A Primer on Payments Orchestration: What It Is — and Is Not

25.07.2023 23:54

PYMNTS.com

As eCommerce hits its stride globally, companies are struggling to keep up with growing consumer payment demands and methods — especially when attempting to expand their businesses into new segments or international markets.

Merchants are seeking faster, turnkey solutions to evolve their payments stacks. Platforms and aggregators need to onboard their new merchant customers faster without losing valuable time to building one-off integrations. In addition, each one must work with the best mix of payment solution providers to meet the unique needs of their business, their customers’ demands and the local regions they are selling to. Payments orchestration can help with these needs, but there is some confusion about exactly what payments orchestration is — and what it is not.

PYMNTS offers the following primer to help clarify the myriad definitions of — and distinctions between — terms that have become somewhat muddied through popular usage as the payments orchestration industry evolves.

Payments Orchestration 101

As businesses seek to meet rising consumer expectations for an ever-growing array of seamless digital payments, payments orchestration offers a simplified solution for building these capabilities while reducing costs and regulatory burdens.

Source: IR Team. Payment Orchestration: Simplifying Payment Processes. https://www.ir.com/guides/payment-orchestration. Accessed July 2023.

A payments orchestration platform facilitates interconnectivity between a wide range of independent payment-related services.

New and emerging technologies have revolutionized the payments landscape in recent years, resulting in an ongoing expansion of payment choice for consumers. As businesses seek to cope with the increasing demands and consumer expectations of digital payment options, payments orchestration is an essential resource for optimizing payment choice while reducing costs to help promote business success.

Payments orchestration leverages connections with multiple payment services to allow merchants and aggregators to connect easily to a wide range of independent payment-related services. This allows merchants and independent software vendors to scale quickly and support new geographies, partners, business models and customers by onboarding new services promptly. At its best, payments orchestration integrates and manages all necessary payment service providers (PSPs), acquirers, payment gateways, processors, banks and security services through a single software layer or application programming interface (API). This marketplace effect allows the swift creation of a best-of-breed model that is tailored for a specific business while also speeding time to market.

By potentially offering a limitless number of these connections via a single API, payments orchestration platforms offer unparalleled flexibility in payments. Orchestration brings together merchants, users and service providers to initiate, validate, route and process transactions.

Payments orchestration benefits both merchants and platforms in a variety of ways.

Payments orchestration can help both merchants and merchant aggregators overcome the technological barriers of building their own payments infrastructure. Building and maintaining an adaptive payments engine in-house is often a burden that grows exponentially. Organizations are not just maintaining existing connections but also tracking — or ignoring — new entrants and enhancements that could benefit their businesses. Today, orchestration brings a wide range of payment methods and gateways to hand within a single, seamless checkout experience for consumers. This comprehensive back end tied to a clean and consistent interface for each merchant can also significantly improve the customer experience, enhancing customer loyalty and lifetime value.

Orchestration can also help merchant aggregators attract more merchants to their platforms by enabling them to support new payment services swiftly and easily. Aggregators often cater to a diverse network of submerchants, each bringing their own preferences for gateways and features. Orchestration obviates the tedious negotiation with prospects around preferred gateways by enabling quick onboarding and a prepackaged connection. Other benefits include a reduction in security and regulatory compliance burdens, which can be considerable, given the multiple standards in place globally. Orchestrators, by catering to a global clientele, are familiar with regional regulatory requirements and can help clients anticipate necessary changes to their payments as their businesses expand.

The Three Kinds of Payments Orchestration

Payments orchestration comes in three forms: agnostic, augmented and solution-centric. Which one is best depends on the merchant or merchant aggregator.

Source: IR Team. Payment Orchestration: Simplifying Payment Processes. https://www.ir.com/guides/payment-orchestration. Accessed July 2023.

Agnostic payments orchestration prioritizes merchant choice.

The first type of payments orchestrator is concerned with enabling and optimizing payments without preference for any specific payment service or provider, making it a true agnostic orchestrator. Merchants and merchant aggregators seeking the flexibility to use whatever combination of PSPs they deem best tend to flock to this type. These solutions allow merchants to experiment with and select their own correct mix of payment services without having to adopt a one-size-fits-all suite.

