Payments Orchestration – A strategic bet for digital goods commerce

Tuesday 19 January 2021 09:18 CET | Editor: Andra Constantinovici | Interview

Peter Mollins, from Spreedly, highlights the pain points of selling digital goods in an increasingly online-connected society and how Payments Orchestration can streamline this process, while driving revenue 

Payments Orchestration is used by a lot of customer types over different industries in order to add more flexibility to their payments stack. This means that, as businesses are growing, their needs change over time: they’re expanding into new markets, they’re looking to optimise success rates, to add new business lines to their portfolio. As these processes are rolling, the necessity to adapt the payments stack to match the business strategy becomes ever more important. 

Digital goods bring on an interesting angle to the story. To set the scene, digital goods are non-physical goods that are sold in an online environment, streaming, different types of media subscriptions, gaming, gambling, and so on. Digital goods companies have very specific needs around Payments Orchestration. 

Can you speak a bit about why more digital good organisations are turning to Payments Orchestration? How do the payments needs of these business models differ?

One of the main characteristics of Payments Orchestration is flexibility. No two businesses are exactly the same and they want to be able to adapt their payments stack and their strategy in order to match up with their specific needs. For digital goods, this increased trend towards Payments Orchestration has become widely apparent. We took a step back and asked ourselves, “Why is it that more and more digital goods companies are turning to Payments Orchestration?”

Of course COVID-19 has been a major impact. This is natural, as people are at home more. They have spare time, they are less able to go out into the physical world, in many cases, and therefore there is a bigger appetite for things like streaming services, for music, movies, online gaming etc. As these companies get more demand, they are starting to recognise the need to rethink their payments strategy.

There are a couple of very important aspects that come to play when it comes to digital goods in this context. The first one is customer experience. When ordering a physical book, let’s say online, for most people, the exciting moment is when the book arrives on their doorstep. For a digital good, however, the experience is much more immediate. The user goes online, decides to start their subscription to an online streaming service, and as soon as they click ‘pay’, suddenly they have access to their purchase. Hence, payments become a much more pivotal part of the customer experience.

This is why digital goods companies really want to optimise payments.

How is Payments Orchestration helping to address the unique payments needs of digital goods merchants and platforms? (e.g., subscriptions and other recurring payment models)

From a subscription model standpoint, for instance, Payments Orchestration is very important because it allows them to always have updated payment methods stored within their payment vault. Thus they can make sure that the customer doesn’t have a bad experience. Twelve months later, for instance, that card expires and suddenly that auto-renewal is interrupted. This is a key moment when the customer can become frustrated with the service and may end up cancelling the service altogether.

Being able to stay on top of subscriptions with services like network tokenization and account updater is a very important part of making sure that payments remain evergreen in this business model.

Moreover, ensuring that you can smart route transactions to the payments service processor that is going to have the highest likelihood of transacting, andreducing false declines, is going to be extremely important. If a company is accepting credit card payments and, suddenly, they decline a transaction when they shouldn’t, just because maybe their PSP doesn’t have a great relationship with the acquiring bank, that is going to translate into a bad customer experience. 

Lastly, because digital goods are so portable, companies can often penetrate a new market with more ease. Of course, there are geographic limitations for certain streaming services and so on, but the logistics are easier to manage, without the need for physical distribution centres. This all means that the growth for digital goods in the last 12 months has been incredible. More and more of these companies want to go abroad and there arenew needs for them to accept payments in these markets.If a current service provider doesn’t cover the region they want to expand to for example, it can slow down the ability to enter those markets while they build the necessary infrastructure to support the move. Payments Orchestration allows these companies to connect to any gateway, regardless of geography. 

We’ve spoken before about the benefits of diversity in gateways and other PSPs. How does this diversity help digital goods merchants specifically?

There are two important perspectives to this point. There are direct merchants who are offering goods – such as Televisa, a major media company and one of our customers, and a second category are platforms, companies like Arc Publishing (from The Washington Post), or Piano, the digital business platform.

