Payment Orchestration describes the process of integrating and handling different payment service providers, acquirers and banks on a single, unified software layer. The Payment Orchestration software executes the complete payment processing, from validation to routing to settlement.
The Payment Orchestration Layer / POL (or Payment Orchestration Platform / POP, respectively) bundles user and merchant accounts, acquirers, payment providers, fraud detection services, etc. to initiate, validate, route and process transactions involving those parties. In addition, it handles payment processes such as reconciliation, billing and settlement, payouts and reporting.
Thus, a Payment Orchestration Layer acts as the entry point and core of a payment system. This approach differs tremendously from separately integrated PSPs. E-commerce platforms and online service providers don’t need to integrate every PSP and every acquirer separately. Instead, they can consume the unified API of the payment orchestration layer, benefiting from a reduced integration complexity. Moreover, a POL simplifies the maintenance and further development of the system for platform owners and for merchants. In the same vein, it eases the interaction with 3rd party service providers.
As a special benefit, Payment Orchestration comes with a number of advantages, which don’t occur in single-PSP or separated multi-PSP solutions, such as:
- Automated payment routing based on certain criteria (consumer’s risk level, transaction costs, customer preference, etc.)
- Cross-provider token vaults for credit card data
- A common 3D secure engine across providers
- Unified data analytics and reporting, for improving and optimizing costs and processes
- And many more, see the section about benefits of a POL below
Sounds good? Well, one question remains!
Should you as a platform or service provider settle for Payment Orchestration as a general rule?
This is what this article will dive into. It discusses:
- The role of Payment Orchestration in the new economy
- The operational benefits of Payment Orchestration for businesses
- How a typical orchestrated payment process unfolds
- Next steps to set up Payment Orchestration
Payment Orchestration in the New Economy
Payment Orchestration is a fairly recent term.
Until a few years prior, it flew under the radar, even though it had effectively been implemented before. Larger e-commerce and BigTech companies understood early, that a refined selection of payment service providers improves customer experience and retention. To optimize the process of bringing in new PSPs and payment methods, they built complex backend systems and a unified API – backed by their large in-house development teams.
In fact, as Lochan Sim rightly points out, widespread adoption of Payment Orchestration is possible now because of developments during the last decade. Smart and powerful automation is accessible even for companies with smaller budgets. At the same time, ready-to-use cloud infrastructures like AWS, GCP, or Azure remove the need for elaborate, company-owned server networks. And then, we should not forget the payment service providers, either: They have improved, too, in terms of variety, flexibility, and quality of their APIs.
With those foundations laid, payment experts agree that Payment Orchestration will see adoption on a much greater scale in the future. Building a Payment Orchestration Layer in-house or with a software development partner is an option that e-commerce, marketplace, and online service provider companies consider, regardless of business size.
And they pretty much should! The sheer amount of digital transactions keeps climbing to new heights each year. Thus, the competitive pressure to present customers with a wide selection of PSPs grows. And customer expectations in digital payments can be complicated to fulfill: Some customers want payments to happen cross-border, as international commerce spreads. Some want payments to happen locally, with national, well-known payment providers. Then some want payments to happen fast, in real-time. And some want payments not to happen right away: Buy Now, Pay Later has entered high up on customer wishlists. Meeting all of those expectations requires e-commerce and online service provider companies to integrate a comprehensive set of different PSPs, banks, and acquirers.
That’s just one part of the equation, though. Add regulations such as PCI DSS, PSD2, and GDPR to the mix and you will end up with complex dependencies any legacy payment systems will likely struggle with. Payment Orchestration shows disruptive potential here; this central aggregation layer has to be designed with keeping all current compliance challenges in mind.
Ultimately Kristian Gjerding, CEO of CellPoint Digital has put it perfectly: “If payments are the engine that is powering digital transformation, payment orchestration is how global enterprises can keep that engine running at peak performance.”
