What is payment orchestration and how does it help merchants to optimize online payment traffic?
When shopping online, few customers think twice about what’s going on behind the scenes after they enter their payment details.
That’s how it should be: when an online payment is completed successfully, the experience should be as simple and straightforward for the buyer as possible.
But for stores with growing online business volumes, keeping payments easy and seamless for the end customer can easily get complicated (and expensive) for merchants. Integrating new payment methods on the customer side, or new payment transaction, routing, and settlement partners on the merchant side all add complexity and expense. This is particularly true for merchants selling across borders – where local payment methods are a must, and where working with local acquiring banks and payment services providers in each market can easily become cumbersome to manage.
These overlapping parts and pieces add up to what is known in the payment world as the “payment stack” – all of the different layers that make up a merchant’s payment ecosystem for the different markets in which they are active. For merchants interested in growing their business and who are active in multiple markets, the goal should be to make the payment stack as simple and efficient as possible.
This is where payment orchestration comes in. Payment orchestration simplifies the payment stack by allowing merchants to manage the entire payment transaction, routing, and settlement process in one place, instead of juggling multiple platforms and providers.
But how exactly does payment orchestration work? And what are the most important features that a payment orchestration provider should offer? Keep reading to learn more about this important payment trend.
What is payment orchestration?
How does payment orchestration work?
Who needs payment orchestration?
3 payment orchestration issues to avoid
5 features to expect from a good payment orchestration solution
Summary: Payment orchestration is a must-have for global expansion
Payment orchestration is a technology solution that connects merchants to multiple payment transaction, routing, and settlement providers via a single integration. This can include payment service providers (PSPs), anti-fraud technology, payment acquirers, banks, alternative payment method providers, and others.
Payment orchestration solutions might be oriented around a given product niche – for example universal optimized checkout software, fraud prevention, smart payment routing, or cross-border payments – or they could be a combination of these.
In addition to integrating and simplifying the payment stack, one of the main objectives of payment orchestration is to provide the most efficient possible transaction routing through all of the different payment processing layers – with the goal of increasing payment approval rates, lowering transaction fees, and generating more money for merchants.
Payment orchestration solutions also typically incorporate key payment security features like anti-fraud monitoring, tokenization, and more.
Finally, payment orchestration enables merchants to connect to more online payment methods by integrating with payment service providers offering those payment methods in the markets that the merchant is targeting.
Every successful e-commerce company knows the importance of ensuring that checkout is as seamless and convenient as possible for the end user. This helps merchants to reduce friction, cut down on cart abandonments, and drive more conversions.
One key aspect of optimizing the checkout process is providing the highest possible likelihood that customers can use their preferred payment method, by offering the right online payment method options for the target market audience.
For cross-border merchants, payment methods are a particularly important part of e-commerce localization. To facilitate this, payment orchestration providers like PayU offer universal payment checkout options that allow merchants to offer the payment methods their customers want to use.
The presentation of available payment methods is based on rules set by the merchant. Merchants can offer different payment methods in different markets, depending on the local payment partners with whom the payment orchestration provider is integrated.
Orchestrating at this level requires having a global payment platform that can connect to multiple local payment providers; integrate with anti-fraud services for customer verification; and do it all through a payment gateway that provides an easy and high-quality checkout experience for the e-commerce customer.
After the customer enters their payment information is where the fun starts – and where payment orchestration really earns its stripes.
That’s because every online transaction must be routed through a maze of vendors and payment verification checkpoints before it can be completed successfully, and it’s in the routing phase where costs can really pile up. It’s also where payments have the highest chance of not going through.
Let’s think about it this way: every online transaction is sent through a payment gateway to a payment processor, who is responsible for routing it through all of the necessary steps to complete the payment. It’s up to the payment processor to determine how the payment will be routed.
