Over the past few years, the term ‘payment orchestration’ has slowly been gaining traction, however, not everyone is entirely sure of what exactly that means:
Is it an option to fully outsource your payment operations to the ‘one-stop-shop’ PSPs?
Or is it when you use an intermediary for smart routing your payments to a number of payment providers?
How about the aggregation of a range of different local payment methods (LPMs), is that an orchestration service as well?
And does orchestration mean that the provider also aggregates the flow of funds, resulting in one flow to the merchants from a myriad of payment methods?
Perhaps it is a mixture of all of the above, but the service can be as wide as you can imagine it, or as narrow as you need it, it really depends on the ‘music’ the merchant wants to make.
For example, many large merchants (from the retail and travel sector) who have grown through acquisition have to manage a large number of PSP, acquirer, and direct LPM connections. They end up building their own ‘software layer’ to help route each transaction based on certain criteria, often geographical – sometimes also optimising the routing on commercial grounds. However, this approach can rapidly get very complicated and costly when managing numerous connections.
The opposite of the spectrum is the option of outsourcing to a ‘one-stop-shop’ PSP to manage all payment and, in some cases, different acquirer connections. However, these PSPs either have or plan to have their own acquiring capabilities – and will be aiming to route all or most of the traffic to their own systems rather than have an independent approach based on optimising each transaction for a specific merchant.
And then there is an orchestrator who serves as the merchant’s one point of connection, while also establishing ties with various providers. That orchestrator will take on the PCI burden, as well as the maintenance of existing relationships and the creation of new ones. That option is heavily reliant on the quality and breadth of the orchestrator’s technology, whilst adding to the overall cost of each transaction.
But what is the difference between orchestration and the traditional gateway service? After all, these companies have been routing transactions to different acquirers for over 20 years.
The opinion of this article is that payment orchestration is an evolution of payment routing, but only when the layer performing the routing is actually ‘smart’ – i.e., acting based on a set of sophisticated rules, ideally dynamic, for the benefit of the merchant. Whether this software layer provider is able to collect the funds will depend on the breadth and the depth of the service. Often, the orchestrators are technology companies, not necessarily equipped with banking or payment licences, but if they are able to do full end-to-end reconciliation down to the actual settlement amount, then, arguably, they are still providing end-to-end orchestration without collecting the funds.
Now, merchants have to choose from a number of very different types of setups – ranging from fully in-house to totally outsourced and everywhere in between. The factors influencing the choice between one option or another can differ significantly, and merchant size is not always the reason behind the decision – i.e., some large merchants happily manage things in-house and others gladly outsource to a full-stop-shop PSP. It’s all about the end result, the ‘music’!
The criteria are often internal to the merchant (technology, internal expertise, growth plans) or geographical (no PSP can cover all markets, so sometimes you just have to have a special setup for one or another geography).
Above are some considerations which are likely to affect a merchant’s choice as to whether to go in-house, with an orchestrator, or with a one-stop-shop PSP route.
It is imperative to thoroughly evaluate the benefits and the shortcomings of each type of setup before making a decision, as once one is implemented, it is difficult to reverse it and it may take years for a merchant to change it. The orchestrator model is perhaps the most supportive of transformation, especially if the fund flow is directed to the merchant, so that the relationships with the acquirers and payment methods are already in place.
Below are some suggested pros and cons for in-house versus external orchestrators:
An additional complexity arises when the merchant requires any ‘special’ services such as subscription management, shopping cart or reservation platform integration – or when the merchant is a marketplace looking to stay out of the flow of funds for compliance purposes. These requirements narrow the list of the orchestrators significantly.
In summary, the emergence of orchestrators has provided merchants with an increasing number of options. However, the choice between one over the other should be based on the service (or the ‘music’) that the merchant is after, rather than on industry trends.
This editorial piece was first published in the Payment Methods Report 2023, which provides an in-depth overview of the latest worldwide developments in how people pay, the payment methods space, the innovative technologies that these methods work upon, and the best strategies on how to win at conversion and retention.
With over 25 years of experience in the payments industry, Masha is currently Principal Consultant at Payment Options Ltd, NED at Trust Payments and a Board Advisor at Xander Pay, as well as a recognised speaker and writer on the subject of payments, marketplaces, and new economies. Masha previously held senior posts at Visa, Microsoft, Mastercard, CyberSource, and Ingenico.
Payment Options is an independent consultancy run and managed by Masha Cilliers. Its key focus is helping merchants, marketplaces, banks and payment providers to fully understand the online payments industry and each other, to build successful partnerships, and to implement innovative strategies. Masha has been working with Acquirers, PSPs, payment facilitators and orchestrators for over a two decades and has deep and practical knowledge of the ecosystem.
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