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Updated by 03.12.2024

Payment API: What Is It and How Does It Work?

Payment APIs, or Application Programming Interfaces, allow different software applications to communicate with each other to transfer payment information securely and efficiently

In today’s digital economy, where online transactions are the norm, payment APIs enable secure and seamless online payments between customers and businesses. Without payment APIs, online transactions and e-commerce would not be possible.

As a leading API payment services provider, E-Complish has published this article to give you a clear understanding of how payment APIs work and their benefits for your payment processing capabilities.

What Is API Payment?

What Is API Payment?

An application programming interface (API) is a set of rules and protocols allowing different software systems to communicate and share data and functionality.

In the context of online transactions, a payment API plays a vital role by linking a retailer’s website with a payment processor during the checkout process.

This essential connection allows merchants and businesses to securely accept and process customer payments, including debit and credit card payments, digital wallet payments, and ACH.

APIs make it easier for businesses to integrate payment functionalities into their websites and apps and manage and track transactions.

An example of this is when a customer initiates an online payment. The payment API securely transmits their payment information to the relevant financial institutions. (This transmission is usually encrypted to safeguard the data.)

Once the bank approves, the API notifies the seller to proceed with the payment method. This smooth process provides a hassle-free payment experience for both parties.

Different APIs serve different functions, for example:

  • Transaction APIs: Carry out payment transactions, such as initiating, refunding, or canceling payments.
  • Subscription APIs: Handle recurring payments, allowing businesses to bill customers automatically regularly.
  • Tokenization APIs: Securely store payment information by replacing sensitive payment data, such as credit card numbers, with encrypted tokens.
  • Payout APIs: Send payments to individual accounts, enabling businesses to distribute mass payments to multiple recipients, automate the payout process, and provide real-time information on payment status.
  • Pre-authorization APIs: Hold funds temporarily on customers’ cards when the business needs to verify a customer’s ability to pay before providing a service.

How Does API Payment Work?

How Does API Payment Work?

The technical process of how online payment APIs work involves several steps and interactions between different systems and components:

  1. Initiation: The customer initiates the payment process by making a purchase on the merchant’s website or application. They select the desired product or service and proceed to the checkout page to pay.
  2. Client-server communication: The merchant’s client-side system (such as a web browser) sends a request to the merchant’s server-side system containing the payment details, such as the amount, currency, and customer information.
  3. Merchant-payment gateway communication: The merchant’s server system receives a request from the client side and communicates with a payment gateway (a software service intermediary between the merchant and the customer’s bank or credit card issuer).
  4. Customer authentication: The payment gateway authenticates the customer’s payment credentials, such as credit card number, CVV code, and expiry date.
  5. Authorization request: Once the customer is authenticated, the payment gateway sends an authorization request to the customer’s bank or credit card issuer to process the transaction.
  6. Payment processor communication: The customer’s financial institution sends an authorization request to the connected payment processor, which manages the transaction between the customer’s and merchant’s banks.
  7. Payment approval: If sufficient funds exist, the payment processor approves the bank payments authorization request and returns an authorization code to the payment gateway.
  8. Payment confirmation: The payment gateway transfers the authorization code to the merchant’s server, confirming the payment’s authorization and allowing the merchant to fulfill the customer’s order.
  9. Settlement: After the payment is confirmed, the processor transfers funds from the customer’s account to the two merchant accounts.
  10. Payment completion: The payment gateway notifies the merchant’s server that the payment has been processed and the transaction is complete, allowing the merchant to display a confirmation message to the customer.

To summarize, payment APIs facilitate authentication, authorization, and settlement procedures to ensure a secure and seamless payment transaction.

API Payment Security Measures

API Payment Security Measures

Most reputable payment APIs for payments use several industry-standard security measures to accept payments:

  • Encryption: Converting sensitive payment data into a code that can only be decoded with a specific key or password. This ensures the data remains private and secure, even if it is intercepted during transmission.
  • Tokenization: Replacing sensitive payment information with a unique identifier or “token” that is meaningless to anyone who intercepts it. The payment processor securely stores the actual data, reducing the risk of data theft.
  • Two-factor authentication: An additional layer of security that requires users to provide a second form of identification, such as a unique code sent to their phone, before a payment can be authorized.
  • NACHA and PCI compliance: Payment Card Industry (PCI) and NACHA standards ensure that payment APIs follow strict security protocols, such as maintaining a secure network, regularly monitoring and testing systems, and using strong encryption.

What Are the Benefits of Using API for Payments?

