Do you ever wonder how payment gateways work on every website you’ve paid for something on? How does the payment get processed instantly despite passing through several channels? The answer is APIs.
Modern gateways have Application Programming Interfaces (APIs) that enable uninterrupted information flow between the gateway and an external platform. Businesses integrate APIs into their websites or apps, enabling them to accept payments without requiring customers to leave the site. This guide explains how a payment gateway API works and what to consider before choosing one for your business.
What is a Payment Gateway API?
A payment gateway API is a set of software protocols that connects your website to a payment gateway, enabling customers to pay you via credit/debit cards, digital wallets, and other methods.
Think of an API as a bridge through which payments flow to your website. This bridge collects a customer’s card information, encrypts it, and sends it to a payment processor to authorize the payment with the customer’s bank. If the payment is authorized, it’ll be routed to your merchant bank account, and the customer will receive their product or service.
A payment gateway API enables businesses to accept payments from customers worldwide without building a complex payment system from scratch.
Core Components of Payment Gateway APIs
Every payment gateway application programming interface (API) consists of several core components. These components work hand-in-hand to enable seamless information flow between the gateway, your website, the payment processor, and the customer’s bank. They include:
API credentials and authentication
A payment gateway API always includes unique secret keys, authentication tokens, and IDs. These keys are generated uniquely for your website and must be kept securely. They are the means by which the payment gateway identifies your website and communicates directly with it.
You shouldn’t share API keys with anyone, as these keys can be used to access your transaction data. Treat them like the keys to your personal vault.
Encryption and tokenization
Payment data is highly sensitive and must be encrypted in transit. Payment gateways use sophisticated encryption protocols, like Secure Sockets Layer (SSL)/Transport Layer Security (TLS), to safeguard payment data and prevent interception in transit.
When a customer enters their credit/debit card details, the information is tokenized, meaning it’s converted into unique numerical tokens for secure storage. If anyone somehow intercepts the data, they’ll see tokens they can’t decrypt, not the customer’s actual card information.
Apart from encryption and tokenization protocols, payment gateway providers conduct regular security audits and employ experts to detect and mitigate cyber threats.
Request and response architecture
Online payment APIs largely follow a Request-Response architectural model. A customer initiates a payment request; the gateway validates it, receives a response, and returns it to the customer.
Responses are given in JSON and XML formats and swiftly interpreted by the gateway. If the payment is rejected, the response includes a status code indicating the reason. These details are interpreted for the customer.
How a payment gateway works: Transaction processing
- A request is initiated when a customer enters their transaction details and clicks the pay button.
- The payment gateway API receives and validates the payment request.
- If validated, the gateway routes the payment information to the payment processor.
- The payment processor facilitates the payment by contacting the customer’s bank.
- The customer’s bank sends a response; it either approves or rejects the payment.
- The API gateway returns the final response to the customer and your website. If approved, the payment is transferred from the customer’s bank to your merchant bank account.
Key features of payment gateway APIs
Payment gateway APIs provide key features that help your business run smoothly. These features enable you to receive payments from global customers and build a thriving business. Let’s explore them in more detail.
Multi-currency and cryptocurrency support
With the right gateway, customers can pay you in multiple fiat currencies. A U.S.-based customer can pay in dollars, a German customer in euros, a Swiss customer in francs, and so on.
Some gateways also support receiving payments in cryptocurrencies like Bitcoin (BTC), Ethereum (ETH), Tether (USDT), and Litecoin (LTC). You can then convert the cryptocurrency to fiat and withdraw it to your bank account, or withdraw it directly to your cryptocurrency wallet.
Multiple payment method integration
Gateways provide multiple payment options for customers. A customer can enter their credit/debit card details, use digital wallets like Apple Pay or Google Pay, transfer money directly from a bank account, or send digital tokens to your wallet. Either way, the payment will be recorded and credited to your merchant account.
Recurring payments and subscriptions
Gateways allow you to receive recurring payments from customers. For example, someone can subscribe to your software platform for a $10 monthly fee. The client will input their card details in the first month, and they’ll be charged $10. The same card will be automatically charged $10 in each subsequent month, until the customer cancels the subscription or changes their payment method.
