Payment Orchestration vs Payment Gateway

Ecommerce and online payments now drive a large percentage of global commerce. In fact, the worldwide digital payments market is projected to grow by 15.71% annually from 2024 to 2029, reaching a transaction value of approximately USD 36.75 trillion by 2029. Businesses now rely heavily on online payment processing to be as seamless as possible in order to ensure customer satisfaction and operational success. However, the ecosystem of payment solutions is growing rapidly and becoming more complex as new players enter the market to solve various pain points in global online payments and also to grab a share of this vast transaction volume. This has left many businesses wondering which tools are the best fit for their needs. Two essential components in payment processing are payment gateways and payment orchestration platforms. While these terms are sometimes used interchangeably, they are fundamentally different in terms of functionality, scalability, and benefits.

To make informed choices in building an effective payments solution, businesses need to understand the key differences between payment orchestration and payment gateways and how each solution works, so they can determine what solution is best suited for their business.

A payment gateway is the software technology that facilitates the exchange of credit and debit card data. It is one of the core components that enables businesses to accept and process online payments. Acting as the bridge between customers and merchants, service providers, acquiring banks, and issuing banks, a payment gateway authorizes and authenticates transactions, ensuring that funds are securely transferred from the customer’s bank account to the merchant.

The primary functions of a payment gateway include:

• Transaction Authorization and Authentication: Payment gateways validate payment information, ensuring the transaction details are correct and that the customer has sufficient funds to complete the purchase.
• Tokenization and Encryption of Sensitive Data: They tokenize and/or encrypt sensitive payment data to protect it during transmission, preventing fraud and breaches.
• Secure Communication Between Systems: Gateways facilitate communication between a merchant’s website, the acquiring bank, and the issuing bank.
• Settlement and Payouts: Gateways facilitate the settlement process, transferring funds from the customer’s account to the merchant’s account.

To learn more about payment gateways, check out our detailed What is a Payment Gateway guide.

The payment gateway process happens in just milliseconds and involves several key steps:

1. A customer places an order on a merchant's website and enters their payment details.
2. The payment gateway captures the transaction information, encrypts the transaction, and securely transmits it to the acquiring bank, sometimes via an independent payment processor.
3. The acquiring bank forwards the information to the issuing bank or card network for authorization.
4. Once approved or declined, the response is sent back to the acquiring bank, and the gateway relays the information to the merchant.
5. If approved, the transaction is completed, and funds are settled into the merchant’s account.
6. If declined, information about the reason for the decline is given to the merchant to present to the customer.

This system ensures secure and efficient payment processing, but it is typically limited to a single payment processor, which can be a drawback for businesses requiring greater flexibility or redundancy.

Payment orchestration is a more advanced solution that centralizes and streamlines the management of multiple payment gateways and service providers. Acting as a unified payment platform, it goes beyond basic transaction processing. Some of the additional features include the ability to work with multiple partners, optimize payment transactions, reroute transactions, retry cards, automatically reconcile transaction data, and ultimately improve success rates.

Key functions of payment orchestration include:

• Smart Transaction Routing: Automatically directs transactions to the best payment processor based on success rates, costs, or geographic location.
• Multi-Processor Support: Allows businesses to connect to multiple payment gateways and processors, increasing flexibility and redundancy.
• Consolidated Reporting and Analytics: Offers merchants a single data feed or dashboard to monitor payment performance and customer behavior across providers.
• Fraud Detection and Risk Management: Provides advanced fraud prevention tools and streamlines security compliance.

Learn more about payment orchestration with our What is Payment Orchestration guide.

The process of payment orchestration is similar to a payment gateway but with additional flexibility and optimization features:

1. A customer initiates a purchase and submits payment details on a merchant’s payment page
2. The payment orchestration platform evaluates multiple payment gateways or processors, choosing the best route for the transaction based on factors like costs, regional preferences, and processor performance.
3. The transaction is sent to the selected gateway or processor for authorization.
4. If the transaction fails, the platform can automatically retry it with an alternative processor (intelligent retry).
5. The result is communicated back to the merchant, and the transaction is completed, and settlement is handled.

This dynamic approach ensures higher transaction success rates, reduced costs, and an improved customer experience. For more on how payment orchestration works, take a look at IXOPAY’s Payment Orchestration platform.

While both solutions facilitate payment processing, their capabilities vary significantly. Here's a quick comparison of the two:

Investing in payment orchestration can deliver transformative benefits for your business:

• Improved Transaction Success Rates: Smart routing and retry mechanisms ensure more transactions are approved on the first attempt.
• Reduced Costs and Fees: By intelligently selecting the most cost-effective payment routes, orchestration helps lower processing fees.
• Enhanced Customer Experience: Faster approvals and seamless payments create a frictionless experience for your customers, reducing cart abandonment.
• Scalability: Easily add new gateways, processors, or payment methods as your business grows, ensuring you’re always equipped to meet customer demands.

Learn more about the ROI of Payment Orchestration and how it can benefit your business.

While payment gateways are sufficient for small businesses with low transaction volumes or simple processing needs, payment orchestration is the better choice for businesses with more complex requirements, such as:

• Handling large transaction volumes.
• Operating across multiple regions or currencies.
• Offering diverse payment methods.
• Prioritizing flexibility and scalability.

For businesses looking to future-proof their payment systems and stay competitive, upgrading to payment orchestration is a strategic decision. To understand more about whether orchestration is right for you, visit our Payment Orchestration Glossary.

When it comes to optimizing your payment processing, IXOPAY offers a best-in-class payment orchestration platform tailored to meet your business needs. With features like smart routing, intelligent retries, multi-processor support, and advanced fraud prevention, IXOPAY empowers businesses to improve transaction success rates, reduce costs, and scale effortlessly.

Ready to transform your payment infrastructure? Request a demo today and see how IXOPAY can help you unlock the full potential of payment orchestration.