of fund transfers.
• Costs: Continuous third-party security audits and compliance measures may incur costs. There may be penalties for non-compliance as well, which can lead to further increases in costs.
• Performance: Payment gateways rely on network connectivity and node response to facilitate smooth transactions. This can make it tough to maintain high uptime. Scaling can also be a challenging task to accomplish with limited network resources.
• Complications: Transactional complications like chargebacks and reconciliation are complex and time-consuming. You may need to set up dedicated workflows for these. Additionally, customer support can be a challenge when there are errors with the transactions.
When to consider a hybrid approach?
For very special cases, a good mix of standard and custom payment gateways proves to be the most feasible option. For startups that require flexibility in designing flows but can’t take full responsibility for the setup, a hybrid option is viable.
Combining a third-party payment gateway with a customised backend is possible to achieve a more agreeable payment mechanism.
Here are some cases where this setup is highly pragmatic:
• Marketplaces: Online stores can have a static backend while allowing businesses to use their own gateways.
• Multi-vendor platforms: B2B platforms where vendors and buyers can use their own payment gateways, have custom UIs, payment processors, etc., while using the same framework.
Building smarter payment infrastructure with Pine Labs Online
A custom payment gateway gives all types of businesses the power to enhance and brand their payment flows. Their customers get elevated shopping experiences, safe transaction guarantees, and seamless processing, which enhances their trust in brands. Ready to take full control of your payments? Explore how Pine Labs Gateway APIs can help you build a robust, secure, and fully customised payment infrastructure from the ground up.
FAQs
How long does it take to build a custom payment gateway?
The timeline varies depending on your starting point. Developing a payment gateway from scratch typically takes 6 to 12 months, depending on complexity and compliance requirements. However, customising an existing solution can significantly reduce development time and may be deployed much sooner.
Do I need to be PCI compliant if I use tokenisation?
Yes, you need to ensure PCI-DSS compliance even with tokenisation. It only reduces the scope of PCI-DSS requirements; it does not completely exempt your gateway.
Is a custom gateway scalable across regions?
Yes, but it requires thoughtful architecture, regional compliance, and support for local payment methods to ensure smooth performance globally.