Refund and dispute management
A customer can dispute a payment for various reasons and request a refund. If that happens, the payment gateway’s team investigates the issue and decides whether to issue a refund. During an investigation, you may be asked to provide specific documents related to the customer’s complaint.
Unlike fiat payments, cryptocurrency payments can’t be reversed by a payment gateway. However, the gateway still handles disputes and finds possible solutions for both you and the customer.
Security measures in payment APIs
Explaining how a payment gateway works isn’t complete without diving into the robust security measures to expect when choosing one. These measures safeguard customers’ data and prevent fraudulent transactions that could lead to chargebacks. Let’s explore them below.
PCI DSS compliance
PCI DSS (Payment Card Industry Data Security Standard) is the most widely used security standard for gateways that handle sensitive cardholder data. This standard, developed by a consortium of card networks – Mastercard, Visa, American Express, Discover, and JCB International – in 2006, is the de facto system that payment gateways adhere to.
The PCI DSS standard specifies precise requirements for gateways to encrypt card data, restrict access to sensitive data, and conduct regular security testing. Any gateway you choose must be compliant with these requirements. Gateways usually display a website badge highlighting their PCI DSS compliance status.
Advanced fraud detection
Payment gateways use AI and ML to analyze transactions in real time and detect fraudulent patterns. Transactions flagged as suspicious are delayed or swiftly blocked, depending on the severity. For example, if a card issued to a U.S.-based customer suddenly gets used for a large purchase in a faraway country, it’s a possible sign of a fraudulent transaction, and it’ll be blocked pending verification action from the card’s owner.
3D Secure and strong customer authentication
3D Secure is an authentication system that payment gateways use to verify a customer’s identity. For example, after a customer enters their card details, they’ll receive a one-time SMS code from their bank, then input this code to authorize the payment. This code ensures that the customer is the actual person paying for the product, not a malicious actor who obtained their card details.
Payment API integration guide
You’ve learned the core features of a payment processing API and the measures used to secure sensitive payment information. Now, it’s time to know how to integrate a payment gateway API into your site to begin accepting payments. Let’s explore the integration steps below.
Choosing the right payment gateway
The process starts with selecting the right payment gateway for your needs. To do this, consider where your customer base is located, which currencies you want to receive payments in, and the gateway’s transaction fees, ease of use, and customer service. These factors help you choose a reliable payment gateway that best meets your needs.
Integration methods and approaches
With your gateway selected, the next step is to decide how you’ll integrate it into your site. You have these payment gateway API integration options:
- Payment link. Create a payment link that customers can follow to authorize a transaction. This method requires the customer to leave your site to process the payment and then return afterward.
- Direct integration. Integrate the payment gateway directly into your website. This way, customers can enter their payment details and authorize a transfer without ever leaving your website. This method is the most convenient for your customers.
- Embedded iframe. A workaround where you embed a payment gateway’s page on your website. The payment will be processed on the gateway’s domain, but without the customer leaving your site. The drawback is that if a website is compromised, a malicious actor could replace the legitimate iframe with a similar but illegitimate one, allowing them to steal customers’ card information.
We advise using either direct integration or a payment link to process payments on your website.
Implementation steps
With your integration method finalized, it’s time to implement it on your website. Your payment gateway will issue unique API credentials for your website, including a public and a private API key. You’ll insert these keys in the relevant section of your e-commerce platform (Shopify, BigCommerce, etc.) or hand them to a developer to implement the API integration.
Shopify and other e-commerce platforms simplify the API integration process for online stores. However, if you’re creating a custom integration, a developer needs to set up endpoints, server-side logic, webhook listeners, and protocols for handling data and logging errors– Shopify, BigCommerce, etc., handle this process on users’ behalf.
Testing and quality assurance
After integration, test the system in a sandbox environment provided by the gateway. This sandbox environment lets you pay like a real customer using a virtual card, with no funds debited. It lets you test all aspects of the payment flow and detect any issues before deploying the gateway for public use.
