Payment orchestration: Definition, function, benefits

What is payment orchestration?

Payment orchestration describes integrating and handling different payment service providers, acquirers, and banks into a single software platform. It manages a business's entire online payment process from start to finish.

Payment orchestration allows merchants to manage payments using a single front-end platform while coordinating various financial processes on the back end. This includes payment authentication, multi-PSP transaction routing, settlement and more. It also encompasses risk management, fraud detection, customer data storage and more.

By consolidating and unifying payment processes into a single platform, organisations benefit from holistic data insights and improved reporting features. This helps them make better decisions about payment operations, processors, payment methods, security measures and markets.

Payment orchestration vs. payment gateway

A payment gateway bridges a merchant's website and the financial institution, authorising and processing transactions securely. It handles the technical aspects of collecting and transmitting payment information to the acquiring bank.

On the other hand, payment orchestration is a broader, more complex system that manages and optimises the entire payment flow across multiple payment gateways, processors and methods. It provides a unified interface for managing transactions, enhancing redundancy and improving transaction success rates through intelligent routing, failover mechanisms and comprehensive analytics.

While a payment gateway is a single-point solution for transaction processing, payment orchestration offers a holistic, strategic approach to managing and optimising the entire payment process.

How does payment orchestration work?

Payment orchestration works via a payment orchestration layer (POL). It's a technological framework that manages user and merchant accounts, acquirers, payment providers, and fraud detection services. The POL initiates, validates, routes and processes transactions involving those parties. It also handles payment processes such as reconciliation, billing and settlement, payouts, and reporting.

With POL, ecommerce platforms and online payment service providers don't need to integrate every platform separately; instead, they can unify platforms with an API. This simplifies system maintenance and development for platform owners and merchants while streamlining interactions with third-party service providers.

The most essential feature of payment orchestration is finding the ideal digital route for a transaction to pass through. In most cases, the process goes as follows:

1. At checkout, customers select a payment method from available options based on criteria as indicated in the payment orchestration system.

2. The payment orchestration system will route the payment to the most suitable provider according to criteria such as response times, transaction costs, acceptance rate, etc.

3. The payment is processed by the payment service provider or acquirer and may be approved or failed due to outages, errors, authorisation declines, etc.

4. If the payment fails, automatic routing fallback may kick in—the payment orchestration platform will reroute the payment to an alternative gateway/acquirer.

5. Once the payment is approved, the purchase is confirmed and completed.

6. The clearing/reconciliation phase starts. The funds will be transferred between the payment service provider/acquirers and the payment orchestration platform.

From a technical standpoint, there are two ways to get payment orchestration up and running:

As-a-Service POL

Companies provide SaaS payment solutions that streamline transactions between platforms and payment providers. These third-party solutions usually support a range of partners (payment service providers, acquirers, etc.) and may have preset payment routing preferences. Pricing often involves pay-per-payment or pay-per-API-call rates, which can increase costs over time.

A downside to this approach is that while it is not dependent on external payment service providers, it still relies on the payment orchestrator and its vision for its future expansion.

Depending on the solution, this can mean that the exact payment service provider a company wants to integrate might need to be supported. Additionally, if the company decides to sever ties with a payment orchestration provider, it can be difficult to migrate your system to another one.

In-House / on-premises POL

The main benefit of having an in-house / on-premises POL is that you have full control over your solution, including:

Differentiation features for more customer retention
All payment flows are handled within your system to provide a best-in-class experience
Operational topics like security updates, cloud providers of your choosing and so on
All of the payment data processed in your system

Thus, on-premises POLs enable organisations to provide customers with an optimal checkout experience and unique features, giving them a competitive advantage. Companies can also set up a payment analytics environment and gain valuable insights into customer behaviour and possible payment bottlenecks in the system to improve their offerings continuously.

Benefits of payment orchestration

Payment orchestration can help businesses in several ways, including:

Optimised customer experience. Payment orchestration platforms direct transactions through different payment gateways and methods based on factors like the customer's location or the size of the transaction.
Increased conversions. Payment orchestration can help businesses reach new markets and attract customers in new regions.
Regulatory compliance. Payment orchestration platforms can help businesses adapt to local payment cultures and preferred payment methods.
Enhanced fraud prevention. Payment orchestration platforms can consider different currencies, payment types, chargeback management, and good reporting.
Global payments coverage. Payment orchestration platforms can help businesses scale by connecting to different regional payment providers.
Improved payment reliability and redundancy. If one payment processor encounters issues, an efficient payment orchestration platform can route transactions to an alternative processor to mitigate payment disruptions.
Improved merchant experience. Payment orchestration offers a unified approach for triggering payments, payment splitting in mixed-cart purchases, reconciliation, and refunds.
Reduced costs. In addition to preventing third-party integration expenses from exploding, the modern infrastructure of payment orchestration platforms helps you improve operations and thus reduce costs.
Data analytics. With payment orchestration, compiling data reports for multiple payment service providers in real-time is easy. This data can also be readily shared with merchants, fraud detection services, or financial authorities.

Payment orchestration can be a game-changer for businesses seeking to optimise payment processes and enhance overall efficiency. Integrating various payment gateways and processors into a cohesive system offers flexibility, reliability and data-driven insights. As the digital marketplace continues to evolve, these payment solutions can empower organisations to stay ahead of the competition and drive sustainable growth.

Payment Orchestration