Payment orchestration: How does it work and do you need it?
Key takeaways:
Payment orchestration simplifies managing multiple payment providers but can be costly and complex.
A payment orchestration platform (POP) improves efficiency and automates tasks, but ones that depend on third-party providers pose security and compliance risks.
A strong payment orchestration platform will have data reporting and integrations, can scale with your business, offer multiple payment methods, and feature fraud detection.
As your business grows, managing payments becomes more complex. Expanding into new markets, working with multiple payment providers, and optimising acceptance rates can create operational inefficiencies and added costs.
Many businesses turn to payment orchestration platforms (POPs) to address these challenges, as they centralise payment services and providers into one system.
However, payment orchestration isn’t the only approach. Some businesses may benefit simply from using a comprehensive payment service provider (PSP), which can be easily integrated into your existing systems.
Understanding the differences between payment orchestration and other payment management solutions can help you determine the best fit for your business. Learn more below.
What is payment orchestration?
Payment orchestration is the process that allows you to manage multiple payment service providers (PSP) and payment gateway relationships in a single system.
A payment orchestration layer acts as a central hub, connecting and managing multiple payment service providers (PSPs), acquirers, and banks. It uses advanced algorithms to route payments through the most efficient and cost-effective channels in real time.
While a payment orchestrator can offer significant benefits, the decision to use one should be based on specific business needs, the complexity of your payment ecosystem, and your growth plans.
Payment orchestration vs. payment gateways vs. PSPs
People often get confused between payment orchestration, payment gateways, and Payment Service Providers (PSPs) because these terms are closely related and sometimes used interchangeably. However, they serve different functions in the payment ecosystem.
We’ve already covered payment orchestration, which integrates the other services including payment gateways and PSPs to make sure your payment goes through the best and most efficient way.
A payment gateway is the interface where a customer inputs payment information and the gateway transfers this to the payment processor. The gateway encrypts and transfers this data to the payment processor to actually facilitate the transaction.
Payment service providers, or PSPs combine the functions of a payment gateway, merchant account, and payment processor, with extra services like fraud protection and customer support.
As a PSP, Airwallex can offer many benefits that a payment orchestrator provides. Since Airwallex can accept payments from 160+ payment methods, from over 160 currencies from 180+ different countries and regions, you can easily improve the customer experience without the need for a complex solution like a payment orchestrator.
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How does payment orchestration work?
Payment orchestration involves using a centralised platform to integrate, route, and manage multiple payment providers. Here’s how it works:
Payment initiation: The payer selects a payment method at checkout.
Gateway selection: The payment orchestrator chooses the optimal gateway to process the transaction, considering factors like success rates and costs.
Cardholder verification: Security measures, like 3D Secure, one-time passwords (OTPs), or biometric authentication, are used to reduce fraud and prevent chargebacks.
Authorisation: The transaction is sent to the issuing bank for approval to verify funds and compliance with security and legal requirements.
Optimising routing: The payment orchestrator routes the transaction through the most suitable gateway and methods depending on customer location, cost, and other factors.
Acceptance: If approved, the payment is successfully captured and processed, moving the transaction closer to the merchant’s account.
Reconciliation: Funds are deposited into your bank account, and the payment orchestrator ensures accurate and clear transaction records for reporting and accounting.
Implementing a payment orchestrator can add an extra layer of complexity to your payment system, especially if you already have existing systems in place. This might require additional technical resources and expertise to set up and maintain and may require changes to your current infrastructure.
Also, while they can certainly reduce costs in the long run, there are often initial fees and ongoing service charges which can be significant to your business. Once you’ve integrated with a payment orchestrator, it can be costly to switch to another provider, limiting your flexibility and options in the future.
Benefits of a payment orchestration layer
Flexibility, security, and efficiency are the top priorities when choosing a POP. This includes several features like:
Global payment capabilities: A payment orchestration layer can manage and integrate multiple payment methods and currencies, making it easier for businesses to grow both domestically and internationally. This is particularly useful for international businesses.
Enhanced transaction success rates: Payment orchestrators use real-time data to route transactions through the most reliable and efficient payment paths. This reduces the likelihood of payment failures and improves the overall success rate of transactions.
Improved customer experience: By optimising the payment process, a payment orchestrator can reduce friction, and speed up transactions. This leads to a smoother customer experience, which can boost customer satisfaction and lead to repeat sales.
Cost efficiencies: Since payment orchestration can help optimise payment routes, it can reduce transaction fees, especially if you process a high volume of transactions. However, the initial and ongoing maintenance can be significant.
When do you need payment orchestration?
Choosing a payment orchestrator isn't a decision to be made lightly. The right orchestrator can enhance transaction success rates, reduce costs, and ensure regulatory compliance, but the wrong choice can lead to increased complexity, higher costs, and potential security risks.
