What are payment APIs & how do they work?

Payment APIs allow you to access information about the status of the client’s bank account, information about the presence of the required amount of funds on it and its movement, other information on the client’s account, as well as initiate payments between accounts, connection, communication, changing and disconnection services. Below we will consider the main parameters and aspects that relate to the functioning of such systems, as well as the main mechanisms that are associated with them.

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What are payment APIs?

An API, or application programming interface, allows third-party applications to access a common set of tools. In banking, this means that a bank, digital bank or e-wallet can offer third-party services to its customer through APIs and connect to existing technologies or services from other service providers.

There are 2 main types of banking APIs that fintech companies use: service provider APIs and open APIs. One of the important areas of use of API technology is banking. With its help, banks and any other financial organizations can exchange data (show exchange rates on websites, taking into account changes in real time) and provide ready-made services to external sites (for transferring money between social network users).

Everyone is interested in open interfaces of banking services: the banks themselves, their partners, fintech startups, current and potential clients. But not all financial institutions open their APIs. For various reasons: some banks cannot ensure the safety of personal data and protection from fraud on third-party sites, others are afraid of competition, their business model does not imply mutually beneficial partnerships with third players.

How do APIs work and what are their benefits?

APIs represent a great opportunity for digital banks as they allow them to quickly introduce new feature spectrum and products by connecting to ready-to-use solutions. Ultimately, this contributes to the overall growth of financial companies and improves the quality and variety of services available on the platforms. Fintechs can expand and improve their services by choosing ready-to-deploy integrations or integrating with new service providers. Connecting various services via API means that you can create your own solution in no time, which will work with tools and functions via API.

Legal entities and individual entrepreneurs working in the field of payments can do the following using this technology.

1. Automate your business processes by introducing the functionality of interaction with the bank into accounting, accounting, CRM and ERP systems, mobile and web applications. For example, you can set the automatic creation of a payment order when certain conditions occur.
2. Create and sign payment documents directly in the accounting system. There is no need to waste time, go into your online banking account, copy or transfer data from other software to it – everything can be done in one program.
3. Monitor the status of accounts, documents and track received requests, receive up-to-date information on the status of accounts and statements on them.
4. Save on software development and modification. The integration of bank services with other software is seamless, i.e. does not require intermediate links and long work of programmers.
5. Offer innovative services to b2b and b2c clients. It is much faster to create and implement payment solutions. To integrate a tool that has an API, you do not need to write huge and time-consuming code.

With an API, you pass the payer to the payment page to offer up-to-date payment methods. Automatic monitoring of payment systems and banks allows you to eliminate inaccessible payment methods to increase payment conversion and eliminate unsafe payment systems.

When accepting payments via a payment gateway, a cash receipt and documents are generated for each transaction: agreement, act, delivery note and invoice (invoice for payment). To correctly reflect the details of the transaction, your project transmits individually provided data after authentication, thereby ensuring transparency for regulatory authorities.

Using special API requests, each payment process status is available to you, as a result you will be able to implement individual order processing in your project. After all, it is the ability to customize the sales process that is the main difference between the API and ready-made modules for popular CMSs.

Talk a little about the open one. Open access to the banking API is also beneficial for banks in the following aspects.

1. Banks will expand distribution channels for their financial products and services with the help of third-party organizations and information systems.
2. Expansion of distribution channels: potential for increasing the bank’s client base.
3. Automated verification and checking of documentation needed.
4. Banks will have access to information, services and connection endpoints from third-party organizations, which will enable them to better navigate trends emerging in the financial services industry.
5. An open API will make it possible to monitor the new market from the inside and, perhaps, buy out the organization behind the most successful developments in this area to strengthen its own position in the market.

How to choose API and its cost

When choosing an API, you should pay attention to the following aspects.

1. Security and encryption standards. The API handles your customers’ sensitive payment data, and even a small breach of confidentiality could be bad for your company’s reputation. So check and test (if possible) how the APIs encrypt this data.
2. Legal compatibility. The reason for paying special attention to this aspect is that, depending on your jurisdiction and the web platform code, many payment systems may not be available.
3. Speed of data processing and queries.
4. Feature of reporting. Depending on your business, you may need an API with detailed reporting capabilities to examine all transactions over a given period for an entire business or individual product (department), or to examine statistics on chargebacks or commission costs. APIs offer different formats and types of reporting, and in order to make the right choice, this issue must be studied in advance.
5. Fraud detection. Even when choosing an API, you should make sure that it has security features aimed at protecting against and countering fraud.
6. Costs and fees. It is very important that when choosing an API, you correctly calculate all the costs that will be required to integrate and maintain further operation.

The cost of the API depends on the specific needs and scale of the business, so the amount will be individual. On average, the price for the implementation and use of such a method ranges from 600-700 dollars.

It can be noted that APIs that provide access to global payment networks will become more common, which will allow startups to easily accept and process international transactions. The push for open banking will lead to the development of APIs that allow any third-party developer access to financial data with user consent. This will enable the creation of personalized financial management tools and services.

Our company is ready to offer you comprehensive professional assistance in the selection (or personalized development) and integration of APIs, as well as full advisory and practical support. We work to ensure your business benefit, aiming only for the best and most optimized results. Contact us in a way convenient for you.

Article’s author is Denys Chernyshov – founder and CEO of the leading international law firm Eternity Law International.