PAYMENT ORCHESTRATION PLATFORMS: IS IT FOR EVERYONE?
Leo Esposito
Global Sales | Country Manager | Sales Leadership | Payment Expert | Technology Sales
My most recent consulting engagement has been around defining whether a payment orchestration platform would be of value to a big retailer in Brazil. The merchant current connects to 3 different payment providers.
The main questions that I responded in our first meeting and that composes this article were:
Does using a payment orchestrator add value to the payment vertical of the retailer? What about the consumer experience?
Is it worth the investment?
What is the difference between a Payment Orchestrator and the traditional Gateway? Don′t they offer the same value proposition?
First, it is important to understand and observe how the payments landscape is in Brazil. Most people I speak to in the industry simplify it stating that is pretty straight forward.?? We have Credit Cards and Pix, while Boleto is slowly dying and Digital Wallets slowly going up the ranks of preferred methods due to some specific characteristics like eliminating physical cards, added security from mobile devices, spend management, etc.
On one hand, I understand that the payment methods are “simple”, however, there′s a lot of moving parts around it that make it work. Plus, the vendors and providers on the network all have their specific ways of working and providing services, and this makes it very challenging and costly to manage.
Below, I organize these thoughts in order to respond to the questions above.
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1. Diverse Payment Methods
Brazilian consumers utilize a wide array of payment methods, each with its own infrastructure, processing systems, and user bases. This diversity creates complexity for businesses aiming to cater to all customer preferences.
Key Payment Methods Include:
Impact of Diversity:
2. Multiple Financial Institutions and Acquirers
Brazil has a multitude of banks, fintechs, and payment acquirers, each offering different services, fees, and processing times.
Examples:
Consequences:
3. Regional and Demographic Preferences
Payment preferences in Brazil can vary significantly based on region, socioeconomic status, and demographics.
Illustrative Scenarios:
Business Implications:
4. Regulatory and Compliance Variations
The Brazilian payment ecosystem is subject to complex and evolving regulations enforced by entities like the Central Bank of Brazil.
Regulatory Challenges:
Resulting Complications:
5. Technology and Infrastructure Disparities
The technological capabilities and infrastructure supporting various payment methods and providers differ widely.
Disparities Include:
Operational Impact:
?Now, to the questions :
Does using a payment orchestrator add value to the payment vertical of the retailer?
Yes, it does. With the logic above, it is clear that there′s a lot of fragmentation in Brazil′s payment landscape.
Payment orchestration platforms go beyond basic payment processing by managing multiple payment gateways, processors, and methods from a single integration point. They act as a centralized layer that controls and optimizes the entire payment flow. With this in mind, below we have the main common benefits for a merchant to be connected to an orchestrator:
Simplification and Optimization: Payment orchestration not only simplifies payment processing but also optimizes it by enabling smart routing, failover mechanisms, consolidated reporting, and managing multiple PSPs, acquirers, and payment methods in one platform.
Multi-Gateway Support: Unlike gateways, orchestration platforms are not tied to a single payment processor or acquirer. They allow merchants to integrate multiple gateways and acquirers, providing flexibility in routing transactions based on various factors like cost, success rates, or geography.
Scalability and Flexibility: Payment orchestration platforms are designed for scalability, making it easier for businesses to expand into new markets or add new payment methods without significant technical adjustments.
Multiple Providers: Payment orchestration platforms can manage connections to multiple gateways, processors, and acquirers. This reduces dependency on a single provider and minimizes the risk of downtime.
Automatic Failover: If one gateway or processor fails, the platform can automatically reroute transactions to another, ensuring business continuity.
?Smart Routing: Payment orchestration platforms use algorithms to determine the best route for each transaction, based on factors like cost, success rates, payment method, and geography. This helps in maximizing transaction approvals and minimizing costs.
Dynamic Optimization: The platform can dynamically select the best gateway, processor, or acquirer for each transaction, offering merchants the ability to optimize fees and improve success rates.
Consolidated Reporting: Orchestration platforms consolidate transaction data across all gateways, processors, and payment methods into a single dashboard. This provides a comprehensive view of payment performance and facilitates better decision-making.
Advanced Analytics: These platforms often offer more sophisticated analytics and insights, helping merchants identify trends, optimize performance, and manage risks more effectively.
?Enhanced Fraud Management: Orchestration platforms can integrate multiple fraud prevention tools and services across all payment methods and gateways, offering a more comprehensive and layered approach to security.
