Payment orchestration – the latest approach

A brief history of routing and orchestration

The idea of routing transactions to different acquirers has been around long before the internet and online sales emerged as a payment channel. Point-of-sale (POS) transactions have been routed by POS system operators to different acquirers, with some markets (e.g., Turkey) being particularly known for a ‘terminal for each type of card’ approach.

Then, with the advent of online payments, we have seen new players come onto the scene – payment gateways. These payment intermediaries connected to multiple acquirers and offered merchants the option to connect to their preferred acquirer/set of acquirers, with some able to do this based on simple rules or logic (i.e., UK transactions to a UK acquirer, French transactions to a French acquirer, etc.). The emergence of routing providers followed, which took multi-destination transaction routing to the next level by offering a ‘smart routing’ approach, thus upgrading the rules and the number of connections beyond what the gateways were doing. 

How is payment orchestration different now?

When we talk about payment orchestration now, we still mean an intermediary layer between the merchant and its payment providers; however, we expect this layer to do more than just route to different acquirers. This is what makes today’s orchestration different from yesterday’s gateways and smart routers. The expectation is that it gives control to the merchant either directly or via a set of rules and settings (which they can manage directly), and this helps with choosing the optimal route, be it a fraud provider, acquirer, or payment scheme, at the right time. 

Key goals of payment orchestration

There are many objectives to address for which payment orchestration is deployed, and these vary greatly from merchant to merchant. Below are some of the key goals we noticed in the market: 

Each of those goals will have a different value to a particular merchant. For some (e.g., with high decline rates), optimising authorisations is key; for others (e.g., with global coverage), offering a choice of payment methods; while for some, the objective might be to tidy up various existing connections, possibly inherited from a legacy payment setup. 

Generally, the wider the network of providers, the more flexibility a merchant will have in terms of switching transactions to the most optimal route. The routing itself can be either straightforward (i.e., cards issued in a particular country to an acquirer in that country) or quite complicated (for a transaction of a certain value, a customer from a specific country, and a basket containing a particular product, etc.). The challenge with complicated routing is that it requires a set of rules, ideally set up dynamically, that would apply to each transaction. This raises a question. Who will own and manage these rules, the merchant or an orchestration layer provider?

The idea of having a ‘middle layer’ between a merchant and its payment providers is to, first and foremost, ensure that the interests of the merchants are addressed. So, how does one find a sufficiently independent provider that has merchants’ best interests at heart when the majority of orchestrators are, in one way or another, associated with some of the selected acquirers and PSPs? Overcoming this challenge is what makes payment orchestration a strategic project for a merchant rather than just a technical or functional one. 

What are the main considerations for payment orchestration?

The objectives outlined above can be achieved through different strategies. However, before embarking on a particular strategy, a merchant must make some important decisions. As with the objectives, the key constraints or considerations for payment orchestration will differ from merchant to merchant. Below are some of the most often sighted ones: 

Let’s review each of these important considerations individually. 

Ensuring contingency and eliminating the point of failure is often one of the top considerations; an interesting point, as the orchestration layer itself could potentially fail. However, with good planning and dynamic rules, it is possible to avoid the impact of major PSP and acquirer outages with a good orchestration solution, and to switch over the capability in case the actual orchestration layer fails. 

Next come commercial considerations, as orchestration adds a new cost to payment processing, often expressed in per-transaction fees. To justify the cost, merchants need to evaluate the savings (for example, from increased authorisations or the use of cheaper payment providers/payment methods) and determine their target return on investment (ROI) before proceeding with the additional investment of bringing in the orchestration layer. 

The most critical decision for merchants is whether to invest in a proprietary solution or use a third party. The choice should be based on both short- and long-term planning, as requirements will change with time, and technology and expectations will evolve – i.e., does the merchant have enough resources not only to build the orchestration layer but also to manage and maintain it? This is a long-term strategy, and the evaluation and commercial ROI assessments need to reflect that. The other option is to use a third party and rely on them for both technology and expertise, which decreases setup and maintenance costs significantly, but brings ongoing costs and some control limitations. Both solutions have pros and cons, and the final decision will be unique for each merchant.

Another important question we are asked is whether the merchant needs to be of a certain size or maturity to consider orchestration. The answer is not as simple as ‘at this particular size of operations you need to start thinking of orchestration’, but rather taking into account the merchant’s ambitions, market expansion, and technological maturity, as well as the availability of internal resources, both short- and long-term. 

Finally, payment orchestration works well when there is a ‘decision layer’ which can be updated over time. That layer would contain the rules and routing configurations, very specific to each merchant, which would help them get the best out of their payment providers and payment method portfolio. It is important to fully understand the difference between ‘orchestration’ and ‘decision’ layers. The former is operational, and the latter is knowledge-based, knowledge often very personal and internal to a merchant. For example, a merchant might use a technology provider for orchestration but do the decisioning in-house. 

Artificial intelligence (AI) and machine learning (ML) in payment orchestration

This article would not do the industry justice without mentioning the role ML and AI can play in orchestration. The evolution of decisioning (referred to above) would definitely be faster if the systems could learn the most advantageous outcomes and parameters and apply them dynamically to future transactions. But can we trust AI to do decisioning and orchestration all by itself at this point? Unlikely. However, we can use it to help build the rules and test them for specific cases from the start and then evolve with it to understand where and how it can fit in the overall flow of orchestration. 

Summary and advice

This article discusses the fact that routing and orchestration are not new concepts, but that they have evolved over time. We looked at the key goals and objectives driving merchants to consider applying orchestration to their payment process, and the considerations merchants must pay attention to for designing a suitable short- and long-term strategy. Whether you love orchestration or not, it is worth considering at any point in your payment journey. 

About the author

Consultant, Board Advisor, NED, and Payment Industry Expert with over 30 years of experience in the payments industry, Masha Cilliers has been advising merchants and payment companies on ‘all things payments’ for many years. Masha previously held senior positions at Visa, Microsoft, Mastercard, CyberSource, and Worldline, and then became a consultant with Payment Options, as well as a Specialist Partner at Be Shaping the Future Consulting. Currently, she acts as an Independent Executive Expert and holds positions of Non-Executive Director at Trust Payments and Board Advisor at XanderPay. Masha is a well-regarded and recognised speaker and writer on payments, the shared economy, platform payment orchestration, subscription management, fraud management, and identity verification.