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What is Payment Orchestration?

A specter called "payment orchestration" is haunting the payment and banking landscape. To take away the scare, we explain what payment orchestration is all about.

by Maik Klotz, 2023-02-14
3 min

Some time ago, we explained what a Payment Service Provider (PSP) is and what its tasks are. In short, a PSP takes care of connecting a store (retail or e-commerce) with the various payment methods. Usually, companies use a single PSP. But that doesn't always have to be the case, and that's when so-called payment orchestration comes into play.

Take a look behind the scenes and into the backend

If there were no tax office and no accounting, the payment issue would be resolved quickly. But a company also wants and needs to know how much it cost to process the payments. Also for control reasons, to ensure that everything works smoothly.

The store causes quite a few account movements and settlements. There are the compilations of the PSP and the bank statements, a merchandise management system, and a customer database. And the settlements must all add up plausibly, taking into account the various types of taxes. This balancing of accounts is called "reconciliation" in technical jargon. And this process should require as little effort as possible.

As already shown here, the check-out is also part of the risk management of every retail company. So it's not just a matter of finding an optimal payment mix for the target groups. Ideally, all customers will see an individual compilation of payment options. Depending on fraud detection systems, order history and risk class of the type of goods. And not every PSP offers a comprehensive fraud prevention system (or exactly the one the merchants want for their store).

Therefore, Payment a thoroughly complex matter.

One PSP is often not enough

If a retail company wants to expand into new markets, experience shows that the online store must then also offer the payment methods customers there prefer.

However, if the current PSP does not offer these, payment proves to be a limiting factor for expansion. The company can now wait until the PSP also offers the desired methods. Or it has to sign another contract with another PSP, which then has to be connected to its own systems again. After all, no retail company will want to change its internal processes or put another store system into operation because of a PSP.

However, with the additional contracts, accounts, connections and additional services, the complexity of the processes just mentioned increases.

Payment Orchestration solves many problems

This is exactly where Payment Orchestration comes in. On an abstract level, it is an intermediate layer between the processes of the store or the merchants and several payment services. In the most beautiful German language of software development, this is a "stack" of its own.

Companies that master Payment Orchestration have framework agreements with various PSPs, acquirers, service providers for fraud prevention and may even have a small banking license.

Payment Orchestration bundles the various services under one interface and enables access via a few interfaces. From the merchant's point of view, this results in a whole range of advantages:

  • Starting in the backend, the complexity of payment reconciliation and reporting is reduced, especially when multiple stores in different target markets need to be managed.

  • The number of payment methods is greater than when working with only one PSP.

  • Payment Orchestration also allows active control of payment flows, e.g. towards a specific bank. This can be useful for liquidity planning.

  • The integration of new payment methods and complementary services is much faster.

Thanks to this construct, the complexity of payment is reduced in many places and payment loses its limiting character in the development of new markets or the integration of additional payment methods.

Payment orchestration is therefore not a new form of payment, but is becoming a necessity, especially for larger retail companies with correspondingly strong activities in digital commerce.

Maik Klotz is a consultant, speaker and author specializing in banking, payment, digital identity, e-commerce and retail. He was profiled by the Süddeutsche Zeitung in the industry's "Influencer" series and moderates and speaks at many industry events. Maik is co-founder of Payment & Banking.

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