Can you give our readers a bit of an overview of Payments Orchestration and the challenges it addresses?
Payments Orchestration is a set of software tools intended to streamline connectivity throughout the payments ecosystem. With the shift toward digital commerce that we have seen in 2020, from native digital merchants expanding to others converting from brick-and-mortar to online commerce, we’ve seen a drive for more robust digital payments solutions. The challenges Payments Orchestration addresses include:
The ability to expand in new markets, such as accepting payments in the markets you target as a merchant around the world;
Reduce compliance burdens, by leveraging pre-built integrations, such as a PCI-level 1 vault and support for geographic regulations like PSD2 in Europe;
The ability to enhance payments flexibility, by transacting with the ideal mix of payments services for businesses;
Increase payments profitability with smart routing that improves success rates, reduces cost of payments, and enhances the checkout experience;
Control payments strategies, offering insight into your payments performance and driving the ability to continuously improve yourpayments strategy.
The solutions offered by Payments Orchestration fall into the categories of enablement and optimisation. Enablement is the basic connectivity in the new market, the ability to leverage redundancy, to maximise your up-time, and provide a resilient platform. Optimisation is focused around the ROI of connecting with multiple payments providers, the ability to avoid false declines, and reduce fraud on your platform.
Tell us a bit more about ‘optimisation’ of payments.
Optimisation is the ability to leverage intelligent services in order to bring together the appropriate mix of tools meant to address each business’s unique payment needs. Online merchants and platforms desire to strategically grow revenue by preventing false declines, limiting outages, and offering the right mix of local payment methods, while, at the same time, reducing the overall cost of payments by screening fraud, preventing chargebacks, and reducing operational costs. Operational costs could include everything from the engineering effort required to employ all these tools,the actual technology costs, all the way down to reducing costs in back-office operations.
There are two solutions Spreedly recently released and extended in the optimization category: Smart Routing and Network Tokenization. Smart Routing instantly analyses each transaction against an aggregated set of transaction data for merchants across the globe and automatically routes each transaction to the gateway that offers the highest probability of success on that transaction. The routing continuously adapts to account for real-time changes and never routes to a gateway that appears to be down, in order to completely avoid outages.
Network Tokenization, on the other hand, is a solution where Spreedly partnered with the card brands, in order to provision evergreen tokens that are provisioned by the card’s issuing bank. Network tokens are a solution for increasing authorisation rates, especially for recurring subscription payments, but also for reducing fraud and improving overall customer experience.
What are some examples of how this might work for an organisation?
Most organisations that use or consider using a Payments Orchestration platform already see the benefits of transacting with multiple payments service providers – for example, to enable the ability to apply geographically specific payments. By using an optimisation solution like Smart Routing, you are also able to mitigate outages and avoid degradation from those multiple providers. This to say that if there is an outage in one provider, you can automatically fall to the second one.
Therefore, the orchestration platform provides both the benefit of a connectivity into the multiple providers, and the redundancy between those providers.
Do you have examples of the kinds of companies that often benefit from RO?
Any company doing a large volume of online transactions can benefit from revenue optimisation. We see quite a bit of demand in verticals such as digital goods, delivery-on-demand, events and ticketing, or online travel agents. As revenue optimisation is flexible and unique per business, a couple of examples where we see a lot of value are subscription payments.
Merchants need a solution to help prevent involuntary churn, due to expired payment methods. In this sense, network tokens are an excellent solution for that, as they are evergreen payment methods that never expire and are specific to that one merchant. A high degree of reliability such as the one offered by network tokens for subscription payments will prevent involuntary churn for customers.
Another space is e-retail, where solutions need to prevent false declines in order to improve customer experience and avoid cart abandonment. As we know, a consumer who receives a decline during checkout on an online payment is very unlikely to attempt a second payment method. It is more likely that they go to another merchant where they can buy similar goods, thus losing both that initial sale value and the potential customer lifetime value. Considering this, a resilient smart routing solution that avoids outages and optimises for the best authorisation success rates is very valuable in the e-retail space.
What are common scenarios where RO is important for a business?
Any business where basis point increases in authorisation success rates can add up to a significant amount of money is where a positive ROI from employing revenue optimisation is registered. Of course, applying a solution, whether it’s homegrown, or through a commercial Payments Orchestration platform, has costs associated with it. However, the business doesn’t have to have a large volume or large individual ticket size to yield a positive ROI from employing RO solutions.
Simple math problem: if a business is processing USD 1 million per month, and they have a 90% overall authorisation success rate, by adding and optimising for a second gateway, they can possibly go to 91% authorisation success rates, which is an additional USD 10,000 a month they otherwise would have lost due to transaction declines. As you can see, there is a scale where optimisation really pays for itself. (Ed. Spreedly specialists offered a more detailed take on studies made on employing multiple gateways for improving authorisation success rates in a previous interview, which can be accessed here)
RO used to be a fairly complex solution reserved for Fortune 500 companies who could invest significantly in engineering and payments teams to build their own solutions. Commercial Payment Orchestration platforms, such as Spreedly, are able to offer optimisation solutions to any early scaling startup or small- and medium size enterprise who previously would not have had access.
How are Payments Orchestration and optimization of payments particularly relevant for 2020 and the year to come? How will these techniques streamline all the changes is consumer behaviour that merchants and payment providers need to handle?
We’ve all certainly seen a huge shift toward digital in 2020 and an acceleration due to the COVID-19 pandemic. Most people agree that the acceleration is here to stay, while there is an increasing need to differentiate your business within the digital world.
For example, in order-ahead, when you are placing a restaurant order-ahead for pickup, the consumer experience needs to be front and centre for the business. The enterprise needs to make sure that the payments and customer experience is optimised in order to prevent any friction during checkout. There is a strategic importance to putting the customer at the centre. It makes a real impact on the whole business rather than just the bottom line and the costs.
About Lee Jacobs
As director of product management at Spreedly, Lee is responsible for the strategic development of the Payments Orchestration platform. He has previously held positions in product management and engineering at Abrigo and Cisco. Prior to his civilian career, Lee served as a Captain in the United States Marine Corps where he specialised in communications.
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