Payment Gateway APIs Explained

Building a comprehensive payment system requires the ability to connect to a multitude of services, including more than one payment gateway. 

Application program interfaces (APIs) provide businesses with a simplified process for integrating different tools and software products into a central platform. Payment gateway APIs are a specific type that enable your business to process and authorize payments directly from your main interface, such as an online marketplace or a mobile app, rather than redirecting customers to a different banking window. 

As demand for e-commerce and online services has grown, so has reliance on these kinds of APIs. 

Allied Market Research predicts that the online payment API market size will swell to more than US$306 million by 2032, leading to an increased presence of digitally-based merchants. Meanwhile, a global McKinsey survey found that 81% of financial sector executives view APIs as a top priority for both business and IT functions, with large banks allocating roughly 14% of their budgets to APIs. 

Payment gateway API integrations offer broad functionalities that can streamline your transactions and increase your overall revenue. With this technology included in your payment strategy, you can give customers the seamless experiences they want, all while gaining new operational benefits. 

How Do Payment Gateway APIs Work and What Can They Do?

An important distinction to make is the difference between payment gateway APIs versus the larger “payment API” category, as the former falls under the umbrella of the latter. 

Payment APIs can encompass many types of integrations that cover a wide range of capabilities, from fraud prevention to data reporting, while payment gateway APIs are built specifically to simplify connections between a non-financial business (such as an e-commerce online storefront) and payment processors. Operationally, they work as follows: 

• The merchant chooses which payment gateways to integrate and sets their primary gateway and secondary gateways (more on this later).
• Either a customer or a merchant initiates a transaction via the merchant’s checkout interface. 
• An API request is sent to the payment processor via the merchant’s chosen gateway. The request includes the customer’s payment information, which is typically protected by tokenization.
• The payment processor receives the request validates the transaction and either approves or denies it, sending its response back to the gateway. 

Depending on how the merchant’s payment system is set up, the transaction will either succeed or fail based on the response received by the API. 

Why Should You Connect to Multiple Gateways in the First Place?

In a perfect world, every payment will succeed without issue — but that’s not the world we live in.

Plenty of problems can arise that can hinder a transaction. While some problems require human intervention, such as a customer who enters their payment information incorrectly, others come down to the payment system itself and how well it can autonomously address specific challenges.

If a payment gateway were to experience an outage, for example, the issue would not lie with the customer or the merchant but with the gateway. Solving this problem necessitates an optimized payment system with pre-set rules and conditions that determine how it should handle a failed transaction.

Namely, the system must have the ability to reroute payments to secondary gateways based on the chance of success should the primary gateway fail. Doing so requires the merchant to adopt a platform that is vendor-agnostic, meaning it is not tied to one singular gateway provider. 

For instance, Spreedly merchants can leverage specific features (such as our new Recover product) that automatically retry a transaction with a secondary payment gateway, increasing the chance of success and approval without requiring either the customer or the merchant to manually initiate the payment again.

This brings us to the core issue at hand — the need for a platform that can support multiple integrations with different payment gateway APIs. 

How Open Payments Enable You to Use the Best Payment Gateway APIs

Open payment technologies offer enormous financial and operational benefits to businesses trying to solve the challenge of gateway integrations. Unlike platforms designed by the same company offering a gateway solution, an open payments platform allows you to connect to as many providers as you need.

Through such a platform, you can set which primary gateway you want all transactions to be tried at first, as well as secondary gateways to route transactions if a failure occurs. You are given free choice when it comes to the secondary gateways, allowing you to choose the providers that match the demands of a transaction. For instance, you can choose gateways that may be more compatible with specific geographic regions you want to expand into, making it easier for you to transact with those customers. 

On top of this, open payment technology can seamlessly incorporate financial and customer data that better informs the rerouting process. It can enable automated retry processes that are more likely to succeed thanks to autonomous assessments of the type of transaction and where it originates. 

With an open payments platform like Spreedly, you can customize your payment environment to a tee and choose from hundreds of different payment gateway APIs.

Speak with our team today to get started. 

Download the Multiple Payment Gateways eBook Below