API Licensing: A Guide to Financial Service Innovation

Procedure of processing payments made online and through the virtual space is an urgent need for businesses operating on the Internet. Online technologies allow you to transfer and receive funds around the world, erasing distances, national borders, and instantly converting currencies. API-license, also known as a payment gateway permit, is a permit allowing a firm to act as an intermediary between a merchant and a bank, allowing them to process transactions securely and efficiently, eliminating any possible risk.

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What Is API Licensing: Regulatory Landscape And Main Service Categories

Each transaction between seller and buyer, sender and recipient of a transfer may involve several parties. These are the following elements:

• buyer (client, payer);
• seller (payee);
• bank that issued the card;
• bank supporting the operation;
• a system that ensures the operation of the client’s bank card;
• a processing center that processes payments on a specific online platform.

API stands for Application Programming Interface. This is a set of protocols and tools that are used to create software mechanisms allowing processing payment operations without introducing any risk.

APIs are issued by government agencies responsible for regulating the payment industry, in particular, by Central Bank. These regulators ensure that PSPs comply with relevant laws and regulations to protect consumers, merchants and the entire payments ecosystem. Regulatory parameters and standards for obtaining an API vary across jurisdictions, but typically include demonstrating compliance with standards for prevention of illegal monetary means circulation (AML) and KYC-regulations for customer identification and verification, information security and financial stability standards.

Now let’s look at the potential use of this type of resolution. A business operating on the Internet cannot function without the need for high-quality, secure processing of electronic payments. An API license allows you to gain access to a complex processing center responsible for accepting payments on any website. Moreover, you will have the opportunity to use a variety of payment methods and process different types of transactions. Due to the flexibility of the processing center’s software interface, it’ll be possible to communicate with any external systems. It’s useful for business-project by expanding the potential of trading platforms that provide services via the Internet.

Other useful API-institution licensing features include the nехt-mentioned.

1. Ability to import and synchronize money transactions.
2. Stable notification system.
3. Protection against fraudsters thanks to implemented specialized tools.

With an API-license, you can collaborate with third-party developers. You will have access to developing functionality and expanding the online positioning of your own company on new trading platforms.

API-license provides many options for PSPs. First, it allows them to offer payment processing to merchants and consumers, allowing them to accept and make payments online or in-store. Secondly, it gives PSPs access to payment networks and payment rails, which facilitates the transfer of funds between merchants, consumers and banks. Third, it provides a competitive advantage for PSPs in the payments industry as they are authorized to provide relevant service lists in accordance with regulations and standards.

API-Licensing Process: How To Apply For API-permit

API includes a set of classes, functions, procedures, requests and responses designed to process online payments. Developer documentation is usually closed. This is necessary for security purposes, since confidential data is processed, such as payment details and personal users’ information.

API authorization provides access to software interface data and the control room. This occurs after the corresponding registration of payment services. In the future, access is granted through authorization. The licensee also receives PCI DSS certificate documents. Its presence is required by foreign payment systems.

The algorithm for obtaining a permit is as follows.

1. Corresponding applications are submitted to the Regulator, for example, to the Central Bank.
2. Applicant’s details are verified.
3. Assessment of applications is given.
4. If all requirements are met, applications are approved and the Applicant is notified.

Corresponding application is submitted directly, which must be supplemented with the list of parameters below.

1. Constituent documentation and company’s Statute (copies are provided).
2. A detailed business plan for 36 months. It should, among other things, contain forecasts for the financial component of the business.
3. A program document according to which financial transactions will be carried out.
4. Characteristics of management and monitoring methods, including those aimed at maintaining the security of clients’ operations and assets.
5. Questionnaire data about directors and key persons of the company.
6. A diagram of the internal organization of the future enterprise.

A license for the software interface of a processing center makes it possible to organize the acceptance of payments using a variety of payment instruments and process various transactions. Flexible solutions provide connection to any external systems, which expands the potential of trading platforms and companies providing paid services via the Internet.

Compliance and Risk Management

Obtaining an API can be a complex and lengthy process, as regulators require a detailed and comprehensive application demonstrating the PSP’s ability to meet relevant regulations and standards. The main challenges in obtaining a license to pay for an API include the following.

1. Regulative norms compliance. Service providers must demonstrate compliance with AML, KYC and information security points, and financial stability.
2. Development of a business plan. Such providers must prepare a detailed business plan describing their operations, management, financial projections and risk management strategies.
3. Technical requirements. Such providers must implement technical solutions that meet regulatory requirements, such as secure data storage and transmission, fraud detection and prevention, and data protection.

The length of time required to get an API varies by country and regulator. API-license allows you to invite third-party developers to cooperate, develop functionality, expand the company’s online presence by creating new trading platforms, attracting third-party sellers and intermediaries.

You should be prepared for the fact that at the stage of consideration of your application, the commission may require documentary evidence of the level of qualifications of the company’s management. It is also important to comply with the conditions below.

1. Ensure that internal documents on corporate activities are publicly available to regulatory authorities.
2. After obtaining a license, don’t provide other services to residents (relevant for several jurisdictions).
3. Obtain approval for any structural changes in the company.
4. Eliminate the possibility of circulation of the national currency.

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The article’s author is Denys Chernyshov – founder and CEO of globally-famous organization Eternity Law International.