Online payments behemoth PayPal thinks developers are key in its quest for world domination. Late last year, it launched a portfolio of new APIs that PayPal hopes will give developers the ability to create applications that extend PayPal’s footprint into markets in which it believes its payment solutions could be better utilized.

But if the credit card associations have their way, PayPal will have to compete for the best developers.

Yesterday, MasterCard announced that later this year it will be launching its own open APIs. These APIs will give developers access to various MasterCard payment and data services. MasterCard’s goal: give developers the ability “to create a new wave of e-commerce and mobile payment

MasterCard’s press release explains:

…MasterCard has identified approximately 20 platforms and services that it plans to open up to developers via the portal. These platforms and services provide additional functionality and enhancements to MasterCard’s payment capabilities. The Open APIs will further enhance the development of new applications and systems beyond those currently available, including CRMs, ERPs, online games, merchant e-commerce web sites, eWallets, mobile applications, and payroll systems.

MasterCard payment and data services also could be integrated with other data sources and functions to create “mashups” – new applications that are a result of combining multiple data sources.

According to MasterCard’s Chief Innovation Officer, Josh Peirez, “we feel this will unleash innovation within our industry especially in the
burgeoning areas of e-commerce and mobile payments.
” PayPal look out.

Of course, MasterCard seems to be tempting fate by opening up its technology to third parties. While all developers who want to take advantage of MasterCard’s APIs will need to register and be approved by MasterCard, open APIs inherently create security risks, no matter how well designed and operated they are. As we’ve recently seen with the Twitter-for-purchases service Blippy, Murphy’s Law dictates that at some point, what can go wrong will go wrong, and one can be sure that these types of APIs will be juicy targets for the same types of sophisticated criminals who will go to great lengths just to get malicious ads onto a prominent site.

Despite the security risks, it makes sense that the MasterCards and Visas of the
world would look to get closer to developers. Realistically, even with all of their resources, these associations are not capable of exploring all of the opportunities that exist for next-generation payment solutions. And from a business
perspective, there’s no reason that the opportunities to develop these solutions should be ceded to companies like PayPal.

In the end, consumers should benefit the most from credit card associations’ willingness to let others extend their payment networks into new markets, and it will be interesting to watch over the next several years as developers do their thing. Hopefully the collateral damage from the inevitable security incidents will be minimal.

Photo credit: popstencil via Flickr.