Market trends impose demanding requirements on global merchants to manage payments effectively and efficiently. They are looking for the flexibility to harmonise their payment processing, profit from local market conditions for better authorisation rates and cost reduction, minimise operational risk (e.g., outages), and simplify acquiring relationships when possible.
In recent years, a new category of merchant service providers – called payment orchestrators – have established themselves to support merchants in their payment optimisation journey. Payment orchestration is the process of efficiently managing a diverse range of payment methods, providers, and channels within a unified platform to ensure seamless payment processing for businesses.
Working with a payment orchestrator, merchants avoid the need to work directly with multiple integrations and different payment gateways, resulting in cost savings, improved payment success rates, and a superior user experience for customers.
Payment orchestration has become a widely used business term in the payments market today, and it may have many different meanings for various people. For this article, Datos Insights is looking at providers of ‘pure play’ payment orchestration solutions – such as ACI, BPC, Br-dge, Cellpoint Digital, Ixopay, Spreedly, WL Payments, and others. These companies provide an independent and acquirer-agnostic orchestration Platform-as-a-Service (PaaS) to merchants, either directly or through a payment service provider (PSP) that white labels the orchestrator’s solution. Merchants can connect to any PSP, acquirer, processor, fraud management system, or other third-party software. These payment orchestrators are independent of any acquirer or processor, managing the different APIs – but leaving the choice of provider and contractual arrangements to the merchant.
The value proposition for payment orchestrators is based on the following key features.
Smart (or intelligent) payment routing is a crucial feature in multi-provider setups, providing businesses with greater control over their payment strategy. This feature allows for the customisation of payment flows, the implementation of dynamic load distribution, the reduction of transaction costs, and the use of fallback routing and cascading to an alternate provider in case a payment provider becomes unavailable.
For enterprise merchants, having access to multiple payment integrations with acquirers, PSPs, gateways, and other stakeholders allows them to enhance payment acceptance rates and reduce processing fees. With more options available, they can choose the most suitable provider for specific transactions, thus optimising costs and improving payment success rates.
To ensure the secure storage of sensitive payment data, businesses must comply with strict regulations and obtain a PCI-DSS Level 1 certification when processing credit card transactions. However, implementing and maintaining such an infrastructure can be costly and complex, prompting many ecommerce businesses to rely on their PSPs for data storage. This process involves tokenization, where credit card data is encrypted and stored by the PSP, while the business retains a token to be used for future transactions on its ecommerce platform. This method frees the business from the burden of securing sensitive payment data directly.
However, tokenization can create a strong lock-in effect with the current provider. If the business wants to switch to a different PSP or if their existing contract is unexpectedly terminated, they face challenges. Transferring customer data to a new provider is expensive and time-consuming, and asking customers to re-enter their payment data can lead to trust issues and lower conversion rates.
To address this issue, businesses can utilise an orchestrator to store their customers’ payment data, therefore mitigating the risk of a lock-in effect. This way, tokenized payment instruments can be processed through any PSP connected to the platform. This gives businesses the flexibility to quickly reroute payments to a new provider.
Reconciling transactions in a multi-acquirer set-up can be a complex and challenging process for enterprises. Different service providers may have varying approaches to providing reconciliation data, leading to differences in the timing, format, semantics, and granularity of the data – particularly based on the underlying payment methods.
The orchestrator can address these challenges by standardising the reconciliation process, regardless of the payment service providers and payment methods used by the business.
Enterprises need a solution for managing and tracking a wide range of fees incurred during payment transactions. Orchestrators support different calculation modes, including blended pricing and Interchange++. They ensure accurate and flexible fee calculations in real time, based on various transaction types, including intra and inter-regional, personal/corporate cards, and specific transaction categories.
Orchestrators can provide a single dashboard and/or interface to enable merchants to analyse trends, measure performance, and test customer uptake of new initiatives.
Orchestrators can offer a comprehensive suite of payment integration options to streamline the checkout process, such as plugins for commerce platforms such as Shopify, Software Development Kits (SDKs) to enable smooth payment integration into mobile apps, or virtual terminal catering for MOTO (Mail Order/Telephone Order) businesses.
Orchestrators can provide a risk management tool to support merchants in their risk management and fraud prevention strategies. This tool can be used independently or integrated with external tools already used by the merchant.
The best practices for management and control of the orchestrator’s platform and organisation include multi-factor authentication, role-based access, cybersecurity best practices, PCI certification, data protection policies, and regular audits.
Payment orchestration is becoming an important function in a merchant’s payment management toolbox. Global merchants are looking for providers that can help them optimise payment KPIs in revenue, cost, and risk in an increasingly complex payment ecosystem. To support its clients in understanding and potentially selecting a payment orchestration solution, Datos Insights is currently working on a vendor evaluation report comparing several leading providers, which will be published in Q1 2024.
This editorial piece was first published in The Paypers' Cross-Border Payments and Ecommerce Report 2023–2024, which taps into the fast-growing cross-border market and provides a comprehensive overview of trends and developments that are pivotal in this space, being the ultimate source of information for ecommerce businesses interested in expanding globally.
Ron van Wezel is a Strategic Advisor in Retail Banking & Payments for Datos Insights, providing research and advisory services to clients globally. His coverage includes payments, Open Banking, and digital transformation.
Datos Insights is the advisor of choice to the banking, insurance, securities, and retail technology industries – both the financial institutions and the technology providers who serve them. The Datos Insights mission is to help our clients make better technology decisions so they can protect and grow their customers’ assets.
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