Payment Orchestration vs. Payment Processing

If your business accepts card-present and card-not-present transactions, it’s essential to find the best payment solution for your specific needs and goals. While you may have heard of payment orchestration and payment processing, it may be unclear how these are different in terms of services, connectivity, flexibility, and functionality. Let’s dive into what these payment solutions are and how they are different to help you find the best option for your organization.    

What Is Payment Orchestration? 

Payment orchestration is a platform that integrates and manages the whole payment process from beginning to end, including payment authorization, transaction routing, and settlement. This process involves connecting to different payment service providers (PSPs), acquirers, and banks on one unique software layer. A payment orchestration platform  (POP) helps optimize and simplify the typically complex payment process. As a result, this payment solution can help merchants create a more efficient payment stack within a single platform instead of juggling dozens of integrations across multiple payment service providers (PSPs). 

How Does Payment Orchestration Work? 

Organizations that accept online payments depend on payments being successfully processed. After all, merchants must receive payments for their products or services to continue to grow. A significant benefit of payment orchestration is finding the best payment route to send digital transactions. Indeed, sending payments to several payment processors can result in more favorable processing fees and help reduce false declines and, thus, a loss of revenue. By sending transactions to ideal payment providers, business owners can increase the number of authorized payments and conversions. Additionally, POPs can manage payment settlements and billing, and create real-time payment reports within a centralized dashboard. Indeed, this makes it convenient for merchants to handle the entire payment process without leaving the platform.   

The payment orchestration process:  

  1. The customer adds a product or service to their cart on an ecommerce site. They select their preferred payment method from the merchant’s list of options at the checkout page. 
  2. Once the customer places the order, their payment details are sent to a payment gateway. Additionally, payment orchestration also enables merchants to set up rules to automatically send certain transactions to a gateway with the lowest interchange fee or highest likelihood of approval for that type of transaction.
  3. The gateway encrypts the cardholder’s payment information and then sends it to the acquiring bank and payment processor to secure this data.
  4. Once received, the acquiring and issuing banks communicate to verify and authorize the pending transaction.
  5. Usually, the acquiring bank will send the authorization response code to the payment gateway and the merchant. However, payment orchestration platforms use a different approach. If a payment fails, pending transactions are automatically routed to an additional payment processor to decrease the number of false declines.
  6. If sending the transaction to the alternative payment processor works, the payment is approved, the customer doesn’t get frustrated with failed payments, and the merchant gets paid. It’s a win-win situation for all parties.  

What Is Payment Processing? 

A payment processor is a company that processes credit and debit card transactions, which is essential in allowing customers to purchase products or services from a merchant. Payment processing involves several steps, including the payment processor communicating and sending payment information from cardholders’ credit or debit cards to merchants and customers’ banks. For payments to be authorized and approved, pending transactions must have enough credit or funds in cardholders’ accounts and be deemed valid. Once these requirements are met, the payment will go through. However, if those requirements aren’t satisfied, the transaction will not be approved. Believe it or not, this card lifecycle process takes only a few seconds to complete.  

How Does Payment Processing Work? 

When a customer makes a purchase, several steps and key players work in the background to complete the transaction. Payment processing involves various parties, including the customer, merchant, payment processor, payment gateway, bank or credit card brand, and merchant bank. While it may seem like a simple, fast process, numerous actions must be met, such as processing, verifying, accepting or declining, and transferring payments. This is a general overview of how this process works for merchants: 

 

  1. The customer makes a purchase in-store, online, by phone, mail, or another method. The cardholder data is sent to a payment gateway, a payment tool that securely connects payment data sent through the payment processor from a customer’s bank to the merchant’s bank. 
  2. The payment gateway transfers the cardholder information to the payment processor, which sends the information to the card brand, such as Mastercard or Visa, for transaction approval. 
  3. The card brand then lets the payment processor know whether the pending transaction is approved or denied. 
  4. Once approved, the merchant completes the transaction. 
  5. The payment processor then informs the issuing bank (cardholder’s bank) to transfer the appropriate funds to the acquiring bank (merchant’s bank).  
  6. The merchant’s bank will transfer the funds to the merchant’s account. This process can take anywhere from hours to a few business days. The length of time depends on the payment provider and which type of account a merchant has.   

The Differences Between Payment Orchestration and Payment Processing 

While payment orchestration and processing both handle card payments, these solutions use a different approach. One key difference is that payment processing works with several entities to complete transactions, while payment orchestration platforms (POPs) complete the entire card process within a single, unified software platform. Payment orchestration platforms typically allow business owners to set up their payment flows with multiple integrations and payment methods, including cross-border options. Furthermore, payment processors are more restrictive regarding which integrations can be used. On the other hand, payment orchestration offers more flexibility and control to create a digital payment solution that meets each merchant’s needs and allows them to scale.  

We hope you found this week’s article helpful as you search for the best payment solution for your organization. With all the options out there with different rules, integrations, and services, it can be challenging to find something that meets your needs and has the functionality to grow with your business. Payment orchestration is an excellent option for those that require a customized payment stack with multiple payment methods and integrations to serve a global customer base. Of course, payment processors are also a good choice, especially if your business is still small and you only need a minimal number of integrations and payment methods. Whichever solution you decide, remember that maintaining payment security and compliance requirements are also necessary. Indeed, the last thing any business wants is to suffer from a cyberattack and lack the resources and layered security solutions to prevent card fraud, reputational and profit loss, and lawsuits.  

 

Want to learn more about payment security? 

 

DISCOVER PAYMENT TOKENIZATION

Topic(s): payments