What Are Payment APIs and How Do They Work?

In 2021, an estimated $768 billion was made in retail eCommerce revenue; by 2025, it’s estimated to exceed $1.3 trillion in the U.S. As more businesses delve into the world of eCommerce to sell their goods, it’s becoming increasingly common to allow customers to make online payments using various methods.

In fact, one of the most common ways to offer payment processing solutions to your customers is by using a payment API or payment gateway API. From credit cards to bank payments, APIs are necessary to ensure a streamlined checkout experience, both for merchants and customers.

But what exactly are payment APIs, and why do they matter? In this article, we’ll explain what they are, how they work, and what the best payment APIs on the market are.

What’s a Payment API?

First things first: API stands for application programming interface. A good way to view APIs, says Stax’s Lead Software Engineer Austin Kelsch, is they enable computers to connect or interface with other computers.

“Most simply put, an API is a way for computers to talk to computers. From the computer’s perspective, it’s an easy way to make those conversations happen.”

As far as payments are concerned, APIs enable apps and eCommerce sites to accept payments by ensuring that all entities involved in that process—i.e., the processor, gateway, eCommerce platform, etc.—can “talk” to each other.

A payment API works by seamlessly adding payment processing capabilities to your existing software and mobile apps. Essentially, it allows one or more programs to interface and communicate with other programs, allowing merchants and eCommerce retailers to better manage the payment experience.

Payment APIs are generally customizable and allow businesses to configure their payment processing infrastructure. Instead of being limited to a pre-set payment setup, you can use APIs to create custom credit or debit card processing setups, unique to your eCommerce business.

What Can Payment APIs Do?

If a customer completes an online payment on your eCommerce site or app, a payment API is likely facilitating the purchase process.

According to Austin, a payment API primarily links “a customer and their form of payment (e.g., credit card, bank transfer) to a dollar amount and then a merchant.”

He adds that APIs facilitate “a two-party relationship (i.e., the customer and merchant) that are sending money between those two parties.”

“Ultimately,” says Austin, “the payment information has to get sent from a payment form or app along to a service that can accept it, and that exchange is where the API piece comes in.”

However, that’s just one of the many core functionalities that payment APIs provide to eCommerce and retail vendors, including the ability to:

  • Issue refunds for online payments and allow for instant settlement.
  • Enable recurring payments, which is particularly useful for subscription-based or SaaS businesses.
  • Integrate local and global payment options (bank transfers, digital wallet payments, credit card and debit card payments, etc.)
  • Track orders and access real-time payment data on transactions, making it easier to settle payments.
  • Easily accept and reach customers in international markets.

In short, payment APIs provide many opportunities to streamline and facilitate the checkout experience of eCommerce customers and software users.

What Are the Benefits of Using a Payment API?

While there are several reasons most eCommerce merchants use payment APIs, some of the more prominent ones are:

  • They offer a frictionless checkout experience. Payment APIs make it easy for merchants to offer consumers a variety of payment methods, improving the overall customer experience. On the merchant side, they help to automate the payment process, giving merchants back valuable time and resources (particularly for recurring payments).
  • They offer increased security. It’s easy to minimize the risk of fraud with a payment processor API, which offers improved security through payment authentication (such as with tokenized payments) and included compliance checks.
  • They simplify regulatory compliance. A reliable payment provider will make it easy to ensure that you’re compliant with the latest payment regulations and standards, such as surcharging laws, ASC 606, and more. With a single source of truth, SaaS and eCommerce companies can quickly comply with current and future regulations by using a payment API.

Factors to Consider When Choosing a Payment API

There’s a wide variety of payment processing service providers available, so it’s important to compare the services and fine print when choosing a payment API. There are several factors you should be aware of when shopping for your payment provider, including:

Features

The first consideration, says Austin, would be the API’s capabilities.

“What are the solution’s features? Do they line up with the product you’re trying to build, with the products you’re currently trying to sell, with what your current website does, and those different types of payment methods you want?”

He adds that asking these questions will point you in the right direction.

“For instance, if you must accept bank payments, then you should look for an API that can do ACH.”

He continues, “Those sorts of feature analyses are probably the first thing you’d want to do [when looking for an API].”

Pricing

It’s important to choose a provider that offers transparent pricing. While you don’t necessarily need to choose the cheapest provider (you might be sacrificing important features), it’s important your payments partner is straightforward and upfront about their offerings. Is it flat-rate? Do they take a certain percentage? Are you tied to a contract for a long period?

