Four myths on payments orchestration and its transformative potential for banks and merchants

Four myths on payments orchestration and its transformative potential for banks and merchants

By Rob Lincolne (pictured), Founder & CEO, Paydock

In 2007, cash made up around 70 per cent of payments in Australia. Fast forward to 2022 and cash has declined to only 13 per cent of all payments. Today Australians are readily embracing a range of convenient ways to pay, from contactless payments to PayID to Buy Now Pay Later (BNPL) services. For fintechs and payment providers, this rapid uptake of digital payments provides opportunities for growth and innovation.

But for financial institutions and merchants, this world of digital payments is increasingly fragmented, complex and confusing. This is where payments orchestration has emerged as the necessary fix – or rather plumbing – in the global payments infrastructure. Payments orchestration is a technology layer that enables, optimises and analyses payments from a single, unified platform assisting interoperability and connectivity between all players in the ecosystem. It supports numerous payment service providers (PSPs), fraud tools, alternative and local payment methods among others, to allow the user to leverage the right mix of services.

According to Mckinsey, the payments orchestration market is estimated to exceed $3 trillion in revenue by 2027. Already an increasing number of merchants are discovering the benefits first hand and are enjoying competitive advantage. Major financial institutions likewise are also beginning to realise the potential to shorten innovation timelines and offer developer friendly merchant experiences on their existing stack.

Despite this, there are many misconceptions around payments orchestration and its functionalities. In some cases, the technology is not clearly defined and can be confused with other concepts in the payments space. To help cut through the confusion, here are some of the top myths today on payment orchestration.

  1. Payments orchestration and payments processing are the same thing 

The blurring of the definition of payments orchestration, particularly when it comes to pure play technology and pure PSPs, has created some confusion.  While payments orchestration and payments processing are both crucial components of the payments ecosystem and work together to enable better payments experiences, they each serve a distinct purpose and have different technical capabilities.

Payments orchestration is an enabler, not a processor. One way to think about payments orchestration is an app store for fintech, rather than the fintech itself. It enables businesses to connect to multiple payment gateways and methods through a single API. Merchants route transactions to target processors and gateways for settlement, based on their unique mix of  cost, performance and consumer preference.

Pure play orchestration doesn’t facilitate or authorise the actual transfer of funds from the customer account to the merchant account, like a payment processor does. Orchestration is a technological supercharger.

  1. Payments orchestration comes with costly integrations and hidden costs 

Another myth is the higher costs involved in the set up and maintenance of this service. What is missed in this assessment is the significant number of service integrations and maintenance layers that orchestration actually removes. The substantial value-add reporting and analytic functions of orchestration platforms actually provide merchants and financial institutions more visibility and control over their payments system costs resulting in material cost and risk reductions when compared to any other strategy

Today, the majority of merchants aspire to use or are currently using multiple payment vendors, with 59% of merchants preferring a multi-vendor approach to their payment solutions. At the same time, 57% of merchants  are looking to reduce the time developers spend on payment functions and away from core business. Many are finding that manually stitching all these services together can be frightfully expensive, with many hidden “gotchas” around fees, data, capabilities, documentation gaps, security issues and more.

Payments orchestration removes the costs associated with setting up your multi-vendor paystack by bridging the technical, compliance and security gaps in leveraging multiple payments vendors.

  1. Payments orchestration creates a single point of failure for merchants

One of the earlier criticisms of payments orchestration was that it creates a single point of failure for merchants. Across the payments value chain, there are always multiple links and  multiple points of failure, starting with the checkout ecommerce experience all the way through to the bank account.

Payments orchestration can help to enhance the quality of every payment link by ensuring that all connections are built and maintained by connection specialists, as well as offering fewer layers of downstream ‘critical path’ dependencies – often on old stacks. This is why orchestrators can often boast better uptime than their supported services – and greater resilience than in-house custom solutions.

Best-practice payments orchestration platforms are designed with extensive redundancy, fallback and auto-scaling mechanisms. They distribute transactions across multiple payment processors, gateways, or providers, reducing the risk of a single component causing a complete failure. If one provider experiences downtime or issues, the system can automatically switch to an alternative one to ensure uninterrupted payment processing.

  1. Banks and merchants can just build their own payments orchestration solutions 

Building a payments orchestration solution from scratch is a time-consuming, expensive and iterative process. In a highly competitive and highly regulated industry, building a payments orchestration solution that performs, is optimised and robust is challenging and costly. This is where “white-label orchestration” provides immense value, enabling banks to retain merchants while competing in a fintech world.

Payments orchestration as a service negates the need for major transformation projects by extending the utility and lifespan of incumbent infrastructure while opening up space for new initiatives – without impact to the merchant. Whitelabel orchestration offers a pre-built, secure, and compliant solution that can be integrated quickly into their existing infrastructure and rolled out cost-effectively to merchants assessing their next step in payments.

Payments orchestration will have a fundamental impact on the payments industry over the next decade. By understanding its functionalities and real-world applications, financial institutions and merchants can realise the full potential of this game changing technology to grow and compete in the broader fintech ecosystem, and unlock faster, safer and more exciting innovation in the new world of payments.