If you’re new to the business of accepting payments for your goods or services online, you’re probably digging into some of the options available to you and learning about the technology that’s going to help you get better at getting paid. You’ve stumbled across some new terms, and now you’re asking the question, “What is a payments API?”
The modern API is a transformative bit of technology, allowing you to connect to different services that serve your payments stack. Not all payments APIs are built the same, but the core idea is pretty simple: to create a reliable and simple connection that removes the complexity of connecting to specific services.
This is your complete guide to payments APIs. We’ll explain the different types of payment APIs, the potential they unlock, and how you can use them as a huge advantage to help you grow your business.
A quick history of the API and the payments revolution
Here’s something fun: the idea behind the API is actually older than the term itself. The first iterations came about, not as a specific invention, but as a result of a practical need to organize software.
The foundation for the API was laid all the way back in the late 1940s and early 1950s when British computer scientists Maurice Wilkes and David Wheeler were developing a modular software library for the EDSAC computer.
Their 1951 book, The Preparation of Programs for an Electronic Digital Computer, is considered the first published API specification, detailing how to incorporate subroutines into a program. Interestingly, the term “application program interface” itself, however, did not appear in scientific literature until 1968.
The payments API followed a similar evolutionary track, tied directly to the growth of e-commerce. The first payment gateways appeared in the mid-1990s, providing the initial technical method for merchants to process cards over the internet.
The modern, developer-friendly API-as-a-product model then gained momentum in the early 2000s, driven by companies like Salesforce and eBay. Today, the technology has evolved from simple card processing to sophisticated API-first payment infrastructure that uses a modular approach to orchestrate and manage entire global payment stacks.
So, there’s a little background information. Let’s return to regularly scheduled programming.
What is a payment API?
A payment API is a connector that allows payment solutions to communicate with other platforms and applications. These APIs act as plug-and-play tools that allow developers to quickly customize and experiment with different payment services without writing all the code themselves. The name of the game here is utility and direct, efficient delivery.
Here’s the caveat, though: a payment API is a kind of blanket term that could cover a fairly wide range of tools, so let’s get to know a few of the regulars.
Payment Platform APIs connect your system to a larger platform that provides multiple features and capabilities, such as gateway services and fraud prevention.
Payment Gateway APIs allow your system to integrate and communicate directly with a payment gateway provider to accept payments from your storefront or marketplace. Payment processing APIs are often a component of these gateway APIs.
Digital Wallet APIs allow you to integrate features like digital wallets and other payment methods directly into your application. This is especially useful for marketplaces that need an easy way to deliver payouts to merchants.
Those are the basics. Let’s slowly work our way into the weeds.
How payment APIs differ from other APIs
Every API is used to power software solutions but, unlike a general-purpose API for something like checking the weather or managing simple databases, payment APIs handle incredibly sensitive data tied to revenue.
As a result, they need to adhere to a set of specific protocols. Let’s look at those issues here.
The Security and Compliance Burden
Because payment APIs transfer sensitive financial information they have to meet a bunch of protocols, rules, and compliance requirements. They all have to adhere to strict security standards, including PCI DSS compliance.
You’ll need to have extra security layers in a payment API. This protects payment details and prevents fraud.
Tokenization is a crucial aspect of this protection layer. It’s the means by which sensitive information, like credit card information, is replaced with a non-sensitive surrogate, or token. By doing so, merchants get a reduced compliance scope and are able to fully protect customer data.
If you’re looking into tokenization, look for a solution that includes portability. You want to be able to use the tokens across multiple payment processors so that you’re never locked into one single vendor.
Complexity and Required Precision
It’s not just the information that payment APIs transfer, it’s also the multiple external systems that they interact with. Financial data is being moved across open networks to banks, card networks, and processors.
These APIs have to be completely reliable and precise with every single transaction. And it’s a huge deal. The entire financial stability of your business will rely on these systems correctly processing every successful payment, soft decline, and failure.
This is actually the step where payment orchestration is incredibly valuable. With a well-designed payments orchestration platform, you get a kind of vendor-neutral layer, which separates your business logic from the specific APIs of each payment service provider.
Instead, you use a single, normalized API that simplifies the process and allows your business to integrate with hundreds of gateways, fraud tools, and other services through one connection. You end up with a centralized hub from which you can access all your tools and information.
Specialized Financial Features
Unlike a standard API that might retrieve a single piece of data, payment APIs include features essential for managing an organization's entire financial operations. These specialized features include:
- Refund Handling: Allowing for the processing and tracking of money returned to a customer.
- Transaction Reconciliation: Providing the detailed, on-demand reporting necessary for finance teams to properly account for payments, volumes, and chargeback rates.
