How Payment Orchestration is Optimizing Payments for E-commerce and POS

As demand increases to collect cross-border payments, launch diversified sales channels, and implement unique use cases, merchants are requiring the payments industry to rapidly innovate.

As a result, payment orchestration is growing quickly among merchants throughout Europe. It enables greater cost savings, converts customers at a higher rate, and provides best-in-class anti-fraud procedures.

Merchants thinking big — and long-term — know that payments orchestration will be an essential player in their payments tech stack moving forward. But despite its significant benefits, payment orchestration is still not very well understood, and there is a need for greater education to close this gap.

For example, more than 60% of retailers are working with multiple payment providers, but only 25% believe they need to implement payment orchestration to make the most of these technologies.

While only some merchants are ready and willing to adapt their payment infrastructure to grow their businesses, the remainder will soon recognize the value payments orchestration can enable. And when they do, Payment Service Providers (PSPs) will need to be ready to respond.

Let’s take a closer look at the rise of the payments orchestration phenomenon. We’ll also explore how payments orchestration optimizes payments for e-commerce and point-of-sale (POS) merchants.

The Evolution of Payment Service Providers

The first technical PSPs (or gateways) launched in 1999/2000, the very beginning of the e-commerce era. The role of these gateways was purely technical. They executed online payments — they didn’t collect or settle the funds exchanged between merchants and banks.

In the last decade or so, new technology emerged in response to the increasing complexity of the e-commerce ecosystem.

The “collecting” model of PSPs, exemplified by Stripe and Adyen, leverages Alternative Payment Models (APMs) to collect payments, offers tools to manage fraud, and handles diverse currencies. It’s the top business model for PSPs and retailers today.

This evolution from gateways to collectors comes down to a few essential characteristics:

  • Convenience: Merchants prefer a one-stop shop for managing technical integrations, contracts, and services.

  • Mergers and Acquisitions: There has been significant M&A activity in the payments industry, reflecting merchants’ desire to expand their technical payments capabilities and act as gateways.

  • Expanding PSP Capabilities: Significant value exists across the payment acceptance value chain. Technical PSPs are tapping into lucrative new revenue streams by offering new products that collect fees relative to transaction values.

  • Payment Service Directive: The EU leveled the playing field for increased industry competition by unifying the payment market.

  • Payment Facilitation, or “Schemes”: Visa and Mastercard now permit facilitation, allowing PSPs to integrate and underwrite sub-merchants.

The Evolution of the Payment Orchestration Model

The next evolutionary progression of PSPs lies with payment orchestration. The design of the technology is native — which streamlines payment infrastructures and removes the complexities of managing multiple operators and suppliers.

While it’s currently a niche model, payment orchestrators are capturing European market share with increasing velocity. This is primarily due to convenience, features, and compliance needs.

Payment orchestration: a one-stop-shop for merchants

Multinational merchants are seeking to reduce the complexity of their payments operation. This is easier said than done — but payments orchestration makes it possible by offering “one-stop shop” functionality that delivers convenience without compromising capabilities.

These complexities are due to diverse geographic locations of originating payments, system integration, reconciliation, risk management, compliance, and unique use cases. A single PSP simply cannot address all these challenges.

That’s where payments orchestration plays a critical role. Smart routing improves success transaction rates and customer conversions by offering a variety of payment methods, such as credit cards, wallets, account-to-account, “buy now, pay later,” split payments, self-authentications, and payment on delivery.

Payment orchestrators also allow merchants to elevate their fraud management activities by aggregating many suppliers and data sources into an unified decision engine.

In the case of multinational merchants who leverage many PSPs, the need to centralize data is urgent. Payment orchestrators achieve this goal by aggregating data across sources. The result is improved decision-making, financial management, and reconciliation outcomes.

Lastly, compliance is a significant consideration — particularly for merchants across Europe. Payment orchestrators enable merchants to comply with Payment Services Directive 2, Know Your Customer standards, and Payment Card Industry Data Security Standards.

Use Cases for Payment Orchestration

Payments orchestration is most commonly adopted by e-commerce merchants right now. But the benefits are becoming clear to POS merchants as well. Let’s take a look at a few possible use cases for payments orchestration:

  • Omnichannel merchants leverage payment orchestrators to facilitate complex transactions across channels and geographies, including online reservations and POS payments from different countries.

  • Marketplaces have some of the most complex requirements for payments. They need to handle buyers, sellers, and transactions located globally. Orchestrators enable them to leverage a single infrastructure to manage operations across various PSPs.

  • SaaS (software as a service) providers prefer to bundle payments to close deals and increase revenue growth. Orchestrators help them centralize their tech stack across a wide range of payment partners, methods, and terminals without compromising the proprietary needs unique to their business model.

  • Acquirers and financial institutions don’t want to miss out on this fast-growing sector of the payments industry. Payments orchestration is the next step for many banks that want to evolve beyond a gateway solution and transition into a cloud-native and API-first environment.

What are the differences between Payment Orchestrators and Technical PSPs?

Payments orchestration can bear a similar appearance to technical PSPs:

  • They’re technology-focused

  • Both need to connect with acquirers and transmit transactions

  • Each contributes significant added value to merchants

Where they differ comes down to their distinct approaches to product architecture and the limitations/opportunities presented by each. Payment orchestrators are based on stack technologies that operate in the cloud. This increases the volume of transactions that can be routed via APIs and the number of connections — in the hundreds at one time. As a result, payment orchestrators are highly developed-focused and agile.

Technical PSPs are more limited in the services they provide. They operate via on-premise servers and maintain ten or so connections at once.

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