Consistent Security: The platform ensures consistent security protocols across all payment channels, reducing the risk of fraud and compliance issues.
Centralized Compliance Management: Orchestration platforms help streamline compliance by providing tools that ensure regulatory adherence across all integrated payment methods and gateways. This is particularly valuable for businesses operating in multiple regions with different regulatory requirements.
Greater Autonomy: Merchants using orchestration platforms have more control over their payment processing. They can choose and switch between gateways and acquirers, optimize their payment flows, and adapt quickly to market changes without being locked into a specific provider’s ecosystem.
What about the consumer experience?
For the end user, there′s no clear interference in their customer journey or specific checkout experience. At least not from the perspective of navigation, which is also a collaboration of design and the journey the merchant wants to provide to their customers. Overall, seamless payment processes reduce abandoned carts and increase conversion rates, making the experience more efficient and trustworthy for consumers.
Is it worth the investment?
?????????????? It really depends. The payment orchestration frenzy is definitely not for everyone. Below some of the reasons that support this reasoning:
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Small-Scale or Single-Market Merchants:
When It’s Not Necessary: If a merchant operates on a smaller scale, such as a single country or region with minimal payment methods (e.g., just credit/debit cards through one gateway), the complexities that a payment orchestration platform solves may not be present. In this case, a direct integration with a payment gateway would be sufficient and more cost-effective.
Example: A local online store in Brazil that only accepts Pix and credit cards via a single acquirer may not need the multi-gateway routing or extensive fraud tools provided by an orchestrator.
Why It Could Be a Bad Decision:
Unnecessary Costs: Payment orchestration platforms often come with fees that may not justify the investment for small-scale merchants with low transaction volumes or limited complexity.
Overhead in Setup and Maintenance: Implementing and maintaining an orchestration platform can add unnecessary complexity for small merchants who may only need basic payment functionality.
Limited Payment Methods and Providers:
When It’s Not Necessary: Merchants that rely on just one or two payment gateways or acquirers for all their transactions may not benefit from an orchestration platform’s ability to manage multiple providers. If a single gateway is already delivering high success rates and acceptable fees, the need for orchestration is diminished.
Example: A SaaS company that primarily processes payments via one global provider, like Stripe or PayPal, likely doesn’t need the complexity of a payment orchestration platform since those gateways already cover their needs globally.
Why It Could Be a Bad Decision:
Redundancy: Introducing an orchestration layer when you're already using a single, high-performing provider adds a redundant layer of technology without adding clear value.
Complexity for No Added Value: Managing an orchestration platform with just one payment provider does not justify the added complexity, especially when no cost or performance optimization is required.
Low Transaction Volumes:
When It’s Not Necessary: For merchants with low transaction volumes, the benefits of using multiple gateways, optimizing transaction routing, or negotiating better fees through different providers may not outweigh the costs of implementing and maintaining an orchestration platform.
Example: A boutique e-commerce business with less than a few hundred transactions per month would not gain significant value from orchestration, as the cost savings from optimizing routing or reducing failed transactions are negligible at such volumes.
Why It Could Be a Bad Decision:
Implementation Costs: Payment orchestrators often come with setup fees and monthly costs, which could be higher than any potential savings or improvements for low-volume businesses.
Technical Overhead: For businesses that process few transactions, the added complexity of implementing and maintaining an orchestration platform could detract from their focus on growth and customer experience.
Lack of Expertise or Resources:
When It’s Not Necessary: If a merchant doesn’t have the internal resources or expertise to manage the additional infrastructure required for payment orchestration, it may lead to inefficiencies.
Example: A small team or a start-up that is still focused on product development might not have the bandwidth to dedicate to managing the nuances of multiple gateways, smart routing, and fraud tools that a payment orchestrator offers.
Why It Could Be a Bad Decision:
Underutilization: Without a team to actively monitor and adjust the platform’s settings, the merchant could fail to take full advantage of features like smart routing or failover, rendering the orchestration layer underutilized.
Diverted Focus: Resources might be better spent on core business activities rather than managing an orchestration platform that doesn’t drive significant value.
Inflexible Commercial Terms or Vendor Lock-In:
When It’s Not Necessary: If a merchant already has negotiated favorable commercial terms with a single payment gateway or acquirer, there may be no financial incentive to switch or add multiple providers.
Example: A business with a long-term contract or exclusivity agreement with a gateway that offers highly competitive fees and good success rates may find little value in orchestration.
