The Beginnings of APIs in Banking and Payment Systems — The 70s to the 2000’s

Editor:Rob Tyrie

Generated by:GPT-J

Historians are known to say that those who do not study history are doomed to repeat it. In the case of payment systems, the best way to understand it and keep innovating is to think about how interoperation has work from the beginnings of electronic payment systems. From the begins of the Rothschild’s letters of credit on papers signed in ink and sealed with stamped wax, to transfer of credit with telegraphs the facsimile and telex’s, international payment systems have never stopped evolving. TL;DR; It’s getting more and more digital as transactions are digitized and systems are designed with APIs to support interoperation. But, first, some history.

Coding competitions known as “tech sprints” (sometimes known as “hackathons”) emerged on the periphery of technology conferences in
the late 1990s, gained popularity in the mid-2000s, and are now nearly compulsory at every major fintech festival and payments
conference. Before it became a buzzword, a tech sprint was just part of the job description for business software engineers. One of the

great tech sprints in the history of payments occurred in the mid-1970s when a Visa engineer named Frank Fojtik wrote the code that eliminated a major pain point for cross-border retail payments interoperability.

Although most consumers today take for granted the speed and efficiency of cross-border consumer payments, until the 1970s,
international transactions were slow and cumbersome. If a US cardholder made a purchase in the UK, the British acquirer (merchant’s bank)

would need to send a telex to the card issuer requesting an authorization.

Although most consumers today take granted the speed and efficiency of cross-border consumer payments, until the 1970s,
international transactions were slow and cumbersome. If a US cardholder made a purchase in the UK, the British acquirer (merchant’s bank)

would need to send a telex to the card issuer requesting an authorization. Manual processes could take several days, with the
possibility of the transaction being declined. After the telex authorization was granted, the acquirer would transmit a file to the issuer
of the card containing the details of the transaction. The issuer would then either confirm or decline the transaction and return the
file to the acquirer, who would transmit the file to the merchant’s bank, who would again send a telex to the card issuer. This process
could take several days to complete.
The speed and efficiency of cross-border payments today can be attributed to the introduction of automated clearing houses (ACH),

which greatly sped up the authorization process. In the early 1980s, card issuers began to transmit authorization requests to ACHs
instead of manual telex transmissions. This meant that the merchant’s bank could receive an authorization request from a card issuer

in its own country in a matter of seconds, rather than days. The end result was that international payments today are a fraction of the
time they were 30 years ago.

The best thing about the 1970s tech sprint was that it was a team effort. For the first time, business software engineers had an
opportunity to see what it was like to work on a cross-border payments application. It was exciting and exhilarating.



The first international payment app was built in the early 1970s and it was an incredibly complex piece of software. It had to deal
with multiple card issuers, multiple countries, multiple acquirers, multiple banks, multiple merchants, multiple payment systems,
and multiple accounts. It was a real-time global payments system that could be accessed by any bank, anywhere in the world, at any
time. This global payment system was the first international payment app, and it was a landmark achievement.



In the 1980s, after the first international payment app was introduced, the next breakthrough came in the form of electronic funds
transfer (EFT) in the UK, where the National Westminster Bank (now NatWest) was the first bank to issue an EFT card. In
November 1984, the bank began offering the first EFT card in the UK, which was processed by the London Bank of Commerce. The first EFT card was issued to a British merchant in July 1985, who used the card to process a retail payment in Spain. This was a major
breakthrough because it meant that the transaction could be initiated by a UK merchant and processed through the UK bank, and then
transferred to the Spanish acquirer, without the need to transmit a telex to the card issuer in Spain.



Today, we have the benefit of an entire ecosystem of payment technologies. The cards we use have a chip on them, which allows
them to be swiped and read by a card reader. The card’s chip is encrypted, so the data it holds cannot be read by any third party, and
instead is only readable by the card issuer. This is a very important security feature. The data on the chip is encoded in a format called

EMV (Europay, Mastercard, Visa), which has become the industry standard for all card issuers and payment networks. The EMV format is
international in scope, so any card issued in any country can be used in any other country. The EMV format is also called chip-based authentication (CBAA), as the technology uses a chip that is embedded in the card to authenticate the cardholder and ensure the card is
properly authenticated. This eliminates the risk of fraud associated with magnetic stripe cards. In addition, the EMV format is also
called tokenization, as the EMV card has a token that contains data on the cardholder. This token is issued by the card issuer, and is
encrypted with the cardholder’s PIN (personal identification number) to ensure the cardholder’s privacy. When the cardholder uses the

card, the card’s token is decrypted and then used to authorize the transaction.



In addition to EMV cards, we have multiple payment networks. Each card issuer is assigned a specific network that it must use to
process payments. The three major networks are Visa, Mastercard, and American Express. Visa and Mastercard are well-known global

companies with a large network of card issuers. American Express is an American company that also has a global network of card issuers.
American Express cards can be used in any country. In the US, American Express cards are called AmEx cards, and in the UK, they are
called AmEx cards.



In addition to the payment networks, we have multiple acquirers. Each card issuer is assigned a specific acquirer that it must use to
process payments. Acquirers include large banks, credit unions, and credit card networks.
We also have multiple card types. Cards include Visa, Mastercard, American Express, Diners, Discover, JCB, and other cards. A card

issuer can use multiple card types within its network, but a card cannot use multiple networks. Each card issuer has a primary card type
that it issues.



We also have multiple payment systems. The most well-known of these is the US-based system called Automated Clearing House (ACH).

ACH is a payment system that is run by the Fedwire system. The Fedwire system is run by the Federal Reserve Bank of New York and is
part of the Federal Reserve System. ACH is a real-time electronic funds transfer system that is run by the Fedwire system and has

been in operation since the late 1970s.



There are other payment systems that are used globally, including the European system called SEPA, the Japanese system called JCB, and
the Australian system called ANZ. The SEPA system is an electronic funds transfer system that is run by the European Central Bank (ECB)
and was first introduced in 1992.

It has since expanded to include multiple countries, including the UK, Germany, Sweden, Finland,
Switzerland, Ireland, the Netherlands, Austria, and Poland.