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The future of payments? There’s an API for that

21 Oct 2015
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We are the connected consumers of the right-now economy. We have the ability to purchase at any time; from anywhere, and by many means, but the payments part always seemed to be the bump in the road of an otherwise smooth journey. That’s now changing, and a lot of credit for this progress goes to the humble application programming interface (API).

First off: what is an API? An API will never be pulsing in neon, as it operates in the background. Many readers of this blog should be familiar with the ‘Sign in with Google’ request: well, that’s an API in action. When you try to access a website using ‘Sign in with Google’, an authentication process kicks in. The website effectively delegates user authentication to Google. Google, after all, knows exactly who the requestor is.

Once authentication is complete you are allowed access. The website asks: ‘Is this Mr. Schmidt?’, and Google – via this authentication API – replies: ‘Yep, that is Mr. Schmidt.’

The bonus for the user is no long-winded form-filling, no sign-up pages – just a simple, easy online entry point.

That’s straightforward access and user authentication, but APIs also make payments easier.

(As an aside check out Nasa’s new APIs, they will allow developers access for use in mobile apps. Kin Lane, the API Evangelist, has also blogged on Nasa’s new adventure.)

Now, back to earth.

APIs have transformed how we purchase, especially online – yet we are still just scratching the surface of their payment-related possibilities. APIs enhance connectivity, opening up endless possibilities for merchants when accepting payments.

They do so as they allow online merchants to easily accept card payments for anything from physical goods, subscriptions, or tickets for travel and entertainment. APIs are effectively digital handshakes that initiate trust between two parties. This is vital when user data and transaction data is in the mix.

When an online merchant decides to use Stripe, for example, as its payment processor their customers’ payment information is routed to Stripe’s server, removing the merchant’s server from the payment process. This action brings the added bonus of removing the merchant from time-consuming payment industry compliance measures, such as Payment Card Industry Data Security Standards (PCI DSS). The payment processor takes this compliance burden off the merchant’s shoulders.

 

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Shaping the future of payments

We couldn’t blog on APIs without a list (i.e. GET /list {futureofpayments}), so here are five ways APIs are shaping the future of payments:

 

  • Ease of integration: When a merchant is faced with the connected consumer of the right-now economy they have to make some hard decisions. One of the most appealing features of a good payments API – especially to merchants and their acquirers – is its ease of integration. This means so much to a merchant toying with the idea of opening up their business and data to a third-party. The benefits, in the end, simply outweigh any negatives. The best APIs only require developers to add a snippet of JavaScript to a website’s code. There’s no overhaul required, a process that is especially beneficial to merchants that can not afford any downtime. APIs reduce development time and by not requiring a significant outlay in time, resources, or a cost outlay they are withstanding the tests of time and growing in popularity.

 

  • Mobile payments: Simple is difficult, but the likes of Stripe, PayPal, and Braintree (owned by PayPal) dominate the mobile payments space. Braintree, for example, is set to double its payment processing volume in 2015 to $50 billion. Stripe too know the business of internet business so when they make a move, it’s wise to take notice. In early October 2015 Stripe launched Relay – another API – that allows mobile users to make in-app purchases, e.g. from Twitter. It is designed to make web and mobile commerce easier, no more form-filling and single button mobile payment options. For app developers, Relay is described by Stripe as “a set of APIs for building great in-app buying experiences. People can buy products directly within your app rather than getting pushed to third-party websites.” Is this the future of payments? Who knows? Well, Stripe probably do. Stripe’s core audience is developers as they believe that “building an internet business is a problem rooted in code and design, not finance. Our developer-friendly APIs let our users focus on building great products.” This simple approach, there’s no technical heart surgery as developers just add a simple script to their site – accompanied by a superb user interface – has led to Stripe recently being valued at €5 billion. The San Francisco-based company having attracted new funding from Visa, American Express, and the venture capital behemoth Sequoia Capital.

 

  • App marketplace: APIs are key to building apps, the key elements of mobile commerce. This mention of apps brings us nicely to PSD2 (the second iteration of the EU’s payment services directive). PSD2 – which was overwhelmingly passed by the European Parliament in early October 2015 – will have a serious impact on stakeholders in the banking industry ecosystem. The passing of this payments directive will not only choice for the consumer and allow third parties access to account information. This access is only granted once the consumer has given their “explicit consent”, a vital element to PSD2. From there it’s all about APIs, or Open API Banking. A highlight of PSD2 is the mandatory access to accounts (termed XS2A), where bank account holders will have the ability to compare and contrast their account(s) with other banks and third parties. If they so wish they can easily switch. It won’t take days or weeks, it will happen in real-time. Customers here today, gone tomorrow. PSD2 is teeming with possibilities for banking stakeholders (customer behaviour data is an asset), but the signs are ominous. In a 2015 poll of banks on the potential impact of XS2A on their business model “only 5% of poll participants expressed confidence that their core banking systems will not be a barrier to becoming an ‘Open API bank’.” This is about inter-connected payments, aided by the Open API approach.

 

  • Omnichannel: As APIs boost interconnectivity they also open new doors for merchants and their acquirers. Perhaps a merchant only sells online, only sells at a physical location, or perhaps they have tried to merge the two landscapes but have hit a wall. APIs provide merchants with the ability to operate an omnichannel approach. We know that the consumer is already connected, so why can’t the merchant replicate the needs of their potential customers. Some consumers browse online and purchase at a physical store (perhaps due to exorbitant shipping costs), others compare physical store prices with those online. Merchants and acquirers that embrace this avenue will reap the rewards. APIs facilitate this approach by connecting the physical environment to the online, and vice-versa. A win-win for merchants and acquirers willing to take the leap. With the Internet of Things, the possibilities for the omnichannel approach are unlimited.

 

  • Value-added services: When a customer purchases a good or a service from a merchant there is a wealth of data attached. On the most simplistic level, there’s the time and date, amount, and type of payment used. APIs can be integrated with a merchant’s POS terminal to tap into their customer’s behaviour and lead to more valuable data. An API delivers a consistent experience and can also open up online ordering for a café; understand a customer’s browsing habits online, or provide a merchant with a heatmap of customer movements in-store (when used in conjunction with beacons). All options provide invaluable insight to the merchant and their acquiring partners. APIs can also be integrated to track customer purchasing trends, and provide more detailed transaction records. Data can be dormant, in most physical stores it is, but via a simple API integration (and there are numerous available) that data can be turned into crucial business analytics. The consumer will benefit when merchants use this data to offer key customer loyalty initiatives.

 

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Authorize.net and PayPal were one of the first to reveal APIs for the payments industry. Today, Stripe and Braintree (now part of PayPal) have taken APIs to another level with their super slick interfaces and ease of integration revolutionising how developers can implement a payment service to their platforms.

This revolution is taking place at breakneck speed. The first lines of code for Stripe were only written in 2009. Now the company set up by the Collison brothers from Limerick, Ireland, has been valued at $5 billion. Stripe are not alone in this mega-valuation world.

Fexco Intelligent Solutions utilises the latest technology and connectivity tools available to service our clients unique transaction needs. We are committed to continuing innovation across the entire payments value chain.

Our Transaction Services solutions provide a secure infrastructure enhanced by a wide range of modular business services and client specific features which facilitate an end-to-end transaction solution for merchant’s acquirers and card schemes. Please contact us to discuss your payment transaction needs.

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