Payment Orchestration can reshape payments for merchants πŸ’³

March 22, 2022

Payments orchestration has become a hot topic in e-commerce. It is a sector where several payment providers are often needed to handle customer conversion, increase cost savings, and improve anti-fraud procedures. Faced with the evermore complex task of managing payments across geographies, sales channels, and use cases, merchants are looking for ways to adapt their payment infrastructure and grow their business, while continuing to offer an excellent customer experience. Seamlessly.

The evidence is clear. Today, more than 60% of retailers need to work with several payment providers, while over 25% see implementing payments orchestration as an important step in their transformation as a business. Payments orchestration is becoming an inevitable and significant consideration, one that demands a change in the capacities of PSPs (Payment Service Providers) to better respond to retailers’ needs.

Alongside this, new technologies like the Cloud, Plug-and-Play ecosystems, and APIs have emerged in the payments sector. With the arrival of these new tools, payment service provider business models are inevitably expanding into payments orchestrations, a model set to grow sharply in the next few years.

Payments orchestration introduces a “many-to-many” tech mindset with a product designed to lighten the daily load for merchants through greater flexibility and connectivity, enriched data, and easier transaction management. This article considers the rise of the payments orchestration phenomenon, its use cases, and how Skaleet can help you build this type of platform.

E-commerce era: The Evolution of Payment Service Providers πŸ‘¨‍πŸ’»

The first technical PSPs (or gateways) appeared in the early days of e-commerce, between 1990–2000. Their product and operating model consisted of executing online payments. These PSPs did not handle the collection or settlement of funds. Their role was simply to be the technical integrator between the merchants and payment acquirers (i.e. a bank or other financial institution).

Between 2010–20 these PSPs changed; new players emerged, some specialising in “collecting”, like Stripe and Adyen, with the technical capacity to collect through new payment methodsAPMs or Alternative Payment Models—along with an extended range of complementary services (e.g. tools for managing fraud, handling multiple currencies). This “collecting” model quickly became more widespread and is now the main business model for PSPs and for retailers. The transformation of technical PSPs into specialist “collecting PSPs” is down to market development characterized by:

  • One-Stop-Shop convenience: Merchants like the ease of using a single payment provider to manage tech integration, services, contracts, etc. 
  • Mergers and Acquisitions: Merchant acquirers are showing intense interest in acquiring PSPs to improve their ability to act as gateways and their technical connection capabilities.
  • Capabilities expansion: Technical PSPs have recognized the value of extending across the payment acceptance value chain by developing a range of products including payment collection, which offers a more lucrative revenue pool than straightforward technical services. In fact, costs proportional to the value of a transaction have appeared versus the standard technical costs of API calls.
  • Payment Service Directives: In Europe the Payment Services Directive opened up the market completely, offering the opportunity to obtain payment institution licences, making these payment services more accessible with low barriers to entry for hundreds of technical PSPs in Europe
  • Emergence of payment facilitation via "Schemes": Visa and Mastercard have allowed payment facilitation, so PSPs can integrate and underwrite sub-merchants on behalf of traditional suppliers, reducing regulatory hurdles to collecting models.

The growth of the Payment Orchestration model πŸš€

Today, Payments Orchestrator PSPs have emerged, with a technological native design to streamline the payment infrastructures of businesses by eliminating the complications involved in managing a number of suppliers. This is a niche in the merchant payment world, but orchestrators are starting to win increasingly larger shares of the European market.

To better understand the impact of these payments orchestrators, it is useful to consider the One-Stop-Shop concept which continues to be the most relevant and robust concept on the merchant payment market at the moment. This model is actually tricky for multinationals to implement. Geographical location, incoming and outgoing payments, system integration, reconciliation, risk management, compliance, and use cases bring a great number of complexities that a single PSP cannot handle or, above all, solve. Faced with this reality, merchants are looking at a complex flywheel when it comes to managing various payment and value-added service providers that merchants need to integrate themselves.

One of the main benefits of payments orchestrators dealing with the One-Stop-Shop concept is to carry out Smart Routing, ie. intelligent routing which improves transaction success and sales conversions. Merchants can focus increasingly on optimizing conversion and the possibility of integrating various processing options to improve results. Different from collecting PSPs, payments orchestrators enable the switching of payment volumes, thus reducing costs associated with historic acquirers and payment collecting PSPs. Payments orchestrators also enable transaction abstraction, where transactions are increased and manipulated to be able to provide new, specific use cases. For example, they are able to offer several payment methods, including payment cards, wallets, Buy Now Pay Later, account-to-account, payment on delivery or split payments with authorizations, and self-authentications. Fraud management can be optimized in a similar way to allow merchants to aggregate several suppliers and data sources in a single decision engine.

