How to Create a Payment Gateway: A-Z Guide (2025)

A payment gateway can give you greater control over your payment processes, reduce costs and build customer trust. According to a report by Mordor Intelligence, the global payment gateway market is expected to grow from $18.94 billion in 2025 to $40.53 billion by 2030, reflecting a compound annual growth rate (CAGR) of 16.43% during the forecast period.

This guide explains how to create a payment gateway step-by-step. You will be covered why you need to build one, how it works, key features and more. Let’s dive in!

Why Should Your Business Build a Payment Gateway?

Building your own payment gateway is very important for many businesses today. Knowing how to create a payment gateway helps companies improve the payment process and meet their customers’ needs better. Here are some key reasons why your business should build a payment gateway:

• Enhance customer convenience: Custom payment gateways help you design a fast, convenient checkout process. For example, a custom payment gateway streamlines the e-commerce checkout process, allowing users to pay directly on your platform. This makes purchases easy and fast without having to switch to other platforms.
• Cost savings: Payment gateway development cost may be high at the beginning, but it helps reduce ongoing third-party transaction fees. This becomes a major advantage for businesses with high transaction volumes. For example, a nonprofit can save money when processing online donations.
• Enhanced security: Payment gateway allows you to implement robust security measures, such as encryption and fraud detection, to protect customer data. In the healthcare industry, it helps protect patient information when paying for services.
• Create a competitive advantage: A private-branded payment gateway makes your business stand out and provides a professional experience. For example, an education technology application can integrate payments with its loyalty program, attracting users.
• Control and flexibility: Payment gateway allows you to control the payment process and integrate with internal systems, such as CRM or inventory management. It is also easily scalable to handle high transaction volumes, such as during large fundraising events. Investing in how to create a payment gateway provides flexibility and scalability.

In summary, learning how to create a payment gateway allows your business to offer smooth and secure payments. This improves customer satisfaction and helps your business grow in a competitive market.

How Payment Gateway Works

A payment gateway is like a bridge between your customer, their bank and your business.  Let’s explore how it operates within the card payment process:

• Payment Initiation: The payment journey begins when a customer initiates a transaction by entering their card information on a checkout interface. This typically includes the cardholder’s name, number, expiration date and CVV. Depending on the merchant’s integration setup such as a hosted payment page, API-based connection or client-side encryption.
• Data Encryption: Once the customer submits their card details, the payment gateway encrypts the data using secure protocols like SSL or TLS. Many systems also use tokenization, replacing real card info with a secure code (token). Only the payment processor can decode it.
• Forwarding to Processor: The acquirer then routes this information to the relevant card networks (Visa, Mastercard, etc.), which perform additional security screenings. The data is subsequently sent to the cardholder’s issuing bank for transaction approval.
• Bank Authorization: The issuer assesses the transaction by verifying the card details, checking for sufficient funds and confirming that the bank account is active.
• Approval/Decline: After evaluating the transaction, the issuer sends a response back through the card network. It indicates either approval or decline based on factors such as fund availability, card status, fraud detection, or technical issues. This decision is transmitted back to the acquiring bank and then relayed to the payment gateway.
• Confirmation to User: Based on the result, the customer sees a confirmation screen or an error message. If approved, they often get an email or SMS receipt. If declined, the system may suggest checking card details, contacting the bank, or trying another payment method.
• Fund Settlement: During this process, the acquirer collects the payment funds from the issuer and holds them temporarily in the merchant account. However, the funds are not immediately available to the merchant. The payment service provider will release the funds based on the settlement terms agreed upon with the merchant.

The Differences: Payment Gateway vs Payment Processor

A payment gateway and a payment processor play different but complementary roles in transactions. They are often confused because both are involved in handling payments during online transactions.

Payment Gateway

Payment gateway captures the customer's payment information such as credit card details. Also, it securely authorizes the transaction using various methods. It shows the way  to create a payment gateway as a secure interface between the buyer and the seller during online purchases.  For example, Stripe’s gateway encrypts card details during checkout.

Payment Processor

On the other hand, the payment processor is responsible for transmitting the payment data between the customer’s issuing bank and the merchant’s acquiring bank. It oversees the actual movement of funds and acts as a key link in the communication chain between financial institutions.

In essence, the payment gateway focuses on securely gathering and verifying payment details. The payment processor then handles the appropriate transfer of funds between banks.