On top of that, the integration process can be time-consuming and require significant technical resources. Once integrated, switching to another provider can be challenging and costly. So it’s important to thoroughly evaluate your options, consider your long-term needs, and ensure that you really need a payment orchestrator.
Payment orchestrators are particularly relevant for businesses that fall under the following cases:
1. You have extremely high payment failure rates
High payment failure rates can lead to significant issues such as customer dissatisfaction, lost revenue, and increased operational costs. While the percentage varies, a 5% payment failure rate is considered high. Payment orchestrators reduce failure rates by dynamically routing transactions to the most reliable payment service providers (PSPs).
However, a good PSP like Airwallex can also help avoid high failure rates by offering diverse payment methods, advanced fraud detection, and helpful technical support, that can help you improve failure rates without the additional cost of a payment orchestrator.
2. You have several PSPs
It can be complex if you work with multiple PSPs across different regions, especially when dealing with different APIs, integrations, and operational processes. A payment orchestrator helps centralise and simplify these tasks. Generally, if you’re working with three or more PSPs, it might be worth considering a payment orchestrator.
However, for many businesses, a well-chosen PSP can provide a comprehensive solution without the need for a payment orchestrator. A robust PSP can already manage multiple currencies, provide extensive integration, and offer great customer support, eliminating the need for an orchestrator.
3. You’re facing significant cost inefficiencies
If you face high transaction fees, a lack of volume discounts, and suboptimal routing of payments, you might need to consider a payment orchestrator. A payment orchestration system can direct transactions to the most cost-effective payment providers, reducing fees and improving margins.
However, a payment orchestrator is typically more cost-effective for businesses with significant transaction volumes, so the benefits of a payment orchestrator might be less pronounced for businesses with fewer transactions. Many PSPs offer competitive pricing and can be cost-effective without compromising on the variety of payment methods, third-party integrations, or fraud protection.
4. Your business operates in a highly regulated industry
Certain sectors require robust compliance measures, and payment orchestrators can play a role in managing complex regulatory requirements and ensuring data security. Highly regulated industries, such as pharmaceuticals, aerospace and defense, government, and public services may benefit from payment orchestration since these industries handle sensitive data and must comply with specific security and data regulations while maintaining smooth payment flows.
However, some PSPs can address the needs of highly regulated industries by offering specialised solutions, so it’s worth exploring options before committing to a payment orchestration solution that may be difficult to reverse later.
Airwallex can serve as an excellent alternative to payment orchestrators. By connecting to Airwallex directly, you can benefit from more transparent pricing, which can reduce overall costs. Additionally, the integration process is typically simpler and faster, making it an attractive option for businesses with straightforward payment needs.
This direct approach also allows for greater control and customisation, enabling you to tailor payment solutions to meet your specific needs. Direct connections to PSPs also often result in faster resolutions and personalised support, which can help resolve any issues that may arise. These benefits make PSPs a highly viable and often more manageable solution for many benefits.
Globalise your payment acceptance with Airwallex
Accept global payments easier with Airwallex
A payment orchestration platform can be a great way for some businesses to simplify the management of payment providers, but implementing one can be time-consuming and it can take a long time before you realise cost efficiencies.
A good PSP like Airwallex allows you to have the benefits of a payment orchestrator without the added complexity by combining a gateway, acquirer, and processor in a single platform.
Airwallex is an excellent alternative to payment orchestrators. By connecting to us directly, you can benefit from more transparent pricing, which can reduce overall costs. Additionally, our integration process is typically simpler and faster. This direct approach also allows for greater control and customisation, enabling you to tailor payment solutions to meet your specific needs.
With Airwallex Payments, you can boost acceptance rates for payments in over 180 countries. More importantly, you can settle funds from your customers in the same currencies they pay in, avoiding costly FX conversions back to your home currency.
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Payment orchestration frequently asked questions
What is the transaction orchestration layer?
A transaction orchestration layer is a framework that facilitates the payment orchestration and unification of your payment system. It’s another name for the payment orchestration layer (POL), payment orchestration platform (POP), and payment orchestrator.
What is a payment instrument?
Payment instruments refer to physical and digital payment methods that support contactless transactions. These include credit and debit cards, direct debit, and digital wallets.
Is Airwallex a payment orchestrator?
No, Airwallex isn’t strictly a payment orchestrator. Airwallex is an end-to-end payment service provider that can ease the payment process while simplifying your financial operations with an all-in-one financial solution.
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Airwallex’s editorial team is a global collective of business finance and fintech writers based in Australia, Asia, North America, and Europe. With deep expertise spanning finance, technology, payments, startups, and SMEs, the team collaborates closely with experts, including the Airwallex Product team and industry leaders to produce this content.