The Benefits of Payment Orchestration
As a business owner, the primary question you have at this point will be: “But what’s in for me?” You wonder whether Payment Orchestration – be it custom-built with the help of a partner or provided by a third party “as a service” – will be worth your time and budget.
Let’s look at POs wide array of benefits and competitive factors to help you decide.
Improved Business Scalability, Easier Integration
Expanding your services into new markets typically presents a difficult task. Besides regulatory compliance, the integration of region-specific payment providers and currencies can be challenging. A Payment Orchestration Layer simplifies the process. It offers a flexible payment system architecture where the integration of third-party provider APIs is unified and simplified. Thus you can launch new payment options within a short timeframe and scale your business faster.
One of the major benefits of Payment Orchestration Platforms lies in their ability to dynamically route payments. And by setting up the routing rules, you gain greater control over the payment flows. For example, you could automatically funnel transactions through the channels that provide the best conditions. This could mean providing low-risk payment methods for high-risk customers or choosing a channel with low transaction costs.
Or it could imply processing the payment through a specific high-speed provider reducing latency. It’s also possible to reduce the amount of failed transactions by re-routing them to other acquirers or payment service providers, should the payment fail at the first one. This prevents frustration with your merchants and customers, too. Which takes us straight to the next bullet point.
Streamlined Customer Experience
Studies show: Up to 50% of e-commerce customers abandoning their cart do it for reasons related to payment. Payment Orchestration Layer can prevent this by helping you harmonize your checkout flow. For example, you can easily set up an embedded checkout process, during which customers remain on your site or in your app, instead of being forwarded to external pages.
Additionally, you can give customers a broad choice of payment methods and providers (6% of customers quote the lack of payment options as a reason for abandoning their purchase). Thanks to the unified API of Payment Orchestration Layers, offering new methods on popular demand is very straightforward for e-commerce platform owners and merchants. Less friction, more flexibility, much conversion.
Better Merchant Experience
What’s true for customers is also true for merchants. If you run an online marketplace, you can set up your Payment Orchestration Platform to cater to the specific needs of your merchants. POs offer a unified approach: For triggering the payment, for payment reconciliation, but also for refunds.
Merchants don’t have to handle distinct reconciliation file-formats acquirers or PSPs present them. They simply can trigger payments and refunds using the unified API of the POL and don’t need to fumble with different APIs, implementations and processes. Lastly, the Payment Orchestration Layer can take care of merchant billing and settlement and automatically trigger payouts of available funds depending on individual configuration per merchant.
Upon first gaze, traditional payment systems might be cheaper to uphold. But – especially in the long term – Payment Orchestration Platforms will save you costs. Aside from preventing integration expenses from exploding, POPs’ modern infrastructure helps reduce expenses. Add automated routing of transactions to least-cost payment providers and you get an idea of why Payment Orchestration is less expensive than conventional payment processing.
No Vendor Lock-In
Thanks to easy integration, Payment Orchestration Layers can be used to compile a wide selection of PSPs and acquirers. This gives customers freedom of choice. And it also benefits you as a company: You are not dependent on a singular payment partner. Not only does this give you more control over your transaction flows, but it also grants fallback providers in case of payment outages, feature updates, or policy changes that don’t suit you. Finally, having a choice yourself puts you in a more favorable position when negotiating pricing and charges.
Data Analytics and Reporting
Payment Orchestration Platforms greatly simplify payment data evaluation, due to their consolidating nature: All PSPs in a PO system are maintained at the same place. Compiling data reports for multiple PSPs at once is easily possible. This data can easily be shared as well, with merchants, fraud detection services, or financial authorities, for example.
How an Orchestrated Payment Works
One of the most essential features of Payment Orchestration is finding the ideal digital route for a transaction to pass through.
