Apple recently announced plans to add tap-to-pay functionality to new iPhones. Major banks like Bank of America are seeing a big increase in the adoption of payment API technology. And payment technologies with open APIs like Stripe continue to advance their capabilities and integrations.
So, it’s no surprise that the payment API market has grown tremendously, especially in recent years. In fact, he was worth $200 million in 2023, which he was predicted to hit. $306.5 million by 2032. Plus, A 2024 State of the API Report shows that nearly three-quarters of businesses are “API first,” compared to just 66% a year ago.
Let’s discuss payment APIs in more detail and what to look out for when using them in your business.
What is the Payment API?
A payment API, or payment application programming interface, is a technology that allows business platforms—such as point-of-sale (POS) terminals, e-commerce sites, and so on—to process payments. Payment API is basically the connection between all the platforms involved in any payment transaction. For businesses, it connects your payment processor and gateway to the customer’s financial institution to execute the transaction.
How are APIs used in payment processing?
APIs connect payment technology and financial institutions involved in any transaction. Here’s a hypothetical example to walk us through the process.
Let’s say I want to buy a sandwich from a restaurant. The sandwich costs $15, and I want to pay for it with my credit card.
The restaurant initiates the transaction and presents me with its POS terminal. This is the first time a payment API has been used to initiate a transaction, identify the money, and determine where it should be transferred.
I tap my credit card on the terminal. The payment API works again, taking the information from the restaurant’s POS and sending it to my card issuer. My card issuer looks at the transaction and determines whether it’s approved, usually depending on whether I have sufficient funds or whether the transaction appears to be fraudulent.
When the payment is approved, the payment API works again, sending this information to all parties involved—my card issuer, the restaurant’s POS, and even the restaurant’s financial institution to my card and the restaurant’s POS. After funds are transferred from the system. However, this data first goes through a Payment gatewayswhere it is encrypted for security.
Basically, payment APIs are used at every step of the payment process. They communicate between all institutions, share relevant information, and allow payment processing.
Mistakes to Avoid When Integrating a Payment API
When integrating a payment API for small businesses, there are several common mistakes to make to ensure smooth transactions, security and a good user experience. Here are some important mistakes to watch out for.
Lack of adequate technical skills
Integrating payment APIs can be complex, especially for businesses without extensive technical expertise. They often require a deep understanding of API documentation, coding practices, and security protocols.
Carefully review the API documentation and consider working with a developer familiar with payment gateway integrations. Many APIs also offer SDKs and libraries to simplify the integration process.
Lack of safety and compliance
Some businesses make the mistake of ignoring or failing to comply with proper encryption. PCIDSS (Payment Card Industry Data Security Standards).
It is important to ensure that all transactions are securely encrypted using SSL/TLS and that you comply with PCI standards for protecting sensitive data such as credit card information. These steps protect both you and your customers.
Likewise, you don’t want to overlook legal compliance with local or international payment regulations. Failure to adhere to these standards can put your business at risk of fines – or worse.
Research payment regulations in all regions where you operate and ensure your payment integration meets these legal requirements.
Not testing all scenarios.
It’s easy to check for the standard situations that pop up: a card is declined, Wi-Fi goes down, you have to insert the card manually, etc. Declined payments, network timeouts, or duplicate transactions.
To avoid this error, test your payment API integration for all types of scenarios, including failed transactions, duplicate submissions, partial payments, and more.
Choosing the wrong payment gateway
Choosing a payment gateway without considering factors such as transaction fees, international support, customer support, and payment times is an easy mistake to both avoid.
Make sure you research different payment gateways, such as Stripe, PayPal, and Square, to find out which one is best for you. Compare costs, payment API integration complexity, customer support, and currency support for your customer base.
Insufficient documentation
Some payment APIs have unclear or incomplete documentation, making it difficult for developers to implement the API correctly or troubleshoot problems. The same 2024 State of API report also shows that about 39% of developers say that “conflicting documentation” is their biggest challenge, and 43% actually turn to their colleagues to define APIs.
Choose payment APIs with comprehensive and clear documentation. If you’re stuck with a platform that has less helpful documentation and support, I recommend turning to community-driven resources such as ForumsReddit, or GitHub.
Another common mistake is not documenting how the payment system works or how to troubleshoot common problems. This makes it difficult to manage, integrate, or upgrade integrations from an internal perspective.
Create internal documentation on the integration process, troubleshooting steps, and any customizations. The same report shows that more than half (58%) of developers use internal documentation to help navigate this error. This will also help with onboarding new team members or troubleshooting issues.
Common challenges with APIs for payments
Payments APIs are essential for businesses to efficiently manage transactions, but integrating and maintaining them can present challenges. Here are some common challenges when working with payment APIs.
Technology Management
It seems that there are more APIs available than ever before. In fact, the average business application uses between 26 and 50 APIs. And, a payment API is just one of many businesses can have in its tech stack.
Maintaining PCI compliance
I’ve already talked about avoiding the mistake of overlooking compliance, but that’s a challenge too. PCI standards are very specific and strict. The best way to maintain compliance is to use a payment processor that already adheres to PCI standards and limit your exposure to sensitive card data. Many payment APIs handle compliance for you by tokenizing card data.
Reducing API downtime and reliability
Payment APIs can have hiccups — outages, delays, slow checkouts, timeouts, you name it. Downtime or performance issues disrupt business operations. All of this can lead to lost sales, customer dissatisfaction, and trust issues.
It is important to choose a payment provider with a high uptime service level agreement (SLA) and real-time monitoring. You may also want to implement backup payment tools and alternative payment options to minimize problems during downtime.
Additionally, make sure the processor you choose has optimized infrastructure for low-latency payments. You can consider things like asynchronous payments and retry logic for timeouts to help smooth out those bumps in the road.
Handling multiple payment methods
Consumers expect businesses to offer a variety of payment methods — credit cards, debit cards, digital wallets, and even cryptocurrencies — but integrating multiple payment methods can be complicated.
That’s why I recommend looking for an API that supports different payment options and can easily integrate as new methods become popular. Also, look for APIs that use the same interface for different payment methods, which will likely make integration easier.
Dealing with errors and conflicts
Not every payment is going to work. Payments can fail for a number of reasons, including insufficient funds, expired cards, or network problems. Handling disputes, refunds, and chargebacks can be cumbersome and hurt cash flow.
Implement comprehensive error handling processes to manage payment failures, disputes, refunds, and chargebacks. Look for APIs that have built-in features for conflict handling or automatic refunds.
How to Choose the Best Payment API for Your Business
When choosing a payment API for your business, I recommend considering your current tech stack and what’s missing. Find platforms that fill these gaps, then compare them against each other based on the above criteria.
This article was reviewed by a retail and payments expert. Meghan Brophy.