A payment gateway and payment processor are different but work together. Here’s a table comparing them:

8 Key Features of a Payment Gateway

The features of a payment gateway make it reliable and user-friendly, which are essential aspects of payment gateway software development. Below are the essential features that make payment gateways invaluable:

1. Support Different Payment Options

Gateways support a wide range of payment options, including credit and debit cards, digital wallets, bank transfers and Buy Now, Pay Later. This flexibility gives customers the freedom to pay the way they prefer. Here are examples of payment processing options in the following table:

For example, An online clothing store allows customers to pay using Visa, PayPal, or Klarna. A shopper without a credit card chooses "Buy Now, Pay Later" through Klarna and completes their purchase easily.

2. Integration with Multiple Platforms

Payment gateways are designed to integrate smoothly with various e-commerce platforms (e.g., Shopify), mobile apps, and websites. This integration allows businesses to quickly accept payments across multiple channels without disrupting their existing systems. It also improves scalability, supports global transactions, and provides a consistent payment experience for users.

3. Detailed Reporting & Analytics

Most gateways offer built-in reporting tools that provide a clear overview of sales, sales trends, transaction volumes, payment statuses, transaction history and more. These insights help businesses manage cash flow, track revenue and make data-driven decisions to improve operations and profitability.

4. Data Encryption

In card tokenization, details like the card number and expiration date are not transmitted in their original form. Instead, they are converted into secure tokens. Even if a data breach occurs, the card will prevent unauthorized access and reduce the risk of data breaches.

For example, during checkout, a customer's credit card number is tokenized and encrypted. Even if a hacker intercepts the data, they only see meaningless symbols instead of actual card details.

5. Fraud Detection

Payment gateways are equipped with advanced fraud prevention tools that monitor transactions in real time. These tools analyze user behavior and transaction patterns to detect unusual activity and block potentially fraudulent transactions.

6. PCI DSS-Compliant Wallets

Digital wallets built to meet PCI DSS standards keep cardholder data safe. This setup is particularly helpful for handling recurring payments, where card information needs to be stored for future use.

7. 3D Secure Authentication (3DS)

3D Secure adds an extra verification step before a payment is completed. Usually, this involves sending a one-time password (OTP) to the customer’s phone or email, which helps confirm the user’s identity and adds another layer of security.

For example, before completing a payment, a customer is prompted to enter a one-time password (OTP) sent to their mobile phone. Only after entering the correct code does the transaction go through.

8. Fast Processing Speeds

Speed is crucial in payment processing. A high-performance payment gateway can process transactions in just a few seconds, reducing customer wait times at checkout. Faster processing contributes to a smoother, more efficient shopping experience and helps decrease cart abandonment rates.

Components of Architecture of a Payment Gateway

A reliable payment gateway consists of several key components, each playing a vital role in the overall transaction process:

• Payment Request API: Acts as the connector between the merchant’s platform and the payment gateway. It standardizes payment initiation requests and triggers the payment process immediately after customer confirmation, ensuring smooth transaction flow.
• User Interface (UI): Beyond visuals, the UI focuses on creating an easy and intuitive payment journey. It includes buttons, input fields, and confirmation screens designed to improve user experience and reduce support issues.
• Security Layer: Protects sensitive data using encryption protocols like SSL/TLS and tokenization, which replaces real data with secure tokens. This multi-layered protection prevents data breaches and secures customer financial information.
• Payment Methods Support: Supports a variety of payment options including credit/debit cards, digital wallets, and bank transfers. This flexibility allows customers to choose their preferred payment method, increasing transaction success rates.
• Currency Conversion: Enables handling and converting multiple currencies using real-time exchange rates. This feature allows businesses to accept payments internationally without confusing customers or causing transaction errors.
• Payment Gateway Servers: Hosts the payment gateway software, handling transaction processing and bank communications. Server performance is critical for ensuring fast, reliable payment processing and system stability.
• Fraud Detection and Prevention: Includes dynamic transaction monitoring, multi-factor authentication, geolocation verification, and tokenization. These measures detect suspicious activity and protect against fraud attempts in real time.
• Standards Compliance: Adheres to global regulations like PCI DSS, GDPR, and local laws. Regular audits are conducted to maintain compliance, safeguard data privacy, and uphold user trust.

These components form the payment gateway infrastructure, enabling fast and safe transactions. For example, the security module uses AES-256 encryption to protect card data.

The security module uses AES-256 encryption to protect card data

How to Build a Payment Gateway in 8 Steps

Developing a secure and efficient payment gateway involves a structured approach. Below is a comprehensive breakdown of the 8 key stages in the payment gateway development process:

Step 1: Conduct Market Research and Set Goals

Market research helps businesses understand customer needs, industry trends, and competitor offerings. Start by analyzing your target audience: Who they are, how they prefer to pay, and what devices or platforms they use. Use surveys, interviews, or online analytics tools to gather this data. Also, study your competitors to see what payment features they offer and where they fall short.

