Payment Orchestration: unlocking cost-effective ecommerce for merchants in a multi-payment provider

Payment orchestration optimises and secures Ecommerce payments at each stage of payment processing and reduces the failed transaction rate due to its multi-payment service provider (PSP) nature.

Payment Orchestration is among the most important and potentially revolutionary payment innovations for merchants and their customers, not only in the UK but all around the world. We can already observe the impact it has on Ecommerce, and how Ecommerce market growth increases the need for orchestrating payments in a multiple payment provider ecosystem.

Payment Orchestration: Definition and how it all started

A very simple way of explaining what payment orchestration brings to the Ecommerce and payments industries is through the analogy of classical music, where the orchestra is directed by the maestro to achieve the perfect symphony and different instruments and players are guided from a single point. This is exactly what orchestration does in payment processing where one system orchestrates and directs all payment flows to the most efficient route for the transaction as fast as possible. But what market needs brought payment orchestration to life?

In the 2010s PSPs experienced a huge transformation. More companies than ever, even the smaller ones, started operating on a global scale, and numerous alternative payment methods were introduced to the payment market. These factors forced ‘tech PSPs’ (or switching PSPs – exclusively technical processing like gateways) to by and large get substituted by the collecting PSPs that managed the collections that were sent as one payment to the merchant, which simplified payments for Ecommerce merchants with one contract, one pay-out and one touchpoint. However, even the collecting PSPs that were chosen manually, risked becoming unfeasible options for the merchants that were expanding geographically. When multiple PSPs are activated separately, the reconciliation and reporting payment processes become complex and the payment acceptance rate is put at risk. Moreover, payment systems that are not fully integrated could potentially dissatisfy huge customer bases owing to increasing consumer demand for high-level user experience at check-out.

In the late 2010s payment orchestration platforms as a concept emerged and became known among the sector experts, and some large corporations had already developed payment orchestration platforms in-house. This advanced in the 2020s when payment orchestration has become not only trendy and hyper-prevalent but an essential need for many merchants, especially those that have a need for many PSPs working fluidly. So, what is the difference between an improvised in-house POP (multiple PSPs contracts that supply gateways separately that are set up manually) and an integrated platform that includes alternative payment methods, collection of funds and fraud prevention? The answer is in the underlying technology of smart routing and AI.

Smart Routing or dynamic routing

This technology is based on the advanced AI and integration of multiple payment partners within one platform. It reduces the failed transactions rate thanks to its main function, which is redirecting transactions to different PSPs depending on the performance, costs, geography and other factors. Transactions can be declined by the acquirer or the issuer when the card/contact information is incomplete or incorrect, authentication fails or the funds are insufficient. However, more often than not transactions are declined due to technical or payment infrastructure issues: this is where smart routing comes in.

Unlike static routing, where payment routes are pre-defined (payment gateways, PSPs and acquirers), dynamic routing is flexible and adaptable, and can change the payment routing path if there are issues with a PSP. While choosing a PSP, it takes into account various variables, such as the geography, approval rates, so high fees can be avoided.

Payment orchestration: advantages and disadvantages

Among the advantages of payment orchestration some highlights include:

• Increased conversion rate due to optimised payment experience;
• Saving on resources, costs and time for merchants;
• A reduction in the declined transaction rate thanks to dynamic routing, as mentioned above;
• Automatic conversion of currencies, especially beneficial for international players;
• Reduced time to market of new merchants’ solutions and faster scalability, including the expansion to new international audiences;
• Reduced fraud thanks to machine learning and transaction risk analysis (TRA), when applied. TRA is a tool that makes safe authentication exemptions possible, which removes friction;
• Automatic reconciliation, a reporting and backup system that saves time and gives control to the merchants;
• Increased customer loyalty due to an improved payment experience and more payment options at the checkout;
• Real-time ledgers, which improves financial data visibility almost in real time, as well as ensures transactional integrity and consistency.

Market Research reported that the payment orchestration market is projected to reach $4797.96 million by 2027.
Main disadvantages to underline are:

• Limited options on the market, which increases the risk of choosing an underdeveloped solution and reduces benchmarking opportunities; 
• Potentially unsustainable costs for smaller merchants, that are optimised for large-scale retailers.

Axerve’s approach to satisfying the evolving payment needs of its customers worldwide, as well as the genesis of payment orchestration and how it optimises payment processes in terms of efficiency, speed and authorisation rates, are outlined in the whitepaper “Payment Orchestration: unlocking cost-effective Ecommerce for merchants in a multiple payment provider ecosystem”. These findings are further supported by observation and analysis of global Ecommerce businesses that have adopted the Payment Orchestra™ tool launched by Axerve. If you are interested in more editorial content about the world of payments, check out Axerve’s insights into the latest payment news and Ecommerce developments.

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This article was also published in The Retailer, our quarterly online magazine providing thought-leading insights from BRC experts and Associate Members.

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