A payment API (payment gateway API or payment processing API) is an API system that integrates a payment solution with a given application, by connecting it to a payment system and allowing it to do payment operations. It can offer payment options like cards (debit and credit), digital wallets, UPI, and more.

It is also the opposite of a hosted checkout, which redirects the users to a different website where the payment is processed. Thus, the payment APIs allow businesses that integrate with them to be able to accept payments from the customers on-site. Payment APIs can be integrated with different types of applications, such as web apps, mobile apps, e-commerce plug-ins, and so on.

One of the major challenges in designing an API like this is to consider that most banking transactions are asynchronous because they are often complex, involve multiple parties, and take some time to execute.

In this article, we are going to show one example of a simplified system design for a Payments API, how to approach the major challenges, and which approach is the best for achieving an optimal solution.