For example, if you're building a marketplace like eBay, you'll need a system that can split payments between multiple sellers. Based on your research, set specific goals such as reducing transaction fees, supporting international currencies, or speeding up checkout times.

Step 2: List Functional Requirements

Define what your gateway must do. Specify payment methods (e.g., cards, Apple Pay), platforms (web, mobile) and features like fraud detection or recurring payments. For instance, a subscription service like Spotify needs automated billing. Include compliance needs, such as PCI DSS, to meet legal standards. This list guides the payment gateway development process and supports meeting all necessary requirements.

Step 3: Select a Processing Method

Pick the right technology for your gateway. Use React or Vue.js for a user-friendly payment gateway interface on the front end. For the back end, choose Node.js or Ruby on Rails for fast processing. Select MongoDB or MySQL for secure data storage.

A 2024 AppInventiv report highlights Python for its scalability in payment systems. Choose tools to support how to create a payment gateway technology and future growth.

Step 4: Plan the System Structure

Design the gateway’s architecture with key components: a checkout page, a server for data processing, a database for transaction records, APIs for integration and a security layer. Use a modular design to update features like fraud checks without disrupting the system. This structure builds a strong payment gateway system for reliable performance.

Step 5: Build and Connect Features

Develop the gateway’s core functions. Code features like data encryption, payment processing and real-time reporting. Integrate with processors like Mastercard or PayPal to handle transactions. For example, a retail app might add QR code payments for quick checkouts. Test each feature to confirm it works correctly, forming the backbone of payment gateway software development.

Step 6: Prioritize Security and Regulations

Security is critical for a payment gateway. Implement AES-256 encryption and tokenization to protect data. Achieve PCI DSS compliance to meet industry standards. Add two-factor authentication (2FA) for extra safety.

According to Forbes’ January 2025 Peer-to-Peer Fraud Stats report that 8% of all banking customers say they’ve been victimized by a P2P scam in the last 12 months. (source) It’s emphasizing the need for robust measures in your payment gateway infrastructure.Step 7: Conduct Detailed Testing

Test the gateway thoroughly to catch issues. Check if payments process correctly, security holds against attacks and the system handles high transaction volumes. Use tools like Postman for API testing or LoadRunner for performance. For instance, test if the gateway supports 10,000 transactions per minute for a busy e-commerce site. This creates a dependable payment gateway workflow.

Step 8: Launch and Maintain

Deploy the gateway after testing. Monitor performance using analytics to track transaction success rates and errors. For example, Stripe reports 99.9% uptime, a benchmark to aim for.

Update the system regularly to fix bugs, add features or meet new regulations. Ongoing maintenance helps reduce costs when learning how to create a payment gateway with long-term reliability. Gather user feedback to improve features and complete how to build a payment processor integration.

Conclusion

Building a payment gateway gives your business control, flexibility and cost savings. By learning how to create a payment gateway, you can offer secure, fast transactions tailored to your customers.

Golden Owl Solutions offers tailored payment gateway solutions for e-commerce, FinTech and more. Our platform supports multiple payment methods, robust security and easy integration to provide safe and efficient transactions for your business. Contact Golden Owl Solutions to learn how to create a payment gateway for growth and trust.

FAQs

Q1. How much does it cost to build a payment gateway?

According to Sergiy Fitsak (CEO, Fintech specialist Softjourn), the cost of building a payment gateway ranges from $200,000 to $250,000. This cost depends on the features and complexity.

Q2. Is UPI a payment gateway?

UPI (Unified Payments Interface) is not a payment gateway. Instead, it serves as a real-time payment system that connects your bank account with different payment apps. Apps use payment gateways to manage some parts of the transaction process.

Q3. What are payment gateway charges?

Different providers offer different payment gateway fees. Most providers charge a setup fee, a fee for each transaction, and a monthly fee for using the service.

Q4. Can I use multiple payment gateways in one mobile app?

Yes, it's possible to integrate more than one payment gateway within a single mobile app. Doing so increases flexibility and provides users with more reliable and diverse payment options.

Q5. How long does it take to implement a payment gateway?

Integrating with an existing payment gateway typically takes around 4 to 8 weeks. However, building a custom payment gateway from the ground up can take anywhere from 6 to 11 months. This depends on the complexity and specific needs of your business.