Small businesses are the backbone of modern economies, and they require efficient payment technologies to function, scale, and enhance their services. Payment gateway APIs help small businesses take their payment processing capabilities to the next level, comply with industry standards, leverage analytics and insights, optimize cash flow management, and more.
Small and medium-sized businesses (SMBs) are responsible for about half of the total value creation and over 70% of employment opportunities in global economies. This share is slightly bigger for developed markets, but some emerging economies also display astonishing dependence on SMB activity. For example, in Kenya, MSMEs (micro, small, and medium enterprises) contribute around 60% of value added and account for 96% of total employment nationwide.
Payment Processing Challenges Faced by SMBs
Despite their unquestionable value to the economy and local communities, small businesses remain quite underrepresented in many spheres of both traditional finance and fintech.
To begin with, micro-scale businesses often start from scratch with little to no extra financing necessary for developing a proper payment infrastructure. Therefore, the tiniest enterprises often resort to the simplest and oldest sales model – accepting cash only. It is especially true for the merchants dealing with low-cost items. Oftentimes, low-value transactions incur misaligned fees that make the whole deal meaningless.
In addition, in rural or developing regions, small businesses may lack a reliable internet connection, digital storefront, or mobile infrastructure required for contactless and online payments. Naturally, in regions where digital payment infrastructure is limited or disarrayed, the notes-and-coins approach might be fine, since local citizens most likely also prefer dealing with cash. However, in largely cashless societies, trading in an old-fashioned way is a road to nowhere.
Selling online is a great way for merchants to expand their target audience beyond their own neighborhood, as well as save money on rent, storage, and other expenses related to a physical store. It is easy to do today, with even social media profiles becoming digital storefronts. Yet, a great deal of small business owners struggle with e-commerce opportunities due to the payment tools’ limitations.
Why Small Businesses Lack Access to Payment Tools
Businesses with a low margin can rarely afford to cope with setup fees, monthly service fees, and transaction fees charged by traditional financial service providers. Furthermore, their small scale, perceived financial instability, lower chances of legal compliance, and minimal profit on each sale may place such merchants in the “high-risk” category, triggering even higher rates. Many micro businesses are denied access to formal payment processing services altogether. Here are some alarming statistics:
- Approximately 30% of first-time merchant account applications are declined by payment institutions, with small or high-risk businesses being especially affected.
- Nearly 20% of small business owners have low personal credit scores, which can negatively impact merchant account approval. Micro businesses also often have limited or poor credit history, raising red flags for payment processors.
As if that wasn’t enough, many payment tools require extensive technical knowledge or developer resources to integrate. Obviously, micro businesses have limited human resources, time, and, most probably, tech skills to deal with those complexities. Not all of the business owners out there are tech-savvy enough, and they often find it overwhelming to navigate payment gateway documentation or set up secure environments to comply with all the industry standards. Moreover, many small business owners don’t even know what payment processing tools are available on the market, how they work, or how to choose the right one.
Payment Gateway APIs Can Be Game-Changers for SMBs
Payment gateway APIs are essential software interfaces that connect online merchants to payment networks, enabling secure, efficient, and flexible digital payment acceptance. These APIs are integrated directly into the merchant’s website, marketplace platform or app so that they can communicate securely with external payment processors or gateways.
How It Works
To integrate a payment gateway API into a website or app, a merchant, company or brand should select a suitable provider and obtain API keys or tokens that authenticate their e-commerce platform with the payment gateway. While some merchants prefer unbranded solutions, others choose white-label payment gateways to gain greater control over their payment infrastructure.
Next, developers integrate the payment gateway API into the website or app by adding code that sends payment requests, including transaction details and customer information, to the gateway. Before launch, the integration is tested in a sandbox environment. There are also many no-code and low-code payment gateway API solutions enabling small business owners to integrate payment processing without extensive coding knowledge and extra help.
When a customer makes a purchase on the website and finalizes the transaction, the related payment data is encrypted, tokenized, and transmitted over secure protocols like HTTPS without exposing actual data to protect sensitive information during the transaction process.
The payment gateway API forwards transaction details to the acquiring and issuing banks for authorization. Once approved, the payment is processed, funds are transferred, and the API sends confirmation back to the website or app, updating the transaction status. Although the process description sounds long, all these steps are typically completed within seconds.
What Payment Gateway APIs Change in Merchants’ Routine
Merchants who start dealing with payment gateway APIs feel an immediate effect of these fintech tools. There are several aspects of a business routine that get better with payment gateway APIs.
Cost-Efficiency
Payment gateway APIs help merchants save some money. They offer flexible, usage-based pay-as-you-go pricing, often with no setup or monthly fees, which small businesses with tight budgets will surely find attractive. What’s important is that the pricing policies API-based providers offer are transparent, and they often go without long-term contracts, being suitable for changing business conditions. Besides, some merchants discuss volume-based discounts with payment processors to democratize access to payment solutions even more.
Compared to traditional API integrations, modern payment gateway APIs come with easy-to-use SDKs, plugins for e-commerce platforms, and low-code/no-code options. That makes their deployment less costly and painstaking. Business owners can save on hiring developers, paying compliance teams and ongoing maintenance. By rough estimations, low- and no-code platforms can cut about 70% in development costs and around 80% of maintenance costs. Funds, otherwise spent on expensive developer resources, can be allocated to other critical areas.
Except for this direct cost saving, deploying payment gateway APIs brings additional benefits that reduce other operational expenses and should not be overlooked. Thus, no-code solutions speed up deployment and time-to-market by up to 90%. That unlocks much faster revenue generation and boosts operational efficiency. Payment gateway APIs can also be connected to inventory management, order fulfillment, accounting, and CRM systems through API workflow automation tools to further reduce manual tasks and save operation costs.
Security
Payment gateway APIs help merchants boost security of their customers’ financial data in a few ways. As we’ve already mentioned, sensitive payment information, such as credit card numbers and personal data, is encrypted and tokenized before transmittion. This way, it cannot be read or misused by unauthorized parties. Besides, API uses security credentials to verify the identity of the website or app, ensuring that only authorized platforms can access the payment gateway’s services.
All communication between the e-commerce website/app and the payment gateway occurs over secure protocols such as HTTPS, so that data have fewer chances to be intercepted or tampered with during transmission. Finally, payment gateway APIs comply with industry standards like PCI DSS, which means strict security measures for handling payment data. Many providers also handle KYC (Know Your Customer) and AML (Anti-Money Laundering) checks so that small businesses have less to worry about.
Multi-Functionality
Unlike many traditional payment gateways, modern APIs serve multitude of different purposes. They are well-suitable for omni-channel sales model, powering all kinds of payments like those which come from mobile payment apps, QR code transactions, and SMS-based links. All those transactions can be unified within a single payment gateway API, making business processes much simpler than in case with managing multiple payment systems.
Besides, APIs are inherently scalable and customizable. They can grow or shrink along with a small business, either adding or reducing necessary features like recurring billing, payout automation, multi-currency support, supplementary fraud detection tools, business analytics and dashboards, etc. This variability helps small businesses expand across channels, geographies and target customer groups without much fuss.
Final Thoughts
To fuel economy with more power, small businesses need efficient methods to accept payments across multiple channels and jurisdictions. Sadly, they are often labelled as ‘risky’ and cannot receive access to proper technology and financing. However, payment gateway APIs that require low coding skills and are much more cost-effective than their traditional alternatives make significant difference for the merchant’s operations, payment security and ease of transaction acceptance.
