Payments 101
21 Feb

What is payment orchestration?

Payments is evolving: What was once a cost center has become an opportunity to drive revenue. This is excellent news for merchants who are ready to optimize their payments and scale their business to new heights with the help of payment orchestration. According to research from Global Market Estimates, the global payment orchestration market is expected to grow 20.2% annually between 2021 to 2026. This growth has been accelerated in part by the Covid-19 pandemic, which pushed more customers to shop online than ever before.

But before merchants can optimize their payment setup, they must first understand how exactly payments flow. In this edition of Payments 101, we will cover the term payment orchestration: what it means, how it works, the benefits, and how to choose the right payment orchestration platform for your business.

What is payment orchestration?

Payment orchestration, also known as a payment orchestration platform (POP) or a payment orchestration layer, is a software solution that connects merchants to multiple PSPs, acquirers, payment partners and allows merchants to manage everything from one interface. It unites most aspects of the online payment process in one place, including payment authorization, transaction routing, reconciliation, payouts, ledgers, analytics and payment settlement details.

The purpose of payment orchestration is to remove complexity for merchants by enabling them to take advantage of working with multiple payment service providers without having to integrate them all one by one. This streamlining allows merchants to route payments in a variety of different ways and based on a variety of factors, including: payment processor availability, best fee conditions, highest authorization rates, and locality. Connecting to multiple providers can help protect against failed payments and reduce costs associated with payment processing. Payment orchestration also saves merchants the trouble of maintaining all integrations separately after they have been added. With a payment orchestration layer, merchants can easily manage all of their integration from one central place.

Though a payment orchestration layer is a crucial part of any good payment infrastructure, not all solutions on the market include important features like native token vault storage or payment analytics. Businesses, especially enterprise merchants with high transaction volumes, should look beyond payment orchestration for solutions that cover the entire spectrum of payment needs and can be deeply integrated into their systems and workflows.

How does payment orchestration work?

As you can see in the image below, a payment orchestration solution acts like a layer between the merchant’s already existing payment technology and third party payment technologies, including payment processors, gateways and payment methods. This layer makes it possible for merchants to connect to all of these payment partners without having to integrate them each one by one. They also can all be managed centrally in the payment orchestration platform, which facilitates and monitors all aspects of the payment operations.

Payment orchestration has different functions for different industries, however its most basic purpose is to direct transactions along the best possible route. What determines “best” depends on a variety of factors and can change from transaction to transaction, the business needs of the merchants and how they configured the rule engine of their payment orchestration layer. This is determined by the merchant in the set-up process and can be finetuned and updated at any point. To find the most effective routing rules for your business, we recommend A/B testing different routes across multiple third parties and to leverage that knowledge to create a smart routing system that works for you.

The benefits of payment orchestration for merchants

Merchants should consider using a payment orchestration platform if they want to connect to multiple payment service providers to help streamline and simplify the payment process. The benefits of this are numerous: From enabling intelligent payment routing to reduce payment failure to enhancing customer experience to improve overall payment success, integrating a payment orchestration layer into your payment infrastructure can create value across the entire payment lifecycle.

1. Improved authorization rates and business continuity

It’s not uncommon that a PSP goes down or encounters technical issues while processing a payment. Having one or more backups in place by integrating multiple payment service providers is a smart move for exactly this reason: by having multiple PSPs, the payment can be automatically routed to an alternative processor and ensure business continuity. A payment orchestration layer makes many global and local PSPs available with only one single integration, so that merchants have different PSPs that each have different functionalities at their disposal. Using multiple PSPs has been proven to reduce payment failures and increase in authorization rates by up to 15%. 

2. Improved customer experience

Customer experience is everything. It can make or break your business. For online merchants, the checkout page and the payment process are two of the most important touch points where the quality of your customer experience is put to the test. And customers definitely want more from their checkout experience: A study from Baymard has shown that 50% of customers abandon carts because the costs were too high; 28% abandoned because they didn’t want to create an account; and another 21% abandoned their carts because they felt that the process was too complicated.

Complicated or generic payment processes clearly cause friction, which can result in churn and dissatisfied customers. Adding a payment orchestration layer can help merchants to create a unified checkout experience that will retain customers and engage them for the long term. With payment orchestration, merchants can create highly personalized checkout pages, irrespective of which PSP is processing the transaction. It also allows them to tailor each checkout page according to a customer’s preferred payment methods, currency and other factors. To round it out, automatic payment routing and retry in the background ensure payment success without customer involvement.

3. Alternative payment methods to boost conversion rates

A payment orchestration layer allows merchants to connect to multiple different payment methods from across the world. From NaverPay and KakaoPay in South Korea to MoMo, Moca, and ZaloPay in Vietnam to Swish, Klarna (BNPL), and Online Banking in Sweden, there are multiple prominent payment options in each country. But integrating each into your site one-by-one can be incredibly time-consuming. A payment orchestration layer simplifies the process of integrating and maintaining these payment methods – and it pays off: Studies have shown that integrating multiple payment methods, especially offering payment methods that are preferred in local markets, reduces cart abandonment and can boost conversions by up to 30%. This is because customers prefer convenience, familiarity and low costs, and locally preferred payment methods offer all three.

