The Benefits of Payment Orchestration

Originally published on ThePaypers

ThePaypers Interview with IXOPAY Founder and Executive Chairman Rene Siegl for the “Cross-Border Payments and Commerce Guide 2019/2020”

What are the benefits for a merchant to collaborating with multiple payment service providers (PSPs)?

Most people aim to optimize fees by sending transactions to the most suitable processor, often defined as the one that will offer the best, namely lowest price. But the major advantage of a multi-PSP setup is that it enables you to spread your risk. 

Sometimes, various events outside of the merchant’s control can lead to delayed or even lost settlements, which may, in turn, lead to liquidity issues for the merchant. In my view, this should be the primary reason to implement a multi-PSP strategy. Once in place, you can work on extracting additional value from such a setup, for example, fee optimization through smart routing.

And what are the challenges in this matter and how they can be overcome?

Once you have spread your risk across multiple providers, you will quickly realize that not all PSPs are equal: they differ in authorization rates and fee structures, in turn, based on where your customers are coming from and which payment methods they are using. 

You will also notice that the lifecycle of a transaction is implemented slightly differently by each provider, whether it is the initiation of a payment transaction or the post-processing phase - settlements and reconciliation. Here, different PSPs will provide data in different formats, granularity levels and so on. This, in turn, impact the required technical effort for such integrations, and additional effort to standardize and consolidate data which your back-office teams, including accounting, will need. 

We have often seen multi-PSP integrations that were technically and operationally more complex than merchant’s actual core business! Some Merchants we have worked with had 10+ platforms, each integrated individually with multiple PSPs. This leads to over 100 different combinations of merchant platform, PSP and payment method. Maintaining such a complex setup is often not sustainable, and never cost-effective without a flexible and configurable abstraction layer for payments.

When entering new markets, especially emerging ones, merchants need to consider — besides consumer protection and satisfaction — the popular local payment methods and specific regulations applying to that country or region. How can PSPs help in this regard, to ensure the merchants they work with stay competitive and compliant in that particular market?

Here I see a shared responsibility of both the PSP and the merchant. Many merchants don’t understand why it is often very difficult to get a live merchant account with a PSP and why they have to share so much data or even a payment processing history. The PSP just tries to comply with local requirements and better understand its customer — the merchant. 

A PSP usually handles payments for merchants from a lot of different industry verticals. Of course, the PSP will try to classify any new merchants into categories that are already known and defined, in order to take into account any specific requirements for that particular industry and to make potential new merchants aware of these requirements. 

But I have also experienced that some PSPs opened merchant accounts very quickly, only to understand months later how the business model of the merchant really works, often leading to panicked reactions or even closure of the account on very short notice. 

A clear pitch by the merchant, transparently explaining his business model and signaling a willingness to adjust it slightly for new markets if needed will usually lead to faster on-boarding and longer-lasting relationships with PSPs.

Moreover, how can merchants optimize their payments fees and other costly operations when tapping into new markets?

Using a payments management platform offering ready-to-use PSP integrations can help in significantly reducing the TCO of adding payment methods and providers for new markets. You can on-board with local providers quickly, spread your risk for this market and optimize transaction fees and authorization rates using smart routing or dynamic payment method selection. Generally speaking, you should never bet on a single provider, even if it looks like the cheapest option in the short term.

Dealing with a fragmented payments ecosystem has created a new area of collaboration between industry players. So how do you see the future of collaboration between merchants, payments companies, acquirers, and fintechs in an effort to streamline the complexity of the current payments environment?

It’s complicated! The ongoing consolidation of the online payments market in the last years has led to payment behemoths, often offering a dizzying array of solutions and capabilities, presenting themselves as “one-stop-shops” for payments. Such companies are often dismissive of more specialized, niche solutions in the market because they may have a similar product within their own portfolio. The problem here is the focus: if you are working on solving 50 different problems with 50 different products, are these all going to be the best in their respective product category? Probably not.

This is why I believe that large merchants are the key: they represent the common denominator between all players in the payments industry. We all want to process their payment volume and help them succeed. Over the past years, many merchants have amassed significant payment know-how and are capable of expressing their requirements more clearly and self-confidently, thereby effectively influencing industry-wide trends. 

This is fertile ground for new collaborations between all players in the payments industry, both large and small because we can only satisfy the requirements of such merchants by cooperating. This, in turn, will also benefit smaller merchants, as a wider array of services and combinations thereof become available and help foster continued innovation in the market.

About Rene Siegl

Rene is the Founder and Executive Chairman of the IXOLIT Group. Since IXOLIT’s founding in 2001, Rene has been successfully developing and optimizing large-scale e-Commerce projects. His strong, global network of partners coupled with decades of industry experience puts him in a position to effectively advise and support his clients on strategic, technical and operational levels. Rene has been leading the development of the IXOPAY Payment Orchestration Platform since 2014, which addresses the global payment scaling needs of both large online merchants and licensed payment institutions.

Contact Rene on LinkedIn.

About IXOPAY

IXOPAY is a highly scalable and PCI-certified payment management platform for White Label Clients and Enterprise Merchants. The modern, easily extendable architecture enables the orchestration of payments, provides intelligent routing and cascading functions as well as state-of-the-art risk management, automated reconciliation and settlements along with plugin-based integration of Acquirers and PSPs. IXOPAY is part of the IXOLIT Group, which was founded in 2001 and maintains national and international customers from Vienna, Austria, and Florida, USA. The owner-managed and financed company has grown to an IT specialist with over 65 experts developing innovative solutions and products.