Payout API 101: How To Find The Right One For Your Business

What is a payout API?

First, API is short for 'application programming interface'. An API is any type of technology that enables two software applications to communicate with each other. It determines how data should be transmitted between the two software components. It also dictates the functions that can be performed. A payout API, for instance, is an API that allows software applications to make and collect payments.

With the help of payout APIs, businesses can ensure their mobile and web applications or any other digital platforms are capable of processing payments. For example, when a company needs to make a cross-border payment to a supplier, the payout API takes care of the entire process, from making the currency conversion and calculating the transaction fee to sending the money directly to the supplier’s bank account. Payout APIs support a variety of online transactions such as bank transfers and payments via credit and debit cards, mobile wallets, and payment gateways. Payout APIs are essential to streamlining business operations and improving the customer experience.

How does a payout API work?

To understand how a payout API works, it’s important to familiarise oneself with its components or the distinct functions it performs. These are: 

Payout requests

Every transaction begins with a payout request. Once a payout request is made, the payout API initiates the fund transfer to the recipient’s bank account, card, or wallet by using information such as the recipient’s details, the payout amount, and transaction instructions. Payout requests are required to process payments and facilitate refunds.

Authorisation and verification

Payout requests must be backed by a robust authorisation and verification system to ensure correct and secure transfers. Payout APIs automatically verify if the recipient’s information is accurate and up-to-date. After the payment is processed, they verify if the transaction was successful and also send payment status alerts in real time.

Transaction security

One of the reasons behind the success of payout APIs is their emphasis on security. Apart from a strong authentication system, payout APIs use encryption, tokenisation, and monitoring tools to guarantee the security of each transaction and sniff out fraudulent requests and transactions.

Data storage and analytics

Payout APIs are often equipped to store data, such as recipient and transaction details. This ensures payments can be processed in just a click. This data storage feature is especially useful for companies that offer subscriptions and deal with recurring payments. Furthermore, the stored data can be used to create historical records and gain insights into sales trends, customer behaviour, dispute rates, and so on.

How does a payout API work? Taking the example of a customer buying a product on an e-commerce website, the payout process can be summarised in these four steps:

1. The customer initiates payment by entering their details (credit card number, bank account details, etc) on the e-commerce website and clicks on checkout.
2. The website server receives the information and sends a request to the payout API, with which it is integrated. The request includes the transaction amount and payment method and details.
3. On receiving the request, the payout API starts the process of authenticating the transaction. To do so, it must check with the card network or issuing bank, depending on the payment method used. If the transaction details check out, the payout API approves the transaction and sends its response to the website server. This response notifies the website server on whether the transaction has been accepted or declined. In the case of a successful transaction, the payout API also ensures the amount is transferred from the customer’s card or account to the e-commerce firm’s business account.
4. On receiving the payout API’s response, the website server updates its records to display that the purchase has been made. It also sends a confirmation message to the customer.

Similarly, the e-commerce firm can also use the payout API to pay its suppliers and contractors. It simply needs to enter each supplier’s details into the payout API and set up the necessary approvals, after which payments will be automatically processed.

Why do businesses need a payout API?

The benefits of payout APIs go beyond improving payment systems as they even contribute to business growth and give companies a competitive edge over rivals. Here are the four top advantages of using a payout API:    

Simple, fast, efficient, and secure transactions

Payout APIs ensure instant transfers compared to traditional payment methods like wire transfers, which can take days or even weeks to process. Payout APIs are also easy to set up and use, and have stringent safeguards in place to guarantee transaction security. They are equipped to support bulk and recurring payments and also handle refunds, which helps businesses improve efficiency and strengthen their relationships with customers and suppliers.

More payment options

Payout APIs support a wide variety of payment methods such as bank transfers, debit and credit cards, digital wallets, and so on. Facilitating preferred payment methods for customers and business partners improves their experience of doing business with you, which in turn boosts loyalty. Successful businesses know the importance of offering multiple payment choices as this directly impacts buying decision.

Easy international transactions

Payout APIs ease the process of running a global business. With payout APIs, companies can pay their suppliers in the currency of their choice anywhere in the world. Offering global payment options also increases their chances of expanding to new markets. What’s more, payout APIs can handle the large transaction volumes that come with running an international business.

