More factors are involved in processing a payment than ever before, including new payment types, a variety of processors and acquirers, and geographic considerations. Payment orchestration means unifying all those aspects into a single, functional solution that maximizes the benefits to the organization.
Merchants are increasingly reaching out to third-party providers for payments orchestration solutions, but as Matthew Gaughan, Payments Analyst at Javelin Strategy & Research, found in his latest report, Demystifying Payment Orchestration for Banks, it’s not so simple for financial institutions. However, banks can adopt strategies to develop a payments orchestration infrastructure that will pay off in the long run.
A Spoke in the Wheel
The third-party platforms at merchants’ disposal are now fully assembled payment orchestration tools that can unify thousands of payment methods and vendors into a single API. The objective is to route transactions using these various criteria to ensure the business gets the lowest cost and highest acceptance rate for any specific payment.
Financial institutions are not often able to adopt those same payment orchestration platforms because of complex compliance requirements and more stringent regulatory oversight. Instead, financial institutions must deploy more of a mix of internal solutions and third-party offerings, and they might even rely on payments consultants. IT consultants and system integrators can aid financial institutions in bringing all those aspects together.
The underlying principle of payment orchestration is the same for banks as it is for merchants. All these organizations utilize various attributes of a transaction to screen and route it in the most optimal way, whether for cost considerations or for creating a better experience for the user.
“For financial institutions, payment orchestration should be viewed as an important spoke of the larger wheel of payment modernization,” Gaughan said. “It should be a broader push by the entire organization to build out the infrastructure and frameworks that make the next generation of payments technology possible. That includes emerging payments like open banking and instant payments, blockchain and digital assets, and contactless and digital wallet solutions.”
Laying the Groundwork
Because these payments innovations are proliferating at an exceptional rate, the work banks do now will lay the groundwork for the payment technologies to come. For example, more intelligent transaction routing enabled by orchestration efforts can be a massive aid as instant payments, which settle in seconds, gain traction.
That framework could be facilitated by several of the largest cloud providers, in conjunction with IT consultants, who work together to help organizations build out different applications across microservices architecture. Microservices architecture allows for an application within the bank to be split into disparate API-linked component parts that run independently of one another but still serve the whole application.
The technology isn’t new or proprietary to payments companies; it has been a critical component in the tech sector for some time. However, banks only recently have started to understand the functionality of microservices architecture.
“More financial institutions are shifting away from applications that largely existed within a monolithic architecture, an architecture that houses all parts of an application under a single service and code base,” Gaughan said. “The as-a-service nature of microservices architecture can solve for some of the previous model’s shortcomings, because it orchestrates each component in a way that makes the application as a whole perform more efficiently.”
Reflecting on Resources
Larger financial institutions that have more resources might be able to build out and maintain a payment orchestration framework internally. However, as many banks reflect on their resources and limitations, they are likely to turn to third parties. That includes payment consultants, such as systems integrators and IT consultants, all of which will play substantial roles in the widescale payment orchestration push.
“Another important consideration for banks is that they shouldn’t lose sight of their broader payment modernization strategy,” Gaughan said. “They should also consider the next three to five years when they are building out their orchestration architecture. Payment orchestration is a subset of payment modernization, and a bank’s lines of business should be tightly coordinated on strategy for each of these types of projects.”
Reason and Order
A long-range payment orchestration strategy ensures the solution will be implemented in the most efficient manner. Though the fruits of payment orchestration may take a few years to be fully realized, starting the process now will ensure that a financial institution has a strong foundation for the payments ecosystem to come.
“The real solution that payment orchestration delivers is that it helps dissolve the technological complexity of the increasingly complicated web of third-party companies,” Gaughan said. “There are many entities that could play a part in a single transaction, so orchestration breaks that complex process down into more digestible components. Ultimately, payment orchestration introduces reason and order into an ecosystem that currently lacks both.”
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