There’s a new term in the payments space that’s defining an entire category of business, that term is payments orchestration. The idea is that you can dictate how payments are collected through to where they settle, and most specifically who processes those payments. In the next five minutes, I’ll break down payments orchestration and give you an idea of its viability and whether its right for you.
What is payments orchestration?
Payments orchestration is performed by a new breed of middleware payment facilitators who connect into multiple payment service providers (PSPs), acquirers and banks. These technology solutions are likely to be focussed on the specific product/angle that they sell; this might be a universal optimized checkout, fraud software, smart payment routing, cross border payments or all four. Payments orchestration is about deciding how best to route a payment from checkout through to bank settlement and increasing the payment conversion and therefore making more money for merchants.
Stage 1 – Checkout
Does my checkout present the payment options that the end customer wants? Can I increase my chance of that customer actually paying? Software vendors creating this universal checkout are making it possible to offer the payment methods that the end customer (regardless of location) want to use. Increasing conversions by giving the customer the choices they need to convert. Credit options from the likes of Klarna are rapidly appearing in checkout. A checkout might include card, wallet, bank to bank, crypto or financing options; I’m yet to see a bartering option appear though (watch this space – lol).
Intelligent presentation of payment options is based on a rule that is set by the merchant. For example, all larger transactions need to go via cheaper payment processing options and therefore saving the merchant money on fees.
Orchestration at this level requires the merchant to have a payment service provider who offers multiple payment methods or multiple providers; plus third party fraud services and a checkout provider that can integrate them.
Stage 2 – Routing
Once the payment option has been chosen it’s then up to the software behind the checkout to decide how this payment will be routed and if there are any pre-processing requirements like fraud checks to go through. Most payment orchestration platforms are also offering the ability to save a card in third party vault (more on that later).
After fraud services and vaulting has happened the payment needs to be processed; using the data presented by the end customer, fraud checks and the preferences that were set by the merchant the payment will be sent to a payment gateway or acquirer. If this payment fails there might be a retry policy or a policy to try this payment via another payment gateway. There are either hard or soft rules implemented by the merchant and the routing engine; it might be that a merchant with multiple entities and provider relationships decides to route certain currencies through a particular provider. Or in time the orchestration platform learns the highest converting routes for certain types of payments and their respective merchants and increases future conversion rates.
Orchestrating at the routing level requires the merchant to have multiple payment provider and even merchant account relationships that can work independently without financial penalty. Routing is where most payment orchestration vendors sit.
Stage 3 – Settlement
Eventually, money has to end up in a bank account and merchants want the least amount skimmed off whilst maximising the greatest number of sales and reducing chargebacks. This is where the choice of merchant account and the adoption of multi-currency accounts come in. It’s going to be cheaper to transfer money across a number of currencies if you can pay it out in the local currency and not have to pay for the currency conversion (FOREX). Then you can move the money back to your base currency when you want to at a rate that you’re happy with.
Orchestration at this level is about ensuring you can control how the money gets from the payment processor to your bank account in the right currencies at the right rates.
Saving payment preferences and vaulting cards
We all want to make it simpler for the customer to checkout in future and even charge the customer automatically when we can. But saving payment preferences and vaulting cards goes one step further when a vendor is trying to route a payment via the optimized payment channel. For example, a customer pays, a card gets vaulted (saved) that card gets processed and fails via one gateway and therefore another gateway is used to process the card successfully. Or perhaps the rates with a cross border payment provider has been reduced to zero this week and so we want to prioritize this routing over another provider. This requires the end customers’ payment method to be securely saved and if it is to be used with multiple processors then either it needs to be saved with each processor or it has to be saved in a third party vault so that it can be re-used.
What you should be aware of about card vaulting solutions is that very few, if any are insured against cyber attacks and breaches of personal information. They may be PCI DSS Level 1 compliant but this is just a card industry standard for dealing with card information. Any serious merchant is putting themselves in danger if you don’t do you due diligence with a vaulting service.
When Payments Orchestration fails
There are some clear and an increasing number of scenarios where payments orchestration falls down.
- If you can’t get multiple providers to work with you, you can’t manage multiple providers or you can’t build a checkout with multiple providers.
- When you can’t save/tokenise/vault a payment method from a customer. Therefore you can only run a payment attempt once through one routing.
- Where security measures prevent the payment from being processed. The EU is implementing PSD2 and SCA (strong customer authentication) which requires payments to meet certain criteria and present a challenge to the end customer. How can you convert a payment orchestration if a customer is required to authenticate the payment at every attempt?! This has to be one of the most commonly overlooked realities. There are only a few scenarios where SCA is not presented: the customer is either present, has whitelisted the merchant to perform the same regular payment or the value of the payment is low. See our blog on SCA for more info.
- When you can’t choose or alternate the account that your money settles into. If can’t add multiple bank accounts to your PSP then you can’t decide where money gets paid out to.
- When the end customer wants to pay via a particular payment method that has limited routing options.
- If the merchant needs to use a software platform that doesn’t support payments orchestration. Increasingly merchants sell on SaaS platforms, I can’t see that Shopify (or any others for that matter) support payments orchestration beyond a multi-gateway solution.
Is Payments Orchestration for me?
If you’re a larger merchant, operating across borders with a lot of transactions happening outside of the EU then payments orchestration is likely to add a lot of value to your business. Even if you just optimized your checkout and chose a multi-currency account provider you would increase conversions and reduce fees.
If you’re currently a US-based merchant with customers based in the US you will be able to take advantage of routing transactions via the optimal PSP.
If you’re a platform then enabling payments orchestration is going to be complicated and difficult, you’ll need to employ one of the vendors to enable this within your software and decide what your merchants can and can’t do. Ideally, as minimum presenting multiple choices at checkout is the minimum.
If you’re a wanting to route EU transactions through different PSPs then you’re going to struggle to achieve your goals with a routing strategy but can certainly take advantage of optimizing your checkout and reducing foreign exchange fees.
If you’re a merchant selling on a platform like Shopify with in-flexible control over how your payments come in and go out then you’re not going to be able to take advantage. It’s up to the platform to make this work for you.
Payments orchestration works for now and is undoubetly part of the consolidation of the fragmented payments industry. It’s likely to come under pressure in its present form and will have to take a more holistic approach than is currently enabled by the vendors that say they are payments orchestrators. Regulation, the platforms and the payments giants are likely to have the final word unless the consumer market can force a wider change and unification of systems, which is happening with certain tokenisation services, to a degree. PSD2 creates the top-down opportunity but it only polices adherence to policy.
The question that any merchant should ask themselves is – is payments orchestration between PSPs really necessary if I have selected the optimal processors in the first place and maximise the opportunity at checkout? Software vendors need to make sure they have enabled merchants to build and convert at checkout, they are the ones with the optimisation knowledge.
If you like to find out about any of the things mentioned in this article just drop us an email at firstname.lastname@example.org, we can connect you with PSPs, cross border specialists and great solutions to maximise your payments acceptance.