But many payment processors are limited in terms of geography, the types of payment methods they can support, or the options they have for routing payments. As a result, merchants who are active in multiple markets might find themselves working with different payment processors for different markets. In addition to getting expensive, this can make it difficult to process payments efficiently. It can also lead to a lot of declined payments, should any links in any individual provider’s routing network fail.
Payment orchestration is designed to address these common challenges by integrating multiple payment providers together into one global routing platform. Leveraging AI-based tools, payment orchestration helps businesses optimize routing traffic while saving payments that may otherwise have failed.
An orchestration platform, for example, can learn what the highest converting routing routes for certain types of payments and their respective merchants are, and then choose the optimal routing configuration based on this information.
Merchants can also set customized routing rules in order to optimize payment flows. Many businesses have hard or soft rules implemented by the routing engines they use. For example, if a merchant has multiple entities and provider relationships, they might decide to route certain currencies through a particular provider. To prevent failed payments, merchants can set up a retry policy to try declined payments through another provider.
Orchestrating at the routing level involves having multiple payment providers, as well as multiple merchant account relationships that work independently and without financial penalty. Smart routing technology is the engine that makes it all go, by optimizing payment traffic through the routing network based on merchant rules, machine learning, and more.
A payment is completed when the funds end up in the merchant’s bank account. Prior to settlement, merchants naturally want the smallest amount possible skimmed off while maximizing sales and reducing chargebacks. This is where it’s essential to have a payment provider with an ideal merchant-friendly solution for settlements.
Transferring money across a number of currencies becomes less expensive if businesses can pay it out in the local currency and avoid the cost of currency conversion (FOREX). Then they can move the money back to their preferred base currency, at an exchange rate that works best.
At this level, payment orchestration focuses on making sure that the merchant can control how the money gets from the payment processor to their bank account – in the right currencies, at the correct rates.
Merchants selling globally have more opportunities than ever before to reach diverse local populations. But businesses also face greater challenges when accepting payments in different regions.
Setting up payment methods in different regions, adjusting to relevant rules and regulations, and offering the right payment method options for local customers are all essential for merchants selling across borders.
As business expands, it’s not uncommon for merchants operating across multiple markets to find that they must add local payment acquirers or alternative payment method providers to their payment stack if they want to reach local populations efficiently. This adds complexity and cost, and can easily become an obstacle to scaling and growth.
By connecting the frontend of the checkout process (the customer experience) with backend services that enable seamless transaction routing and settlement, payment orchestration helps to simplify e-commerce. It’s useful for any online merchant – but particularly those who are growing and opening up new markets and seeking to do so quickly.
With payment orchestration, merchants can simplify backend processes, reduce their operational costs, and avoid the risk of failed payments or negative checkout experiences that often result from them.
There are some scenarios where payment orchestration can cause problems for merchants. Here are a few examples of common pain points to avoid with your payment provider:
Security and anti-fraud tools are a key component of payment orchestration. But sometimes, well-meaning security measures can also keep legitimate payments from being processed successfully. A good payment orchestration provider can give merchants a degree of control as to how payments are authenticated and routed. For example, PayU’s anti-fraud module helps merchants navigate 3DS requirements without jeopardizing approval rates – by routing payments through the optimal 3DS configuration depending on the market.
Merchants can sometimes encounter issues when choosing where payments will be settled. A good payment orchestration provider should support multiple merchant bank accounts, so that the merchant has control over where their money is paid out.
When the customer wants to pay with a particular method that has limited routing options, the merchant may not be able to accept those payments. When selecting a payment orchestration provider, merchants can mitigate this issue by looking for a vendor that offers as many routing options as possible, as well as AI-based routing tools (more on this below) that can help merchants direct payment traffic through the optimal configuration.
When it comes to getting the most out of payment orchestration, routing is the name of the game. It is essential to have a high-quality routing solution that can optimize payment traffic across all of the different layers that payment orchestration is intended to integrate.
The solution should give merchants control, but also be able to operate and improve independently of the merchant, via machine learning.
