Build vs Buy Payment Processing Infrastructure: A Cost, Risk, and Speed Comparison

Every engineering leader who has ever led a fintech startup eventually faces the same question: Do we build our own payment processing infrastructure, or do we buy it from an external provider?

This decision will shape the next several years of your business. Therefore, it's essential to understand the implications of each decision.

What Payment Processing Infrastructure Actually Involves

Payment processing infrastructure is more complex than most engineering teams anticipate. The technical scope goes well beyond the frontend checkout button.

It involves managing the card processing, acquiring or issuing banks, fraud detection and chargeback platforms, and regulatory compliance with the card schemes.

A lot of people jump into the space of building a payment platform, assuming that the technical elements will be manageable. However, once they are within the space, they understand how deeply involved they will be in a domain that has no shortcuts and requires in-depth knowledge.

Cost Comparison: Building Your Own Payment Processing Infrastructure

Building in-house means taking on costs that extend well beyond the initial development phase — from upfront licensing to ongoing compliance and eventual re-architecture.

The Upfront Costs

Building your own payment processing infrastructure requires an immediate commitment to the card payment schemes to begin processing transactions. Furthermore, you'll have to take care of licensing with the finance departments (EMI, PI, and more, depending on your country) and comply with PCI-DSS.

Moreover, finding someone with experience in acquiring and issuing banks will be next to impossible and expensive.

The Ongoing Costs

Beyond the immediate startup costs of building your own system, there are several other costs that will factor into the operational expenses of your business:

Cost Comparison: Buying or Partnering with an External Vendor

Third-party vendors offer a different cost structure — one that shifts many operational expenses off your balance sheet, even if the per-transaction rate is higher.

The cost of buying or partnering with a third-party vendor for your payment processing could be more expensive on a per-transaction basis. However, the cost of fraud monitoring, chargeback management, certification with the payment schemes, and supporting new payment methods for customers are all costs that will fall on your shoulders if you go in-house.

At the volume of transactions that you will start with when you are in sub-scale, buying or partnering will ultimately cost less in the grand total than if you build your infrastructure in-house.

Speed to Market

Building your own payment processing infrastructure will take time to build, test, and gain certification from the card payment schemes. Depending on how much experience your engineers have with acquiring and issuing banks, you might be looking at 12 to 24-plus months to get to market with your own solution.

Buying or partnering with an external vendor will drastically cut the time it takes for you to start receiving payments from your customers. Most vendors selling white-label payment processing services can get you up and running in two to four months with PCI-DSS and GDPR compliance built into the go-live process.

Furthermore, if your startup is a fintech company that meets the requirements of the payment card schemes, you can access fast-track implementation programs with discounted implementation fees.

Risk Comparison: What You Own vs What You Transfer

The choice between building and buying redraws the lines of operational and regulatory responsibility.

Fraud and Operational Risk

When you go in-house to build your own system, you will have complete control over the backend fraud detection platforms. However, the risk is that fraud detection tools and services will always be one step behind the criminal efforts to compromise the transaction process with your customers.

Moreover, chargebacks will be your operational team's problem and not the vendor's. You will also have to build a redundant system for your transactions to ensure that if one platform fails, the other can pick up the transactions where it leaves off.

Compliance and Regulatory Risk

There is no such thing as a stationary regulatory regime in the payments industry. Every few years, there will be new regulations that come into play with AML, GDPR, PSD2, and the new PSD3 and PSR regulations.

If you go in-house, you will have to be versed in all these regulations. However, if you buy or partner with an external vendor, they will be responsible for ensuring that their systems are updated to comply with all regulatory requirements, which is their area of focus and expertise.

The Case for Building

At scale, owning payment infrastructure can shift the unit economics significantly in your favor.

At high transaction volumes, unit economics change in a meaningful way when a business owns the infrastructure behind its payments. Factors like routing optimization, direct integration with the electronic payment schemes, and margin optimization via the elimination of intermediaries all contribute to an improved economic case for building out the infrastructure in question. Analysis of the economics of gateways indicates that at transaction volumes of $100 million or more annually, a company can recoup the costs of building a custom gateway in the range of 18 to 24 months.

For companies whose payment offering is a key element of their product offering, building out the infrastructure that relates to payments can be a means of creating a defensible competitive position. A company that owns the technology that routes payments for its platform, or that builds out payout rules that are specific to its technology, can capture value from that ownership.

The Case for Buying

For most companies in growth stages, buying is the lower-risk, lower-cost path to accepting payments.

For most companies in growth stages, the engineering effort and compliance requirements for building the infrastructure required to accept payments from consumers will take engineering resources away from the development of the company's main product offering. Furthermore, many of the leading vendors in the space for payment gateways already offer access to multi-scheme payment processing, alternate payment methods, and even emerging payment methods and technologies like account-to-account payments and stablecoins.

Furthermore, research into over 300 merchants across the globe found that implementing these payment method optimisations can lead to a 30% increase in the revenue of their eCommerce business.

When to Build vs When to Buy

The right choice depends on a specific set of conditions, not company size or ambition alone.

Build When These Conditions Are True

For a company to justify building out the infrastructure for its payments system, it must meet each of these conditions:

Buy When These Conditions Are True

A company should buy a payment gateway infrastructure vendor if it meets each of these conditions:

The Hybrid Path: Composable Infrastructure

Build and buy are not the only two options — a modular approach lets you mix both, and migrate gradually.

The decision of whether to build in-house or to buy an external vendor for a company's payment system does not have to be an all-or-nothing decision. Companies can buy from the vendor of the commodity components of a payment system, and then build the remaining, differentiated components of that system in-house.

Furthermore, designing a company's system to be modular from the start will allow them to work with their vendor today without committing the company to a long-term vendor relationship tomorrow. The vendor can be designed to allow for the incremental introduction of proprietary system components according to the needs of the company and its customers.