There is no governing body to oversee the deployment of Payments Orchestration Platforms (POPs). Yet, since the global COVID-19 pandemic, the topic has been on the lips of everyone working in the payments industry, from clients to suppliers. Some larger enterprise merchants have built their own payment orchestration solution, whereas others will work with a Payment Orchestration Platform vendor.
We have already seen payment service providers using terms such as “dynamic routing”, “smart transaction routing” or “smart payment optimisation”, which can be bundled into the term “Payments Orchestration”. Since the end of 2020, EDC has been tracking the leading specialist providers of Payment Orchestration solutions. This has been a challenging exercise because some are not offering Payment Orchestration in the true sense of its definition. This is further muddled because there isn’t an agreed definition of Payments Orchestration.
We have seen that a POP works as a technical layer that sits between the merchant and the payment service providers and acquirers. It provides greater geographic reach through greater access to multiple payment methods. Whether built in-house or supplied by a specialist solution provider, at EDC, we believe there are four distinct components of any POP:
These distinct components of a POP are the functionalities that a client would expect to be part of a POP solution. This is not an exhaustive list – we could talk about security, tokenisation, or PCI compliance. This list is not static because merchants will need different functionalities throughout their digital transformation roadmap. However, based on our recent conversations within the payments industry, including merchants and POP vendors, EDC believes there are five principles of payment orchestration. These are:
1. Merchant Advocate
Payment orchestration must be the merchant champion. The payment processing industry is very confusing for most merchants as it involves many different players, making it a complex ecosystem to understand. A POP should be providing a positive return on investment within a reasonable timeframe through least cost routing, conversion-boosting features, or offer transaction cascading, failover or reducing the number of declined transaction authorisations. This would include authorisation re-try logic. A POP must be the merchant’s advocate.
2. Commercial Independence
Payment orchestration should be independent of the merchant acquirer. We have seen that many large enterprise merchants will build their own POP because they want control of the payment acceptance and be independent of the acquirer. An acquirer-agnostic solution must be an independent provider with no financial links to another service provider. The POP commitment is to connect merchants to any payment service provider or acquirer they choose and allow them to benefit from the best rates. Like principle 1, commercial independence will support the merchant’s goal to optimise its payment acceptance processing.
3. Business Resilience
Payment orchestration provides greater business continuity and resilience for the merchant and its customers. We’ve seen acquirers take a different perspective on the risk of processing payments in certain sectors, such as in the airline industry. Merchant Acquirers can either demand significant funds be held on deposit, make processing costs untenable for the merchant or exit the sector altogether. For those already classified as high risk, the potential for an acquirer to give a merchant notice as they adjust their desire to process their payments is an ever-present challenge. A POP must provide the merchant with the opportunity to mitigate these risks and increase business resilience.
4. Future Proof Payment Methods
Payment orchestration must provide merchants with the ability to accept a range of appropriate payment methods. Alternative Payment Methods (APMs) are no longer “alternative” but at EDC we prefer to use the term “Appropriate Payment Methods”. Merchants are finding that when they want to enter new markets or target new consumer segments, there is an increasing number of payment methods. There are probably around 300 to 400 payment methods around the world. This number can be multiplied by at least ten if you count each bank transfer or ACH by specific bank brands.
Beyond international card networks, such as Visa, Mastercard and Amex; digital wallets, real-time payments, open banking, bank transfers, direct debits, and even cryptocurrencies will be potential APMs that merchants may strategically want to accept. To cater for existing and new customers, merchants are no longer replacing older payment methods but simply adding additional ones to their payment mix. A POP must be part of the solution and be able to future-proof demand for unmet needs of APMs via just one API.
5. Automatic Reconciliation
Payment orchestration providers are a single centralised hub for all of a merchant’s payment methods and payment providers. Therefore, a POP must be able to provide a single hub for monitoring and managing consolidated transaction reports across all the merchant’s service providers. Centralized transaction reconciliation and payment settlement are key principles of a POP. The role of financial reconciliation plays a vital role in any merchant’s day-to-day operations, supporting activities such as cash flow reporting, regulatory reporting, risk mitigation, inventory management, logistics, fraud prevention and audit. Integration with CRM, accounting and the finance departments are much-needed business requirements.
Can POPs support all five principles today? That is a whole different question and one that we will look at in September 2022.
EDC has worked with payment providers, Payment Orchestration companies and merchants to identify the best options to maximise the return on investment. Payment Orchestration solutions are functionally rich and can demonstrate significant benefits for merchants. An independent assessment is always recommended for any merchant interested in optimising and improving its payment acceptance strategy. If you are interested in how Payments Orchestration can help your business operate more effectively in an ever-increasingly complex payment ecosystem, do not hesitate to contact Mark Beresford at Edgar, Dunn & Company (EDC).
The content of this article does not reflect the official opinion of Edgar, Dunn & Company. The information and views expressed in this publication belong solely to the author(s).