Ready for the Online Payment Gateway Craze?: Valued at $117.5B and Growing Fast

Introduction

With the growing recognition of the advantages of having their own payment gateways, businesses are increasingly seeking in-depth knowledge on constructing and operating such systems. Whether the goal is to reduce service fees, cater to underserved areas, or overcome technical limitations, a profound understanding of the intricacies involved in creating a payment gateway from scratch is essential.

This article aims to offer valuable insights into the overall market, helping those contemplating the development of their own payment gateway solution assess its profitability.

Overview of the Payment Gateway Market

The payment gateway market has experienced rapid growth due to the surge in mobile payments, widespread internet accessibility, and the booming e-commerce sector.

In 2023, the payment gateway market is valued at $117.5 billion and is projected to reach $293.9 billion by 2033, with a compound annual growth rate (CAGR) of 9.6% from 2022 to 2030. 

Key players like Amazon Pay, Apple Pay, Samsung Pay, and Android Pay have streamlined bill payments and online purchases, catering to the increasing preference for digital transactions among both merchants and consumers. This trend is expected to continue driving the expansion of the payment gateway industry in the foreseeable future.

Impact of COVID-19 on the Market

The COVID-19 pandemic significantly contributed to the growth of e-commerce activities. In 2020, during the first year of the pandemic, e-commerce sales surged by $244.2 billion or 43%, rising from $571.2 billion in 2019 to $815.4 billion in 2020, according to the 2020 ARTS release.

The pandemic accelerated the reliance on mobile and internet services, positively influencing the growth of payment gateways as an essential component of online transactions.

Trends in the Payment Gateway Industry

Several industries, including utility bill payments, online gaming, over-the-top (OTT) platforms, online pharmacies, and grocery stores, have witnessed a substantial increase in the adoption of payment gateway solutions.

Businesses are racing to digitize their operations and integrate efficient payment solutions to remain competitive in a rapidly evolving landscape. With online payment gateway markets gaining significant traction worldwide, this is an opportune time for businesses to explore the right payment gateway solution tailored to their specific needs.

Understanding Payment Gateways

A payment gateway is a technological solution designed to process and authorize electronic transactions, primarily for online or card-not-present transactions. It acts as a bridge between a merchant's website and the financial institution handling the transaction, securely transmitting payment information, encrypting it, and forwarding it to the acquiring bank.

The acquiring bank then sends the transaction to the relevant card issuer for authorization, with the payment gateway subsequently conveying the response to the merchant's website, completing the transaction.

Key features such as fraud detection, recurring billing, and support for various payment methods (credit and debit cards, e-checks, digital wallets, and bank transfers) are essential components of a payment gateway's functionality.

Distinguishing Payment Gateways and Payment Processors

In the realm of electronic payments, payment gateways and payment processors are interconnected yet distinct elements. A payment gateway is software that connects a retailer's website with the financial institution responsible for processing the transaction. It ensures the secure delivery of customer payment information to the acquiring bank and provides a response to the merchant's website upon transaction approval.

In contrast, a payment processor is a financial institution that facilitates the electronic transfer of funds between merchants and customers, managing the technical aspects of the transaction, such as routing it to the relevant card issuer and facilitating settlement through banking networks.Payment processors also handle financial aspects, including depositing funds into merchant accounts and managing chargebacks when necessary.

Reasons to Build a Payment Gateway

There are several compelling reasons why businesses choose to invest in building a payment gateway. Firstly, it enables merchants to reduce payment service fees by bypassing third-party payment processors, gaining greater control over the transaction process, and leading to significant cost savings over time.

Secondly, building a payment gateway offers startups and businesses in underserved regions the opportunity to offer a customized payment solution tailored to their customers' specific needs, enhancing competitiveness and providing a seamless payment experience.

Additionally, developing a payment gateway allows businesses to overcome technical limitations associated with white label services and customize the payment process to meet their unique requirements.

By creating their payment gateway, companies can ensure a high level of security, flexibility, and scalability while delivering a seamless and frictionless payment experience to their customers.

Conclusion

In 2023, the payment gateway market continues its robust growth as businesses increasingly recognize the importance of establishing their payment gateways. This industry's flourishing trajectory is driven by factors such as the widespread adoption of mobile payments, ubiquitous internet connectivity, and the growing demand for online commerce.

As digital transactions become increasingly prevalent, the need for proprietary payment gateways becomes even more evident. The global landscape is ripe with opportunities, and businesses that seize the moment by developing their own payment gateways stand to reap the rewards of this thriving market.