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Why APIs Are a Strategic Differentiator for Payments

January 28, 2022


Significance of API Integrations in Digital Transformation.

Flexibility, reliability, and scalability are essential in the fast-moving world of payments. Learn why APIs are a strategic differentiator.

Banks and payment providers are facing a constantly evolving landscape when it comes to payments. Banks, which used to operate solely as brick-and-mortar institutions, relied on in-house legacy systems and manual management to support operations — and this made sense. Today, however, the world of banking and payments looks entirely different and operates in an increasingly digital-first way.

To compete with FinTechs that can provide technology-driven, customer-centric products, and services, traditional payment providers must modernize their infrastructure. Many have been reluctant to dive into digital transformation, largely due to massive costs and the sheer size of such an undertaking. To “rip and replace” existing systems is no easy feat. However, APIs have changed the game when it comes to modernization, making it more accessible and less cost-prohibitive.

Why APIS are Important for Payments

APIs, or application programming interfaces, connect two or more software systems through a digital gateway. These can be internal or external products; McKinsey estimates that over 50% of a bank’s APIs are currently used for internal connection, but that this ratio will flip within the next three years. In external contexts, gateways embed features within the user interface so that the consumer cannot tell where one program begins and the other ends. This is important for companies who want to expand their service offerings without developing their own software products — or sending consumers to an entirely new website.

For banking, this is critical for two reasons. With API support, the consumer can access all their banking services across multiple devices, such as mobile and desktop, which greatly improves the experience. Customers can leverage newer services—like sending money through communication apps—without signing up for a new provider or even leaving the platform. They may even be exposed to new products and brands through a positive integration.

From a provider perspective, APIs enable customer data to be easily unlocked and shared between business partners. This improves the quality of the service that each party delivers, as they can tailor their services and communications to the individual customer. The right API will also ensure that personal information is secure within the exchange; making it a win-win for everyone.

Leveraging APIs for Meaningful Improvements

APIs themselves are a conduit to new solutions. They can be utilized for endless purposes throughout the consumer journey, and they can be used extensively to add value to a company’s offering.

Better User Experiences

A common customer complaint today is having to resubmit payment information on frequently used platforms. This usually happens when there is insufficient integration between the two pages; information has not been stored automatically, so it must be input manually. While this is time-consuming, it also increases the risk of an error being made — which is a serious concern with financial transactions. An API connection will store user information securely so personal information can be auto-filled, adding ease and convenience to the customer journey.

Lower Churn Rates

When a merchant declines payment or the online checkout takes too long to process, the customer may decide to abandon the transaction altogether. Even though they may be trying to improve the security of their platform, merchants need not resort to painstaking manual reviews. Through API integrations, new technology can be implemented to reduce online fraud while minimizing auto-declines. In exchange, the consumer experiences a speedy, friction-free checkout and is more likely to return in the future.

Greater Simplicity

When payment transactions are handled by API-supported software, the system can leverage AI and data analytics to radically simplify the approval process. This extra bandwidth leads to improved processing power, which in turn makes it possible for providers to scale up their operations. Platforms can now commit to greater sales volumes without the risk of delay or processing overload.

Improved Future-Proofing

It is impossible to stay at the forefront of technology without continually evolving. The rate of innovation is so fast that payments companies must always keep an eye on the future — and try to keep current operations as flexible as possible. By building an infrastructure that uses APIs to support new integrations, businesses can ensure they are always able to meet the newest customer expectations. This is the only way to stay competitive in the long term.

Guaranteed Flexibility

Customers today have more payment options than ever, but this can lead to friction at the checkout, if their preferred method isn’t supported. It is not just different credit card processors that checkouts must integrate with; today’s customers are just as likely to check out with a digital wallet or through a “Buy Now, Pay Later” (BNPL) provider. To support all these different methods, platforms can either build out individual product integrations — or leverage readily available APIs. With an API gateway, providers can embed different payment methods into a single interface so that customers have access to a slew of payment options.

APIs as the Ultimate Differentiator

Consumer behavior is changing at unprecedented rates, accelerated by the great wave of digital transformation. In order to meet this new and ever-shifting demand, payments companies must ensure that their infrastructure is adaptable and agile. While the specific solutions of the future are still unknown, the tools to implement them are already here.

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