Many payments organizations are discovering the power of API-led connectivity, but what about the monetization of APIs? Learn more about how APIs can generate new revenue.
In today’s digital landscape, payment market leaders understand that they need to be able to offer high-quality experiences on desktop and mobile, to win over modern consumers. While a range of new software tools is available to help in this mission, it is application programming interfaces (APIs) that are changing the game.
By strategically deploying APIs, companies can provide internal and external access to critical data and services. These gateways enable businesses to integrate third-party solutions into their offering, creating additional revenue streams for their products. The right API partnership will not only streamline back-end operations but also provide a superior customer experience, creating value both directly and indirectly.
These are not just theoretical business gains. The API management market is predicted to grow from $1.2 billion to $5.1 billion in just 5 years (between 2018 and 2023), according to a report by MarketsandMarkets. The compound annual growth rate (CAGR) of 32.9% reflects the growing role of APIs across multiple industries, but particularly for the BFSI (banking, financial services, and insurance) and North American segments.
To take advantage of this growing industry, payments companies must understand how to monetize APIs effectively for their business.
How APIs Get Down to Business
Many payments companies already utilize APIs for improved performance and efficiency within their platform. This is because APIs can support internal data sharing and communication, which in turn boosts collaboration and helps to remove silos. Private API usage also enables a company to troubleshoot and refine its software, before it’s exposed to partners or the public.
The technology itself can support a range of different functions, from smooth mobile experiences to improved data analytics. What is universal with API deployment is the improved access to new solutions, without the need for physical servers or additional in-house development. Through API integration, companies can improve their service offerings in a cost-effective yet secure way — and grow their revenue alongside.
The ABCs of API Monetization
Once a payments company has successfully implemented an internal API strategy, it is time to consider how these programs can bring in revenue. The logical first step is to select an existing API to expose to a new category of users, although another option is to develop a new API and test run it internally, before launching it with partners or the public.
Determining the End-User
Companies must first assess which group will benefit the most from the API technology. If the payments platform works directly with the end customer, it might make sense to follow a public model and embed the gateway in their user experience. If they are mostly supplying technology for a B2B partner, then they are unlikely to need such expansive access and should opt for a more contained partner arrangement.
Depending on the end-user, the payments platform will need to determine how much control the user will have over the API implementation. In a partnership arrangement, the user may want the ability to adapt the general gateway for their particular business, for an additional fee. Or they might just prefer to save money with a standard license. By understanding who will be using the product, the company can better figure out how to provide value.
Selecting a Payment Model
There are many ways to make money from an API. The simplest is to charge for the use of the API on a subscription or volume basis. Freemium models are a popular choice, whereby access to a basic version of the API is free but premium features come at an extra charge. This helps the company to grow its customer base and expand awareness, while still earning revenue.
Another option is revenue sharing: Here, the customer doesn’t pay for the API integration but receives an affiliate fee or commission on all revenue made through their API usage. This ensures that the customer can earn a profit, which will appeal to companies that have a tighter budget. In exchange, the API developer can grow its brand and drive a greater number of overall sales.
Finally, a payment company may decide to offer its services entirely for free, in exchange for business benefits, also known as indirect revenue. More customers engaging with the API will generate more data, which the API owner can use for improved analytics. More users will lead to stronger brand awareness and easier customer acquisition. Lastly, by offering a service for free, the API owner can strengthen its B2B partnerships for long-term benefit.
Payment companies should also consider providing multiple levels of access, to serve as many customers as possible. For instance, even if a payment company has determined a competitive pricing model, it can be valuable to include a free tier of use or a trial period to attract potential clients that will grow into big spenders.
Building Out the Implementation Strategy
A quality API isn’t enough to guarantee success. Payment companies should establish an implementation strategy before moving forward, to ensure they are maximizing the value of their product. If a product has already been successfully used internally, it can be useful to document this and create a proof of business use, to attract initial customers. There should also be a designated management system so that the API developer can ensure functionality, measure performance analytics and identify future areas of opportunity.
A Monetization Route for All
Each payment company will need to take an individual approach to their API monetization strategy; each of their APIs may require different pricing structures or audiences. Yet this flexibility also demonstrates the great opportunity available to earn revenue from all kinds of APIs — it just comes down to identifying the right approach.