Why It Could Be a Bad Decision:
Potential Vendor Conflicts: Payment orchestrators often encourage merchants to use multiple providers, but if the business is locked into a single provider with exclusive terms, adding an orchestrator could create conflicts or unnecessary redundancies.
Increased Costs: If the merchant has no ability to switch or optimize across providers, the orchestrator fees become an unnecessary expense without unlocking any additional savings or performance improvements.
Highly Stable Payment Infrastructure:
When It’s Not Necessary: If the merchant’s current payment infrastructure is highly reliable, with minimal downtime and high transaction success rates, the need for features like automatic failover or smart routing becomes less critical.
Example: A business that uses a well-established payment gateway with a proven track record of reliability may not need the backup capabilities offered by an orchestrator.
Why It Could Be a Bad Decision:
Over-Engineering: For businesses with stable payment environments, adding an orchestration platform could lead to over-engineering the payment stack, increasing complexity without solving any real problems.
Slower Transaction Times: Introducing another layer between the merchant and the payment processor can sometimes lead to slower transaction processing, which could hurt customer experience.
Niche or Highly Specialized Payment Needs:
When It’s Not Necessary: In some cases, a merchant’s payment needs may be so niche or specialized that the benefits of payment orchestration don’t apply.
Example: A B2B company that deals with large, infrequent payments via bank transfers or checks may not benefit from orchestration, as the platform is optimized for high-volume, multi-gateway use cases common in B2C or e-commerce settings.
Mismatch in Features: Payment orchestrators are typically designed for businesses with complex payment needs across multiple methods and providers. For niche industries with specialized needs, these features may not be relevant, leading to a poor return on investment.
For Payment Providers:
Lesser-known Payment Service Providers and Aggregators can gain access to larger merchants and compete on volume by integrating with payment orchestrators. This minimizes integration friction when approaching merchants already connected to the orchestrator's network.
?What is the difference between a Payment Orchestrator and the traditional Gateway?
A payment gateway is a service that authorizes credit card payments for online and offline businesses. It acts as the bridge between a merchant’s website (or point of sale) and the payment processor or acquiring bank.
Simplification: Gateways simplify payments by securely transmitting payment information from the customer to the payment processor and then returning the authorization or denial.
Single Integration: Merchants typically integrate with a single payment gateway, which handles transactions through one or a few specific payment processors or acquirers.
?Limited Flexibility: While gateways simplify the payment process, they often lock merchants into using specific acquirers or processors, limiting flexibility and the ability to optimize transaction routing.
Single Point of Contact: Typically, a payment gateway works with one or a limited number of processors or acquirers. This creates a direct, but often rigid, pipeline for processing payments.
Risk of Downtime: If the payment gateway or the connected acquirer experiences downtime, transactions may fail, leading to potential revenue loss.
Basic Routing: Gateways typically route transactions to their connected acquirer or processor without much optimization. The merchant has limited control over how transactions are routed.
Limited Cost Management: Since the gateway is often tied to specific processors, merchants have less flexibility in optimizing transaction fees.
Limited Reporting: Gateways usually offer reporting and analytics, but the data is restricted to transactions processed through that specific gateway. For merchants using multiple gateways, data is siloed, making it challenging to get a holistic view.
Basic Fraud Prevention: Most payment gateways provide basic fraud prevention tools, but these are often limited to the transactions processed through that specific gateway.
Gateway-Specific Compliance: Compliance with local and international regulations is typically managed within the context of the gateway’s own operations. Merchants must ensure compliance across each gateway they use.
Limited Control: Merchants are often dependent on the gateway provider’s infrastructure and may have limited control over transaction routing, provider selection, and payment method flexibility.
Don′t they offer the same value proposition?
No. While payment gateways are essential for authorizing and processing transactions, they are often limited in scope and flexibility, particularly for businesses that require more advanced capabilities. Payment orchestration platforms, on the other hand, offer a more comprehensive and flexible solution by managing multiple gateways, optimizing payment flows, and providing a unified, scalable infrastructure.
For me, it is an investment that must be carefully weighed against the retailer’s size, transaction volume, and operational needs. For businesses dealing with a wide array of payment complexities, the benefits of scalability, optimization, and increased control offered by payment orchestration can far outweigh the costs, delivering both operational efficiencies and improved customer satisfaction. There′s more to do with the merchant′s business model, market and its strategy for the region than to do with its payments efficiency.