4. Reduced processing costs

Payment processing fees are an unavoidable part of the transaction process, however they can still seriously eat into your profits. Introducing a payment orchestration layer into your payment infrastructure and connecting to multiple PSPs can help you reduce costs related to payment processing. With the help of dynamic payment routing, you can direct transactions along a path that gives you the best processing conditions. 

For instance, let’s say you set up a routing rule within your payment orchestration layer that domestic payments in the Netherlands are routed through Adyen instead of a different processor because the rates with Adyen are lower in this particular country. With multiple PSPs you will also be able to benchmark between more cost-effective payment methods.

Similarly, adding local payment methods can also help to lower fees since, just like with PSPs, payment methods that are more common in certain countries and regions often have lower costs, for exactly those reasons.

5. Faster time to market

When it comes to launching and scaling your business in new markets, speed and ease are two essential factors to consider – and you often have to weigh one against the other. Payment orchestration allows you to balance both perfectly: by being able to connect to multiple PSPs and payment methods – and, crucially, local PSPs and payment methods – through one layer instead of integrating each separately, merchants save time and valuable resources. Maintaining those integrations after they’ve been implemented is also made easy thanks to the centralized nature of payment orchestration. Merchants can seamlessly control their local payment operations for each of their markets in one place.

6. Analytics & real-time payment monitoring 

Payment orchestration with integrated analytics will provide merchants with insights into payment performance across all PSP and payment partners. With reports and dashboards tuned to key metrics like acceptance rate trends per processor or fee breakdown per processor, merchants can make data-driven decisions to reduce costs and implement changes that could further boost payment success. Merchants will be able to monitor all channels and markets and have complete oversight of their operations.

A good solution will also offer real-time anomaly detection so that merchants can be immediately informed if there are any issues with any of their connected PSPs. It should also be able to enrich transaction data with additional sources like BIN information, allowing merchants to better identify and address any potential issues.

7. Reduce complexity and integration efforts

At its very core, a payment orchestration platform is designed to streamline the entire payment process from beginning to end and every step in between. It removes complexity for the merchant by providing a central platform from which to manage all integrated payment providers and to configure and finetune operations like payment routing or reconciliation. Integrating one single layer instead of every PSP separately reduces the merchant’s engineering efforts – they won’t have to invest in establishing a dedicated team – while also providing a tool to make their entire payments team more efficient and productive.

How to choose a payment orchestration solution

Not all payment orchestration solutions are created equal, so when shopping for a payment orchestration software provider, there are some evaluative criteria to keep in mind. From comparing costs to understanding how much technical knowledge you’ll need to acquire in order to implement and maintain the solution, here are three crucial questions to ask yourself in your research.

1. How comprehensive is the solution?

First off, take a look at the solution as a whole. How complete and mature is the product? Was it created with enterprises in mind, i.e. is it scalable, is it designed to handle a high-volume of transactions? And what kinds of integrations does it feature? What is the level of security and compliance that the solution offers? You want to make sure to find a well-rounded solution that covers all the basics and has a comprehensive offering in terms of possible integrations. Also, make sure that the security is robust and that the solution providers adhere to compliance regulations.

2. How flexible is the solution?

When it comes to shopping for any service provider, enterprise merchants should be looking at the solution’s flexibility and customizability. This is especially crucial when comparing payment orchestration providers. Does the solution only solve one issue or does it cover all of your (current and future) payment needs? Is it rich in features? How modular is it? Can you tailor certain features to meet your business’s specific requirements? If so, how difficult would that be? A good payment orchestration solution should help you to solve multiple payment-related problems and should be inherently customizable with engineering support where needed.

3. How agile is the provider?

Enterprise merchants should also assess the agility of the payment orchestration provider. As a business that operates globally or is planning to expand into new markets, you want to be sure that your provider can scale with you. This means that the solution should be able to handle a high transaction volume and should be able to connect you to payment partners across the globe. Can they adapt to new payment flows that you are introducing to your customers? Also: Can the provider adapt to any future changes to your business plan, transaction volume or market operations? And how fast will they be able to adapt? A good payment orchestration provider will have extensive global experience, enabling them to be quick on their feet and be a partner in your expansion efforts.

4. What support does the provider offer?

Finally, ask yourself if the provider is just in it to sell you software or if they will be a true partner who will help you navigate the evolving payments landscape. Optimizing your payments for the long term is not a one and done kind of deal. It goes beyond the initial integration and is a constant maintenance effort. So look for a payment orchestration provider that will be hands-on, proactive and on board to solve any new challenges as they arise. Ask yourself: How much payment experience does the provider have? Who do they work with? What are their technical skills and knowledge and how willing are they to share their expertise with you? What you want to look for is a provider that gives support throughout your entire partnership and can help you with whatever questions you may have.

Try Payrails’ comprehensive payment operating platform

53% of organizations have stated that payment optimization is a top priority for them in 2024 and beyond. If you’re one of them, then you’re in the right place. Payrails recognizes the unique needs of every business and we tailor our payment solutions to you. Our payment operating platform offers different modules that take advantage of orchestration capabilities in order to help merchants scale their payments to new heights. Designed with enterprise merchants in mind, our solution is tailorable to your business’s exact specifications and scales with you, no matter which local markets you operate in. 

At Payrails, we believe in a partnership approach: From the initial personalized consultation to technical integration to post-integration support, the Payrails team of industry experts is there to help you along every step of the way. 

Get in touch with us today to learn which aspects of our solution are right for you. 

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