The payment path starts at checkout. It’s where the customer chooses a payment method from the list of options available on the platform. This list may be pre-filtered depending on the customer’s country, risk score and further criteria. With this step completed, the payment will be routed, seeking the best suitable payment provider. Once the ideal PSP for processing is clear, user data necessary to process the payment is passed on to the proper payment gateway/acquirer. If the payment fails, automatic routing fallback may kick in, allowing the payment to take another route via an alternative gateway/acquirer. Afterward, the clearing/reconciliation phase starts, in which the funds will be transferred between PSP/acquirers and the Payment Orchestration Platform Owner.
Moreover, the Payment Orchestration Layer periodically runs billing and settlement processing and can automatically start payouts of the earned funds to its merchants. And finally, reports for different purposes can be automatically generated on a regular basis.
Getting Started with Payment Orchestration
What would you say, do the benefits listed above convince you? If so, you probably want to implement a Payment Orchestration Layer for your digital platform. But how do you get started with setting up Payment Orchestration?
The starting point is your company: The payment orchestration platform you integrate must fit your business strategy. There are plenty of factors that play into this decision: From budget to regulations to markets and the frameworks, your software runs on. So, before you commit yourself to a technological approach, it might make sense to bring in payment business consultation first, if strategic questions remain.
From a technical standpoint, there are two opposite ways to get Payment Orchestration up and running:
Turn-Key Payment Orchestration Layers
This variant comes closest to a low-code approach. As Payment Orchestration is gaining traction in the platform economy, the choice of white-label or as-a-service Payment Orchestration solutions is broadening. Companies like Spreedly or Payoneer offer ready-to-use middleware for PO purposes. Those third-party solutions slip in between the client’s platform and the payment providers and gateways. Many bring along a line-up of partners (PSPs, acquirers, etc.) their Payment Orchestration Layer supports out-of-the-box. This might come with some preferences regarding payment routing that your company doesn’t share. In terms of pricing, pay-per-payment or pay-per-API-call rates are common, – this can add up over the years. Also, the number of productional installations might be limited. This forces you to change your pricing plan every time you want to scale up – or it scales up automatically once you breach limits, which can be a nasty surprise when planning operation costs.
Another downside to this approach is, that, while your company is not dependent on external PSPs, it is still dependent on the Payment Orchestration company and their vision on how to expand their PO product in the future. And if you decide to sever your ties to a Payment Orchestration provider, it can be difficult to migrate your system to another one in due time.
Self-Built Payment Orchestration Layers
This approach is ideal for companies with a profound do-it-yourself attitude in place. Instead of relying on an external Payment Orchestration Layer, you build a payment system from scratch that can orchestrate transactions independently. The downsides are obvious: It is more expensive in the initial phase. Plus, it requires development time and effort to get the Payment Orchestration platform off the ground. Not to say anything about expertise: Your software engineers must be well-practiced in payment technology to build a product that meets industry standards as well as your unique vision.
On the other hand, the flexibility of self-built solutions will work to your advantage. As it is your very own product, you can adjust and design it to meet your every need – and even apply it in your subsidiaries or license it to third parties. What’s more, the initial development will redeem given time, and maintaining and further development of your payment product will be easier and thus less expensive in the long run. And finally, all innovations and feature updates in your product derive from your business vision alone – no need to work around changes made by third parties.
Implementing your Custom Payment Orchestration Layer with a Software Partner
Did we say “two approaches”? Of course, it is perfectly possible to aim for the middle ground between the extremes. And that means: You build your own custom solution on top of a payment framework, which already features the most important functionalities of Payment Orchestration. In addition, you can bring in a technological partner, who assumes a great deal of the development work. They would cover your team’s back, so your employees can cater to your bread-and-butter business.
May we introduce…
CoreWallet is an API-based software framework for payment, e-wallet, and virtual account management solutions. It was created by software engineers with decades of experience in the payment and banking industry. Based on industry standards, CoreWallet comes with flexible extension points, which make integration of new PSPs and compliance with regulatory processes on new markets easy and straightforward.