Going live and monitoring
If satisfied with the test, deploy the payment gateway for live usage, and customers can begin paying for your products immediately. You’ll do this by switching from your API test credentials to the live credentials.
Yet, the payment gateway integration doesn’t end here. You should constantly monitor your payment success rates and ensure they stay above 90%. Anything below 90% indicates a problem that needs to be fixed quickly, so don’t hesitate to investigate the issue or contact the gateway’s support team for help.
Benefits of using payment gateway APIs
- Cost savings. A payment gateway lets you quickly set up the infrastructure needed to accept payments in multiple currencies, rather than build one from scratch at higher costs. The payment gateway has covered the high upfront costs, and you can simply tap into its infrastructure to accept payments.
- Security. With a payment gateway’s robust security measures, you’re assured of your customers’ card details being safe from malicious actors.
- Ease of operations. Your business runs smoothly when you have a reliable payment gateway that lets you receive payments in various fiat and digital currencies.
Crypto payment gateway advantages
- Lower transaction fees. You can process crypto transactions for a few pennies, unlike fiat transactions, where a 1%-5% transaction fee is the norm.
- Faster transactions. A customer’s crypto payment can settle in your wallet within minutes, unlike fiat payments that take several days to finally land in your business bank account.
- Ease of integration. Integrating a crypto payment gateway requires fewer steps than a fiat gateway.
- No chargebacks. Blockchain transactions are irreversible, removing the risks of fraudulent or unnecessary chargebacks.
- Transparency. All blockchain transactions are recorded in public databases, allowing you to verify details of any transaction, even many years after.
Common payment gateway API use cases
Payment gateway APIs are what enable many industries to run efficiently, even if customers often don’t notice the backend work powered by these APIs. These are the industries where gateway APIs make the most impact:
E-commerce and online retail
Online stores need an online payment gateway API to accept payments from customers reliably and conveniently. Many stores offer one-click checkout that completes in seconds. They also send automated reminder emails to customers who began a checkout process but didn’t complete it. Payment gateways are what make all this happen, serving as the lubricant that keeps the $3.7 trillion global e-commerce sector moving.
SaaS and subscription services
Many software providers charge customers monthly, quarterly, or annual fees to retain access to their tools. Payment gateways enable these fees to be paid conveniently. The customer’s card will be automatically charged when due, and they’ll be notified before and after the payment.
Software billing can be complex, for example, when a platform bills based on usage, offers multiple pricing plans, and includes paid add-ons. Gateways automatically compute fees based on each customer’s usage patterns and bill accordingly.
Marketplaces and platform businesses
Online marketplaces use payment gateways to streamline complex payment processes. For example, a real estate marketplace can offer split-level payments, where a customer makes a 50% down payment and pays the rest in monthly installments. A payment gateway enables this marketplace to collect all required payments without hassle.
The real estate marketplace can also use an escrow service, where funds paid by a buyer are held by a third party until verification, after which they are transferred to the seller. A payment gateway enables this multi-step payment process to be completed without issues.
Conclusion
With the right payment gateway API, you have all you need to accept fiat or crypto payments and render your services efficiently. A gateway lets you securely process transactions at reasonable costs and speeds. It gets better when you choose a crypto payment gateway, as they process transactions swiftly and at negligible cost.
B2BinPay is your go-to crypto payment gateway, enabling you to accept payments in dozens of cryptocurrencies and convert them to fiat, or store your cryptocurrencies in the long term. Choose B2BinPay and be on your way to building a thriving business.
Frequently asked questions
How long does API payment processing take?
Processing times depend on the payment method. Payments via credit/debit cards are usually processed within seconds, but can take 1 to 3 days to settle into your business bank account. Crypto transactions are processed and settled within minutes, while bank transfer payments can take up to 5 business days.
How much does payment gateway API integration cost?
The cost varies widely depending on the payment service provider. Some providers charge both setup and recurring fees to access their platform, while others waive these fees and only charge transaction fees. However, all payment gateways charge fees of 1%-4% per transaction, so expect to pay within this range. Whether you’ll pay an extra setup fee and recurring fee depends on your selected gateway.
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