With the rise of online shopping and mobile payments, payment APIs offer a range of benefits that can greatly affect the customer experience and benefit businesses of all sizes:

  • Various payment options: Accept credit card payments, digital wallet payments, debit card payments, and more, offering your customers a personalized experience.
  • Greater efficiency: Payment APIs streamline processes by automating tasks requiring manual effort, resulting in faster operations. APIs handle real-time payments, bulk transactions, refunds, and subscription renewals, improving operational efficiency.
  • Subscription and recurring payments: For businesses with a recurring billing model, payment APIs automate the process, securely storing customer payment information and processing charges at set intervals.
  • Accurate reporting: Payment APIs provide advanced data and analytics features for businesses to gain valuable insights into their payment activities, such as analyzing sales patterns, tracking successful and failed transactions, and monitoring dispute rates.
  • Effortless scalability: Payment APIs are designed to handle large volumes of transactions, allowing businesses to scale their operations without worrying about their payment infrastructure.
  • Easy integration: APIs can be integrated with existing business systems, such as CRM, ERP, and accounting software, and allow for customization of the checkout experience. Such flexibility empowers growth without payment processing limitations.

How to Choose an API Payment for Your Business

How to Choose an API Payment for Your Business

Understanding your specific API needs depends on your business’s required level of security, integration abilities with other systems, its expected volume of payments, and budget limitations.

Identifying these specifics will help you find the most suitable API payment solutions. In general, you’ll want the following.

Advanced Payment Features

A good payment processor API securely stores customer information for easy auto-pay and refunds, saving time and effort. Digital invoices can be quickly generated, attached with relevant documents, and sent via email, reducing the need for paper invoices. It supports remote signature capture for secure e-commerce and phone transactions, preventing potential disputes and chargebacks.

Versatile Payment Options

Select a payment API provider with a wide range of features for your customers. This will allow you to offer various payment options, such as subscription payments for in-store, mobile, and online transactions, to enhance user experience and drive sales for your online business.

Security Compliance

It is imperative that any payment API partner being considered can provide evidence of their compliance with the PCI DSS standards. Tokenization, encryption, and two-factor authentication should be implemented to safeguard the data. This sensitive information should only be accessible to the payment processor.

Integration Capabilities

Consider the future features you may want to add and the level of flexibility the payment API allows. Always align the choice with your business strategy. For example, it’s useful to have customization capabilities through an API and integration with accounting software for automatic transaction tracking. Supporting global transactions to facilitate cross-border sales may also be important for your API payment processing.

REST vs SOAP APIs for Payments

REST vs SOAP APIs for Payments

Representational State Transfer (REST) and Simple Object Access Protocol (SOAP) are currently the two main types of APIs used in the payment processing industry.


Representational State Transfer (REST) is a web-based architecture that uses a simple URL structure and HTTP protocols to enable communication between diverse applications.

This architecture is highly scalable as it is stateless and supports caching mechanisms, improving performance. Consequently, it is preferred for developers looking to create scalable and sustainable API payment systems.

Some of the advantages of utilizing REST APIs:

  • Ease of use: User-friendly with minimal setup. Developers can create and manage endpoints effortlessly, simplifying updating and maintaining the API over time.
  • Scalability: Easy scaling suits companies looking to expand their operations. New endpoints can be added, and changes can be made without disrupting existing systems.
  • Platform independent: Accessible from any platform or device, making them available to a larger user base.
  • Better performance: It is designed to be fast and efficient, making it an ideal choice for companies prioritizing high performance and reliability.


Simple Object Access Protocol (SOAP) is an XML-based messaging protocol that enables the exchange of structured data between various applications. It is particularly suitable for enterprise-level applications due to its high security, reliability, and transactional integrity.

Other benefits of SOAP APIs include:

  • Reliability: Designed with efficient fault tolerance capabilities. If an error occurs, they can automatically retry the request until it is successful.
  • Organized data: SOAP APIs use XML to organize data, making it easier to manage complex data structures and maintain data integrity.
  • Interoperability: Can be used across different platforms and programming languages, making them an ideal choice for companies that use a wide range of technologies.
  • Security: Equipped with strong authentication, encryption, and authorization capabilities.

If security and reliability are paramount, SOAP may be a better choice. However, REST API would be a better option if flexibility and simplicity are more important.

Architecture Web-based, simple URL and HTTP protocols. XML-based messaging protocol.
Ease of Use Simple, minimal setup required. Standardized, suitable for various platforms.
Scalability Highly scalable, stateless with caching. Scalability is less emphasized.
Platform Independence Accessible from any platform or device. Interoperable across different platforms.
Performance Fast and efficient. Can be complex due to XML format.
Security Basic, customizable security features. Advanced security, with authentication and encryption.
Data Format Typically uses JSON. Uses XML for data structuring.
Reliability Generally less reliable than SOAP. Highly reliable with fault tolerance.
Ideal Use Case Applications needing flexibility and scalability. Enterprise-level applications requiring high security.

How E-Complish Empowers Businesses with API

As we continue to embrace a more digital future, the role of payment processing APIs will only become more essential in facilitating seamless payment experiences for merchants and consumers.

At E-Complish, we understand that every business has specific requirements for online payment solutions. In response, we have developed DevConnect, a convenient solution for developers to seamlessly integrate our ACH and credit card back-end processors into their legacy systems through a single API.

Contact us today to learn more about our customizable API solutions for your business.

Amber Capece
Amber Capece
Amber comes to E-Complish with 12 years of experience in the Hospitality Industry. We are sure you are wondering how…