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    What is Payments Orchestration?

    What is payments orchestration?

    Unlike a vendor at a physical market stall, who can exchange goods for physical cash, merchants transacting business online must deal with an array of third parties to acquire their customers’ money. The more payment service providers (PSPs) a business works with, and the higher the volume of sales flowing through the business, the greater the need to actively manage - or orchestrate - how each individual transaction is routed. For instance, a merchant operating globally might choose to have sales processed by providers in the buyer’s home country.

    Orchestrating payments can be tricky without the aid of significant supporting technologies. Many companies initiate their online businesses using a single PSP - often a full-service provider - in order to reduce the complexity of the implementation process and accelerate time-to-market. However, as volume increases, and the business’ need to optimize operations and maximize margin grows, adding a sophisticated orchestration layer that decreases instances of payment failure, and reduces the effective cost of transactions, becomes a core focus.

    Payments orchestration versus payment processing and payment gateways

    Payment processing is, at its heart, a fairly linear process:

    1. The customer enters their payment details
    2. The merchant sends the details to a payment service provider, or gateway
    3. The gateway encrypts the customer’s payment method information and sends it to the acquiring bank and card network (or other payment processor) 
    4. The merchant’s and customer’s banks communicate to verify and authorize the pending transaction
    5. Generally, the acquiring bank communicates the authorization response code to the payment gateway, which passes it on to the merchant

     

    However, with a little more scrutiny, it turns out that there is a lot more complexity at play than first meets the eye:

    1. The customer enters their payment details
      1. These details may be collected and stored by the merchant; sent directly to the PSP; or tokenized and stored in a third-party token vault
    2. The merchant sends the details to a payment service provider, or gateway
      1. This may have happened automatically if the details were sent directly to the PSP. If the details are in the merchant’s control, however, there is an opportunity at this step to decide which PSP should be used for the deal
    3. The gateway encrypts the customer’s payment method information and sends it to the acquiring bank and card network (or other payment processor) 
      1. The gateway actually performs a series of security checks before passing the transaction on, and may, in fact, cancel the transaction before ever passing it to the card networks. The reasons for this vary, but come down to whether the PSP’s internal fraud detection systems pass the transaction.
    4. The merchant’s and customer’s banks communicate to verify and authorize the pending transaction
      1. Ensuring that the processor or gateway middleman here has positive and active relationships with both increases the likelihood of success.
    5. Generally, the acquiring bank communicates the authorization response code to the payment gateway, which passes it on to the merchant
      1. In the case of a failure, the failure code itself can be used by the merchant to decide what to do next - from simply declining to close the deal to re-presenting the same information to a different PSP

    The bottom line is that the PSP, or payment gateway, generally enables a linear process of presenting cardholder details to a card network and communicating the decision of whether or not to honor the transaction by the issuing and acquiring banks. By contrast, payments orchestration represents lower-level decision-making processes, like a proprietary fraud check, selecting which PSP to use, and deciding whether to automatically attempt a second attempt in the case of a decline.

    What are the benefits of payments orchestration?

    Using a single payment processor or gateway has clearly-defined benefits: the complexity of implementation, integration, and maintenance is kept to a minimum, and there is a definitive end to each transaction, which is either accepted or declined. Generally speaking, by sticking to a single service provider, merchants can also rely upon a relatively simple and consistent fee structure, allowing them to project their financial results with a high degree of confidence.

    On the other hand, payment orchestration allows merchants to increase their success rate in processing transactions, and to substantially reduce their costs. The broad spread of fee structures across the payments industry means that merchants can save as much as 90% in processing fees on any individual transaction, albeit at the cost of constructing a more sophisticated orchestration process.

    What are the drawbacks of payment orchestration?

    Clearly the key drawback is complexity: using a single provider to complete all payments represents the shortest path to go-live, which is why so many organizations launch using the offerings of full-service PSPs. Merchants planning a payment orchestration strategy must consider not only the technology effort, but also the additional overhead of maintaining relationships with an array of different providers.

    How do you get started implementing payments orchestration?

    There is a class of technology solutions known as payment orchestration platforms (POPs), offering a range of services. Choosing the right POP, whether that is a more ‘black box’ experience where they hold the payment gateway relationships, or one that offers a greater depth of flexibility in subscriptions management or treasury and payables management, is based on the needs of the business. There is also the option to create either simple or complex routing logic within a merchants systems if they have the engineering team to accomplish it.

    Regardless of the direction, the first step in implementing payments orchestration is to get control of the cardholder data. This can be done by either achieving PCI Level compliance and owning the cardholder data environment or by using a third-party tokenization provider like Basis Theory. By using a tokenization provider merchants can ensure that:

    • PII is maintained in the tokenization provider’s secure vault, keeping their own systems out of PCI-DSS scope
    • All customer sensitive data is secure, yet available for merchant use
    • Customer cardholder data (CHD) can be used to process transactions across a functionally infinite range of payment methods and providers

    The merchant simply uses the tokenization provider’s API to collect and store customer PII and CHD, then instructs the tokenization provider to transmit that information as needed to the preferred downstream payment processors and payment gateways.

    Payment orchestration is the next step for payment optimization

    By orchestrating payments between processors and gateways, merchants can increase their successful transactions, decrease their costs, and reduce the risk of centralizing too many services on a single PSP. Using a tokenization provider provides excellent flexibility that can power highly effective payment orchestration.

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