For the last 10 years, many types of merchants have found that payment acceptance has become very complicated – it used to be cash and cards regardless of the different countries that you operated – now there are literally hundreds of Alternative Payment Methods (APMs). Offering different payment methods must bring mutual benefits for both the consumer and the merchant. eCommerce and innovation in technology have grown and paved the way for the proliferation of APMs, including buy-now-pay-later (“BNPL”) options. Edgar, Dunn & Company (EDC) has estimated that almost 80% of eCommerce payments globally are made with APMs, which are an alternative to the international card schemes such as Visa, Mastercard and Amex. These APMs could be bank transfers, cash payment schemes, domestic payment schemes, deferred credit options and e-wallets. The implication for the merchant of all these APMs means they must deal and interact with multiple payment service providers and acquirers around the world. This is where it not only gets more complicated to integrate these different providers, but there are contractual and legal complications, and unsurprisingly, payment settlement and reconciliation challenges. There is a new era of Payment Orchestration solutions designed to help remove complicity in payment acceptance. Payments Orchestration is performed by a new breed of middleware FinTech companies who connect to multiple Payment Service Providers (PSPs), payment gateways, BNPL providers, fraud prevention technologies, eCommerce platforms and acquirers. Payments Orchestration can be performed by merchants with an in-house solution or performed by a merchant’s own payment services provider or payment gateway. Conversely, a Payment Orchestration solution should enable merchants to take control of payment acceptance, from checkout through to the settlement of funds into the merchant's bank account, to stay competitive and agile in the constantly evolving payments landscape.
What type of merchants pioneered Payments Orchestration?
Global airlines have a constant need to optimise payments in all their markets while keeping the back office simple. As global airlines wish to attract customers worldwide, APMs have been critical to improving conversion online. Airlines want to capture consumers in markets where they may not traditionally be able to serve because they do not have the ability to sell tickets through local agents or third-party distribution partners. Sales direct to consumers have been the main driver for growth for more than a decade. It may not have been Payments Orchestration, but more than a decade ago the airlines established many of the principles that Payment Orchestration platform providers endeavour to deliver today.
It is probably easier to say where Payments Orchestration does not fit. Suppose a merchant acquired by one acquirer is operating in one or two countries serving customers mainly using debit/credit cards with very little incremental sales from Alternative Payment Methods. In that case, Payments Orchestration will not give additional benefits. Merchants where a large portion of their payments are subscription payments, i.e., recurring payments that are merchant-initiated transactions (MIT), are also not a good fit because many Payments Orchestration platforms are “retrying” the transaction with different acquirers to increase authorisation rates and improve conversion. However, because of the tokenisation of these subscription payments, the Payment Orchestration platforms are not able to fully comply with the technical requirements. Either because of organic growth or acquisition, some larger merchants have relatively extensive in-house payments expertise, who can build a Payments Orchestration layer themselves. EDC has seen this in the hotel and general retail sector – global and international merchants serving customers across the world through a large online presence. These merchants have found that Payments Orchestration can help them scale faster, gain geographic reach, improve real-time analytics and reporting, harmonize payment security, and increase successful payment authorisations. Entertainment and media streaming providers is another type of merchant that will want to better manage payment acceptance. The online gambling and gaming sector is starting to leverage the design principles of Payments Orchestration to increase the conversion rate and optimise payment routing. Foreign exchange, stock trading platforms and currency providers are all suitable merchant businesses for a Payments Orchestration solution.
Different solutions for different merchants
A merchant serving different types of consumers in multiple markets with varying payment preferences, where accepting a wide range of payment methods and APMs is important, will benefit from a Payment Orchestration solution. An omnichannel merchant, such as a fashion retailer, working with multiple acquirers or connected with multiple gateways accepting multiple currencies is another type of merchant that a Payment Orchestration solution will add value to. EDC has worked with payment providers, Payment Orchestration companies and merchants to identify the best options that will maximise the return on investment. We have been tracking around 20 different specialist companies for over six months now and we have built a comprehensive picture of the different Payment Orchestration solutions. There is a very diverse understanding as to what the solution should include and what precisely is best practice. Payment Orchestration solutions are functionally rich and can demonstrate significant benefits for merchants. Still, an independent assessment is always recommended for any merchant interested in optimising and improving its payment acceptance strategy. If you are interested in knowing how Payments Orchestration can help your business operate more effectively in an increasingly complex payment ecosystem, do not hesitate to contact Mark Beresford at Edgar, Dunn & Company (EDC).
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