- Recurring Payment Support: This is non-negotiable for the subscription economy, requiring built-in mechanisms for automated retry logic and real-time credential updates to minimize involuntary churn.
The engineering time tax: the cost of going alone
So, you’ve decided to scale and add some new tools. You’re going to add a better regional gateway, a local payment method, and an advanced fraud tool. All of these are great additions to any merchant’s payments stack.
The problem is that once you start, you immediately incur the engineering time tax. This is the significant investment in time and human resources required to write, test, and maintain a custom connection for every single tool.
Connecting to multiple payment gateways, for example, is far from a plug-and-play event. Your engineers have to learn and implement a unique API from each provider, maintain separate compliance for each endpoint, and write custom code to normalize data across those multiple systems.
The time tax means your valuable development resources are focused on maintenance rather than on adding products and features that add value to your core business. The good news, as we’ll learn below, is that you don’t have to make that investment.
You can eliminate the engineering time tax with an open payments platform—a single, normalized API that connects to all of your tools. Just plug into the platform and the orchestrator handles the rest.
Now you’re using your developer resources to focus on innovation, instead of doing work that has already been done by someone with more experience.
How payment APIs work: a five-stage exchange
Integrating payment APIs into your transaction workflow enables a real-time exchange of data between your business, payment service providers, and financial institutions. The process of how a payment API processes a transaction can be divided into five key technical stages:
- Integrating and configuring the payment API
The process begins when you integrate the API into your platform and connect your application to the payment provider's API using a set of provided keys and credentials. This step establishes a secure link and authenticates your system as a verified client, and you can configure the API’s parameters according to your specific needs. You should always use sandbox testing environments to simulate transactions and confirm all endpoints are functioning correctly before going live.
- Initiating an API call
After configuration, a request known as an API call is triggered when a payment is initiated. This is a message sent to the API requesting that it provide the necessary information or take action, such as authorizing funds or issuing a refund. The API call sends details like the transaction amount and payment method in a structured data format, and communication begins between your system and the payment gateway's back-end processes.
- Endpoint Handling and Request Parsing
The payment gateway’s API endpoint receives the request and parses the incoming data. Request parsing breaks down the structured data into individual components so the computing system can understand it and relay it accurately to the proper entities, such as the customer’s bank. The endpoint verifies that the request is properly formatted and routes it internally to the relevant payment service or processor without exposing sensitive data directly to your server.
- Verifying a Transaction with Payment Processors
The API communicates with the payment processor, card networks, and issuing banks to perform the necessary verification. Crucial steps like risk assessments and authorization checks occur to confirm the transaction is legitimate and the funds are available. The API maintains a secure channel, ensuring that no raw card or banking data is exposed. Once the processor and bank return a response, the API structures this information into a standardized format.
- Returning the Response to the Client Application
In the final step, the API delivers the response to your application. The payment gateway sends the processed data back, including key details such as the transaction status, reference ID, timestamps, and any error codes. This information is then used to update the checkout interface and trigger any additional back-end workflows needed to complete a transaction, like order fulfillment or invoicing.
What to look for in a payments API
When you are choosing a payments API, you need to be practical and focus on the immediate, applicable knowledge that solves a real payments issue. You want a solution that is built for maximum performance, security, and growth.
No matter what industry you operate in, you should prioritize these non-negotiable aspects of a payment API:
Tokenization
This is the single most valuable technical component in a modern payments stack. The API must include an advanced vault that securely stores and manages tokens from multiple gateways, guaranteeing portability and performance.
Clear and comprehensive documentation
The provider’s API documentation should shorten your integration timeline and help your technical teams troubleshoot issues quickly. This is an essential aspect of the instructional voice.
Customizable configurations
Look for an API that allows you to tailor payment flows to your specific use case, such as recurring billing cycles for SaaS companies or tiered pricing plans for subscription models. The one-size-fits-all model doesn't work for high-stakes payments.
Broad payment method support
The API must support a wide range of payment methods beyond traditional credit cards, including digital wallets and local payment methods. Not supporting the payment types your customers actually use means you are closing your checkout counter every time a local wants to buy.
Unify Your Payments Stack with Spreedly’s Single API
Your business thrives on adaptability, and your payments infrastructure has to be flexible. There’s no way around it.
The single best way to control your revenue and secure your scale is to build your payments infrastructure on a platform that offers an open API.
Spreedly’s Connect solution gives you one single, normalized API to connect, view, and manage your entire payment stack. This orchestration layer allows you to configure your payment flows for optimal authorization rates, use the best fraud tool for a specific market, and manage all your subscription transactions without the risk of vendor lock-in.
With access to more than 140 gateway connections and over 40 payment methods, you can create a payments ecosystem that automatically optimizes for performance and scale.
Take control of your revenue and secure your scale. Contact us today to build the flexible payments environment your business needs.