In terms of data, multinational merchants, inevitably using many payment and service providers, need to centralize data, and payments orchestrators can aggregate their data across suppliers to facilitate decision-making, improved financial management, market support, and reconciliation for merchants.

In terms of regulations, payments orchestrators help merchants with compliance, with PSD2 particularly which forces marketplaces to become either licenced payment institutions or to outsource their financial flows to PSPs.For multinational marketplaces working with many payment providers, payments orchestrators help streamline the integration of seller (sub-merchant) KYC and management (sub-merchants) while pushing the many processors into a single payment point. They also help mitigate PCI compliance by removing sensitive data while improving token management. Indeed, the orchestrators will provide a more flexible tokenization service based on the Visa and Mastercard networks allowing merchants to use the same token on several payment processors and collectors. 

Payment Orchestration use cases πŸ‘‡

Payments orchestration is seen most in e-commerce but it is also expanding into POS (Point-of-Sale). Beyond different sales channels and retailer localisation, examples of payments orchestration use cases include:

  • Omnichannel merchants: Businesses who support omnichannel business and use numerous payment methods, form factors, and ways of interacting with consumers. Payments orchestrators allow these merchants to recognize consumers across different channels and geographic locations, while also enabling complex transaction use cases like online reservations and POS payments in a different country.
  • Marketplaces: Marketplaces deal with the most complicated payment requirements, handling buyers, sellers, geographical area, and many transaction use cases. Orchestrators provide marketplaces with a single infrastructure to manage buyers and sellers across payment providers, for example, by allowing a payment infrastructure for all sellers, regardless of their geographical location or payment method.
  • SaaS providers: Software-as-a-Service (SaaS) organisations increasingly bundle payments to enhance their offer and expand their revenue base. Orchestrators are able to help them centralize tech integration into a wide range of payment partners, payment methods, and payment terminals, while also integrating complementary services adapted to the needs of the SaaS platform.
  • Acquirers and Financial Institutions: Acquirers and banks want to have a place in these omnichannel ecosystems and alternative payment methods. Orchestration can give them a simplified means of integration into a large array of payment and service providers. Payments orchestration could be the next step for acquirers and banks looking to do something different to the traditional gateway solution in favour of cloud-native and API-first tech connections.

Differences between Payment Orchestrator and Technical PSPs πŸ’‘

A payment orchestration can appear similar to a traditional technical PSP: both want to be connected to acquirers and transmit transactions; both are tech-based; and for both of them; extending each, the extent of their connectivity in relation to acquirers and payment methods defines the true added value that they bring to merchants. However, there are essential differences between a payments orchestrator and a technical PSP:

  • Orchestrators use stack technologies in the cloud, while technical PSPs still rely on on-premise data centres. This allows a large number of transactions to be routed via APIs and these players are developer-focused in all that they do (rich documentation, support etc.)
  • Orchestrators are known for their simple maintenance and updates (and for adding) connectivity, particularly all the connections with PSPs and acquirers. New orchestrators are able to manage hundreds of connections, compared to ten or so for traditional PSPs.
  • Orchestrators supply degrouped, agnostic services like data, transaction management, etc. They can be processed by partners which are integrated into the orchestration platform. Technical PSPs are more limited in the services they provide.

The future looks bright for Payment Orchestration πŸ‘€

The ability to orchestrate payments and related services across channels, geographical areas, and use cases via a single technical integration is a strong value proposition for merchants. Skaleet’s platform is a possible solution that can help you build an orchestration platform for your payment institution.

With this platform you will be able to orchestrate your payments via open data architecture, an orchestration model enabling integration of payment collectors (PSPs and acquirers), value-added service providers (fraud management, data analytics, compliance, and compatibility), and distributing different payment acceptance and methods of payment to marketplaces and POS players via APIs.

Use our expertise to manage third-party account receipts, holding accounts, Pay-In / Pay-Out between the marketplace and the credit institution if you want to use Smart Routing for your transactions to respond to the needs of your merchants.

Orchestration specialists are sure to emerge to meet this new demand and will experience rapid growth. We expect the future of payment and proposition technology to be shaped by principles of orchestration that embrace the realities of complex ecosystems.

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