PayU’s Smart Routing Engine allows merchants to change their routing configurations on the go and receive insightful suggestions based on AI-based routing logic. Merchants can configure transactions according to predefined rules, ensuring that payments are routed to maximize approval rates and minimize transaction fees at each layer.
A payment platform with an orchestration layer is critical for merchants that need to work with multiple providers. By aligning and integrating the payment process between all involved parties, payment orchestration helps merchants process more payments with fewer declines and lower fees, while providing a superior customer experience.
Merchants should quickly be able to integrate new providers (for example a new payment processor or anti-fraud technology for a specific region) without high expenses and can connect to multiple endpoints through a single API. This saves time and money and helps businesses to enter new markets faster.
Payment orchestration is not merely a “portal” that routes payments to their optimal end destination but also a highly advanced, birds-eye platform that allows merchants to aggregate and extract insights from real-time and previous payment activity.
One of the major benefits of implementing payment orchestration is the capability for merchants to leverage valuable transaction data about customers and business operations from a single global dashboard.
With PayU’s payment orchestration platform, merchants can use analytic insights in order to make the most of the platform’s other tools – for instance, by creating rules for Smart Routing or enabling the Instant Retry Feature, which uses the Smart Routing Engine to retry declined payments through a different routing configuration.
In addition to optimizing payment routing, analytics, and management, a payment orchestration platform must offer top-of-the-line payment security and industry compliance features for merchants.
The quality of security features in a payment orchestration platform does more than just protect customers and merchants from payment fraud and other risks. It also ensures merchants stay in line with industry requirements for handling sensitive customer data. The PayU payment orchestration platform, for example helps reduce merchant PCI scope by encrypting sensitive payment information in PayU’s PCI Level 1-compliant Token Vault.
Operating an e-commerce website brings with it important responsibilities when it comes to safeguarding customers as well as customer data. Payment orchestration helps merchants to easily implement industry-leading security features – giving merchants more time to focus on the growth of their business.
One of the last and most important features to look for when it comes to payment orchestration is the ability to offer the right number of online payment methods for the target markets where the merchant is selling. As one of the main advantages of payment orchestration is the ability to integrate multiple diverse payment layers into one coordinated platform, a good payment orchestration provider should be able to offer a wide variety of traditional and alternative payment method options to suit different products and markets.
Customers in many local markets for example often expect to be able to pay with local credit cards and bank accounts that merchants outside of those markets may never have heard of. The PayU platform allows merchants to offer these payment methods from a single global point of connection, rather than working with a local provider directly to enable local payment methods in each market.
Similarly, for merchants with higher-value products, BNPL (Buy Now, Pay Later) might be an especially important payment method, as it gives customers more financial flexibility when making a large purchase. PayU has its own credit division, offering BNPL products in specific regions, while also providing access to various BNPL payment methods available in individual markets around the world.
A basic payment gateway that enables transactions from a handful of global payment method providers can serve the needs of e-commerce newbies. But for merchants interested in establishing a bigger footprint, growing business complexity will lead to growing payment complexity and higher costs.
Managing global payments inefficiently eats into business revenue and profit margins which for many e-commerce sellers are already tight. Many merchants are initially astonished at how much money they are leaving on the table due to low approval rates and high payment processing costs.
Payment orchestration can simplify backend processes, reduce operational costs, and protect merchants from failed payments as well as the negative customer experiences that may go along with them. What’s more, having global-level access to multiple individual payment providers means that any declined transaction can be re-routed through an alternative provider – reducing failed transactions and cart abandonment rates.
WIth payment orchestration merchants also gain access to more alternative payment methods, helping them to reach more customers around the world. For fast-growing e-commerce companies seeking to onboard new markets fast, orchestration layers help merchants integrate with local acquirers and payment service providers (PSPs), making it easier to roll out complicated local payment solutions quickly and efficiently no matter the merchant or target market.