This independence not only frees merchants to choose their payment providers but also offers them a trove of data insights to inform these choices at the outset. Agnostic orchestrators collect information on such factors as authorization rates, latency times and a host of other variables across payment services. Popular gateways may not be the best-performing ones for certain regions, card types or merchant types, so agnostic orchestrators can provide merchants with important insights for improving their digital business performance.

Augmented payments orchestration allows merchants to add specific features onto existing payments stacks.

In an augmented offering, a payment company allows merchant customers to process payments outside of its proprietary stack. This is helpful for merchants that lack providers able to process payments for a specific function or geographic region.

As in agnostic platforms, the selling point of augmented orchestration is still the expansion of merchants’ payment options — but in this case, for a more limited or specific set of uses. While this type of payments orchestration reduces the chance that merchants will switch services altogether, it also limits its user base to merchants that are largely satisfied with the orchestrator’s core bundle of services, maintaining a competitive relationship with other payment companies that offer a freer mix.

Payments orchestration can be solution-centric.

The third category of payments orchestration consists of solution-focused platforms. These orchestrators specialize in a particular area that may involve payments but is not necessarily payments-focused, while the first two categories of payments orchestration are focused on capabilities and products within the payments flow. Solution-centric providers cast a broader security net. They may secure and transact payments data in their scope, but they are less focused on granular capabilities within the payments field. These firms often focus on compliance standards (such as PCI, GDPR, HIPAA and CCPA) and securing all types of sensitive information. Specialties include fraud, core banking and data security rather than payments enablement.

Orchestration Versus Optimization: The Key Difference

The meaning of “payments orchestration” is not obvious to the uninitiated. One source of confusion is the distinction between payments orchestration and payments optimization. These terms, sometimes used interchangeably, refer to distinctly different concepts.

Source: Benson, J. Payment Orchestration and Payment Optimization: The Definitive Definition. Spreedly blog. 2023. https://www.spreedly.com/blog/payment-orchestration-and-payment-optimization. Accessed July 2023.

Payments orchestration allows merchants to support new customer segments.

Broadly speaking, payments orchestration helps merchants extend their reach into new markets, while payments optimization allows merchants to improve each individual transaction’s outcome, wherever — and with whatever customer — it takes place.

By bringing together a wide range of independent payment services, payments orchestration facilitates merchants’ expansion to new regions, partners, business models and customer segments through the swift integration with new payment capabilities. In particular, payments orchestration can improve businesses’ transaction capture rates by allowing them to provide different markets’ local payment methods and work with various PSPs.

Payments optimization involves improving outcomes — one transaction at a time.

Payments optimization, on the other hand, aims to improve payments’ performance during each transaction to boost the likelihood of a successful outcome.

This is achieved through the analysis of each component of a transaction to unlock ways of yielding higher checkout conversion and reduced friction and costs. Merchants that experience a lot of chargebacks due to consumer fraud, for example, could gain better conversion and lower processing costs through the use of network tokenization. Payments orchestration can promote this kind of optimization because even if merchants’ primary PSPs do not support network tokens, orchestration can give them access — at the flip of a switch — to new providers that do.

eCommerce Demands a Range of Orchestration Choices

While the definition of orchestration has clear boundaries, its potential for serving merchants’ needs is as vast as the number of merchants in existence. Ultimately, eCommerce is about the expansion of consumer choice. With so many different merchants, each with unique customer bases and markets to serve, no individual approach to orchestration is right or wrong. However, when first setting out to find a payments orchestration partner, merchants and aggregators should generally look for one with the following capabilities:

The provision of a single technology layer to add to their payment stacks.
Instant access to multiple providers representing a global range of markets.
Evidence of success through case studies.
Advanced data functions such as intelligent routing that can optimize transactions and reduce false declines.

It is not only appropriate but also vital that there be a wide variety of orchestration options available to meet customers’ particular needs. Which one merchants and aggregators choose is up to them — and their business objectives.

The post A Primer on Payments Orchestration: What It Is — and Is Not first appeared on PYMNTS.com.