This is one of the areas where Stax stands out because we offer a flat subscription fee with no long-term contracts.

According to Austin, “Stax tries to make this easy to rationalize because our emphasis is on a subscription model. With fee-based pricing, it’s a lot harder to know exactly what those costs look like.”

Ease of use and integration

The API interface you use should offer a great user experience, both for you and your customers. Is it easily accessible and usable? Is there clear documentation for integration and implementation? Do they offer sample code and tutorials?

Austin notes that documentation is an important factor when it comes to selecting a payment API.

“It’s a critical piece of the API vetting process; not having adequate documentation is a red flag,” he adds.

Ideally, your provider should offer a SDK (software development kit) to set up an API sandbox easily, the most common one being a REST API. If it’s simple to set up and integrate, like with third parties and other business tools, it’s probable that your provider can scale up with you as you continue to grow.

It’s important to note that the above isn’t an exhaustive list of factors to consider. Other things to keep in mind include the level of customer support, its compliance and security standards, and other functionalities you may need specific to your eCommerce business. Take the time to speak to the team of your potential payment API provider so you feel confident that you’ve made the right choice.

The Top Payment API Providers on the Market

To make your research easier, we’ve compiled a list of the biggest payment APIs on the market and a brief overview of their selling points.

Stax

Stax’s payment API makes payments on websites and apps as streamlined as possible. Whether you need to make single or recurring payments in-person or online, using ACH or mobile payment, our industry-leading APIs make it easy as 1-2-3. We use a RESTful API and provide SDKs for iOS and Android in Javascript and Python, but it’s fully compatible with all programming languages, making it easy to create a secure checkout process that matches your website’s visual style.

We work with a variety of third parties and other business tools for easy integration and make it easy to accept both card present and CNP payments.

Of course, we utilize the latest security standards, keeping all customer and payment data fully secure using state-of-the-art risk management protocols for Level 1 PCI compliance. And with transparent, subscription-based pricing, you’ll avoid unwanted surprises and hefty fees down the road.

Square

Square bills itself as a full-stack payment service, offering much more than just payment APIs, as it also provides hardware such as card readers. It’s used by a mix of both eCommerce and brick-and-mortar stores, since Square offers features such as marketing and loyalty programs.

It’s important to note that Square doesn’t accept bank payments or currency conversion, which may be important depending on your customer base. And with their recent pricing policy change, it’s likely your eCommerce business will take a substantial hit in fees.

Stripe

Also billed as a full-stack payment processor, Stripe Payments is often seen as the competitor to Square with all-in-one payment processor and gateway services available in several countries. They provide extensive documentation in various programming languages, but due to its feature-rich complexity, it can be difficult for smaller organizations without an extensive budget or coding experience to set up.

With a predominant and stronger emphasis on online payments, Stripe may also not be the best solution for retail or hybrid business models, so it’s important to keep that in mind as your business scales up.

Authorize.net

Authorize.net is one of the oldest payment gateway providers in the eCommerce space, and remains a popular option for credit card processing services with reliable security. It’s well-known for being an industry standard, but it’s important to note that they do not provide merchant accounts, which means businesses will need to go through a third party to set one up.

Adyen

Adyen is often used by companies dealing with a high amount of international transactions. They also provide a wealth of integrations and APIs for a comprehensive set of payment services, from POS to mobile payments, including strong risk management features.

However, they use a hybrid pricing system, charging different rates depending on the payment (for example, Visa and American Express have different fees). Combined with a monthly invoice minimum dependent on your business model, it’s easy for costs to skyrocket and isn’t a viable alternative for smaller businesses.

Wrapping Up

If you’re an eCommerce business looking to set up a payments ecosystem with robust payment APIs, it’s important to take into consideration a number of factors to find the best provider for your business.

With a little bit of research, you’ll be able to find the right payment API provider for you, so you can sustainably grow and scale up your business, setting your eCommerce organization up for success in the long run.

Stax’s industry-leading Payment API makes it easy for eCommerce merchants of all sizes to quickly enable and accept all types of payments. Not only do we streamline the entire process, we offer straightforward, subscription-style pricing, Level 1 PCI compliance, and powerful data and analytics for a truly comprehensive payment ecosystem.

Contact us today to learn more.