Affordable and flexible

Payout APIs are more affordable compared to traditional payment methods, especially for cross-border transactions. With numerous payout APIs to choose from, businesses can pick one that fits their budget. Many payout APIs offer tiered pricing corresponding to business size and requirements, which means that you pay only for what you need.

What businesses can benefit from a payout API?

Any company that makes regular payments to suppliers and business partners and accepts digital payments from customers can benefit from a payout API. The e-commerce sector, for one, has greatly benefitted from payout API integrations. The provision of multiple payment choices and a secure and seamless checkout experience not only contributes to customer satisfaction but also improves conversion rates and reduces cart abandonment.

Payout APIs are also suitable for subscription-based SaaS companies as automated payments ensure subscribers never miss a payment deadline. A subscription-based streaming platform, for example, can also use the payout API to ensure regular and timely payouts to content creators.

Another useful feature of a payout API is its ability to track and process refunds, which is of great use to retail businesses.

With digital and instant payments seeing steady growth in recent years, as per the 2023 McKinsey Global Payments Report, the reliance of businesses on payout APIs is only set to increase.

How to choose a payout API

When comparing payout APIs, consider these key factors:

Pricing

Some payout APIs charge a flat fee per transaction while others charge a percentage of the transaction amount. Make a comparison to determine which pricing model works best for you. Familiarising yourself with pricing details beforehand will save trouble down the road.

Ease of use

The payout API must be easy to use and integrate while offering multiple capabilities.   

Technical support

Even the best payout API is bound to have issues from time to time, making it essential that it provides round-the-clock support, frequent and relevant system updates, regular maintenance, and a reliable reporting mechanism. 

Best-in-class security

Does the payout API come with encryption, tokenisation, multi-factor authentication, and fraud detection? Does it conduct regular security audits? To transact safely and secure sensitive data, you cannot compromise on security. Other security-related features to check include compliance with relevant regulations like the Payment Card Industry Data Security Standard (PCI DSS) and measures taken to secure API keys (special authentication codes).

Global payments

With international transactions growing at a quick pace, most businesses want their payout APIs to support cross-border transfers in multiple currencies at reasonable rates. Even better if the payout API has partnerships with international banking networks and payment processors.

Good uptime

Don’t forget to inquire about uptime – the time a payout API is up and running, represented as a percentage. While 100% uptime is next to impossible, go for a payout API with high availability so that you don’t have to deal with frequent outages that hamper transactions.

Free trials

Many payout API offers a free trial or sandbox testing feature so that businesses can test them out before entering into a partnership.

Steps to integrate a payout API into your business

1. Do the groundwork

The first step is to lay the groundwork for the integration. This includes picking out a payout API that meets your business needs and fits your budget, making sure your systems are compatible with it and your employees are trained in its use, and deciding on the payment methods and currencies you plan to use.

2. Make a checklist

Problems are common during any integration. It is always a good idea to first test the integration in a sandbox environment to identify and fix any bugs and glitches. Most providers offer technical support, so familiarising yourself with the support provisions and responsiveness should be on your pre-integration checklist. Make sure the integration complies with the necessary regulations, such as on data protection and user privacy. Don’t forget to read the documentation, guides, and other resources provided by the provider. Of course, properly understanding pricing structures and fees goes without saying.

3. Do the set-up

The integration process differs from provider to provider but it usually involves creating an account and generating API keys necessary for integration. Consult the provider’s API documentation for tutorials, guides, and best practices to complete integration. Aspire’s Payout API, for example, comes with easy-to-understand documentation and onboarding support. Once set-up is completed, the Payout API seamlessly integrates your ERP system to Aspire’s Multi-Currency Account and you can start transacting.

4. Monitor and update

After integration, perform a final check to see that everything is in order. Even if you have already tested the payout API before integration, it is good practice to monitor it in the initial days to make sure that everything is working as it should. Your payout API will require occasional updates based on changing business requirements and user feedback.

Aspire Payout API is here to help

• Our powerful Payout API speeds up payments and reduces errors. It is also packed with useful spend management tools such as approvals and budgets, so you never go over limit.
• You can transact in 30+ currencies at rates three times lower than what banks charge and also receive real-time notifications on the status of each transaction.
• Before signing with us, you can test our Payout API in a sandbox environment with 24/7 support available.
• You might also be interested in our Payment Gateway, which supports more than 26 payment methods, comes with competitive pricing, and is easy to integrate.