For a merchant, it is very important to have uptime availability, resilience within their payments stack, so that, if there is a down period for their PSP, they are able to re-route those transactions to another one, and allow it to go through. Oftentimes, when there is a renewal period or a sale, the demand on the infrastructure can vary dramatically. As we discussed, there are also merchants looking to move to new markets very quickly and Payments Orchestration allows them to connect to a gateway that offers access to a new geography.

This is all very different from a platform. In these cases, their direct customers are merchants themselves. For Arc Publishing, we can talk about large newspapers, for example. Each of those newspapers have their own preferred gateway and PSP. When platforms are onboarding a new merchant, they need it to be a very smooth process, so if they’re out there selling to a new newspaper, and that newspaper offers a gateway that is not supported, that can disrupt the sale, or it can very well cancel it entirely. Instead, with Payments Orchestration, they are able to offer the full menu of gateways that are out there. So in the end, when selling to a prospective media company, they’re able to onboard those new merchants faster withless disruption.

You’ve tackled the need for the payments experience to be better, with the immediacy brought on while purchasing digital goods (real-time access, on demand, downloads etc.). How can the payments process be improved in context?

Behind the scenes, after the customer presses `pay`, the payments system is calling out, through the gateway, off to the acquiring bank to see if that payment method is valid, if it is able to transact, and whether they can get an authorisation or not. If that payment service doesn’t have a good relationship with an acquiring bank, doesn’t have one at all, or might pertain to a geography that isn’t compatible or recognised by the bank, then the transaction might be declined.

Digital goods are their own industry and some service providers don’t have experience in this niche, as a result having lower authorisation rates compared to others. This is especially true for some sub-industries under digital goods. This being said, smart routing analyses what is happening across a gigantic cross-section of companies that are transacting at the same time. After this analysis, it is going to assess that, at this exact moment, the highest likelihood for success is to route through a certain gateway. It will look at this and a variety of other factors that matter to the business itself and it will pinpoint where the authorisation will take place successfully, intelligently routing that transaction through that particular gateway and then get the highest authorisation rate. This all clearly translates into a financial benefit for the company and a better customer experience.

Since digital goods, and subscription models in particular, depend on customer experience, that first transaction has to be great, because it’s not just that first month that matters, but the thousands of dollars input over the lifetime of that particular customer.

What is your 2021 outlook on the digital goods ecosystem and payments? 

First off there is going to be continued growth with COVID-19 driving more and more people towards these online services. However, it’s not only the pure play digital goods companies that registered growth. An increased number of offline merchants have also penetrated the digital goods space as well. We estimate that this trend will continue to rise as companies realise that they need to diversify their go-to-market in order for them to be able to access the universe of online consumers.

As organizations get more sophisticated in their payments stack and payment needs become more complex, that naturally leads to a higher chance that they’ll get more value from orchestrating their payments. 

About Peter Mollins

Peter Mollins is Spreedly’s vice president of marketing. He has over 20 years of experience building go-to-market teams at fast-growth, venture backed B2B software companies. He holds a masters in international management from Thunderbird.

About Spreedly

We orchestrate payments for the world’s most innovative businesses. Global enterprises and hyper-growth companies grow their digital business faster by relying on our payments platform. Hundreds of customers worldwide secure card data in our PCI-compliant vault and use tokenized card data to enable and optimize nearly USD 14 billion of annual transaction volumes with any payment service.

Free Headlines in your E-mail

Every day we send out a free e-mail with the most important headlines of the last 24 hours.

Subscribe now

Keywords: Peter Mollins, Spreedly, payments orchestration, interview, PSP, digital goods, subscription economy, US, North America, streaming, ecommerce, gaming, gambling, Smart Routing, payment gateway
Categories: Payments & Commerce
Countries: North America
This article is part of category

Payments & Commerce