Why Are Card-Linked Offer APIs so Expensive?
You wake up one morning and head to the kitchen to grab a bowl of cereal, but when you look in the fridge you realize you’ve run out of milk. Glancing at the clock, you calculate you have just enough time to throw on some clothes and run to the grocery store to pick some up before your day is off and running. As you’re in the check-out line at the store, you remember that you should use a specific credit card to buy the $4 gallon of milk since you signed up for a card-linked offer, which gives you an extra 5% cash-back. It’s a win-win for you as the customer – you get the milk you need but also return home feeling satisfied that your milk purchase is earning you rewards you can use in the future.
Yet for the company that runs the cash-back offer, the results aren’t as simple or rewarding, especially when it involves such a small purchase. Why? you may be wondering. It has to do with something called payment network API integration.
In this post we’ll be primarily discussing what payment network API integration is, why it’s so expensive for merchants, and also give an alternative option for businesses and CLO platforms to consider. Let’s get started!
Essentially, a payment network is a middle-man entity for electronically transferring money from one place to another. In order to purchase something from a merchant of any kind, your money has to be able to get to them from wherever it’s being stored, like your bank. Merchants simply do not have the ability to directly connect to every financial institution (aka bank) their customer uses; similarly, it’s not the job of a financial institution to connect to every possible merchant the account holder interacts with. This is where the payment network comes in – it bridges the gap between financial institutions and merchants so that transactions and purchases can be made by all sorts of people, no matter where they choose to keep their money.
The progression for making a transaction with any business, whether at a physical location or through e-commerce looks like this:
All these steps happen behind-the-scenes without most customers ever thinking about it. The data travels via the internet between each pair of involved entities, back and forth, at blazing speed – surely impressive, especially if you look at it with the eye of a developer.
Although this is a technically complex process, the networks that do this kind of thing are pretty commonplace, and most likely you’re familiar with many of them. Think of companies like Visa or Mastercard, or even Zelle or Venmo – they’re the ones working behind-the-scenes to link merchants and financial institutions in order to make transactions possible.
Payment networks also play a role in card-linked offers (CLOs), which are discounts or cash-back you can receive by linking your credit or debit card to an app, website, or loyalty program.
Technically, you can think about CLOs like this: a small bit of data, encrypted, tokenized and stripped of sensitive personal information, takes a detour from the main data flow depicted above, and goes somewhere else – to the company that is running the CLO program.
Once you’ve created the link between card and CLO, you automatically get rewards (like points) for shopping or making purchases at specific places. Some common examples of CLO platforms include Yelp, Thanks Again, or the monthly cash-back offers Chase Bank (as one example) gives its patrons. In all those examples, payment networks are necessary in order to actually link the rewards back to the customer.
So – What’s the problem?
Payment networks make purchases possible so that you, the customer, can not only get the things you want or need, but also be rewarded for buying them. The problem is, however, the necessary process of integrating payment network API into your business or CLO platform is extremely expensive.
Payment networks charge a fee for every single transaction made through them, and businesses have to pay those fees. It’s why some stores have a card transaction minimum – because they pay a fee to the payment network to process the payment, and they don’t want the value of your purchase to go entirely towards the fee for transaction.
CLO applications, when they integrate with payment networks APIs, have to pay a fee for every redeemed offer! This can quickly become an unsustainable cost.
So the problem lies in that the more transactions that are made, the more overall fees a CLO business pays to the payment network. These fees are not only an annoyance for businesses to have to pay but can even be the difference between survival or failure.
But… Is there an alternative?
If only there was a better way to connect financial institutions, merchants, and consumer cards… Well the good news is, there is. In the past, payment networks were your only option as a business, but today a less expensive, more secure, and more informational data platform exists in the form of a different API.
Instead of paying for every transaction made, Pentadata’s financial APIs charge a monthly fee per connected bank account. That means that the same person making many transactions throughout the month using the same method of payment only costs the business a one-time fee.
Pentadata’s financial APIs connect directly to customers’ banks using the most recent, industrial-strength technology that is encrypted and secured exactly like a bank does – in fact, it’s approved by the banks. Additionally, this API allows a business to see more financial data over time through a history of transactions so that they can analyze trends and make more data-informed decisions for the future of their company.
Financial APIs like Pentadata’s are hands-down the better option and where e-commerce is headed, so why not check it out and see the difference it could make for your business?
Find out information by visiting Pentadata’s website.