The next frontier in payment innovation: orchestration

The world of payments is becoming increasingly complex to navigate for merchants, marketplaces and companies in general. Payments are of course a key part of the consumer experience, and coherent omnichannel, low friction of conversion is essential. Consumers often have varying payment method preferences and expectations even within one geography, which becomes even more complex when operating in multiple markets. Payment orchestration can help navigate this.

Full-stack PSPs (Payment Service Provider), such as Stripe and Adyen, are the dominant model nowadays. They offer the attractive concept of a “one-stop-shop” for merchants payments. However, for multinational enterprises the practical reality is still a complex combination of many PSPs and other value-added service providers (VAS) to integrate with.

This is where Payment Orchestration comes in. Payment Orchestration focuses on abstracting the complexity of managing and integrating with multiple PSPs and VAS. This is done by focusing on smart routing to improve transaction success and sales conversion, instead of focusing on processing or collecting.

While Payments has been the most invested segment of fintech and created the most valuable companies in fintech such as Paypal, Block (former Square), Stripe, Adyen, Klarna and many others, funding for Payment Orchestration startups is yet to take off. Most of the funding has been raised by Payoneer and Very Good Security, which do not focus solely on payment orchestration.

VC funding into payment orchestration startups
VC funding in payment orchestration globally

Is it still just a matter of time before we see an uptick in this segment?

We mapped 30+ Payment Orchestrator providers.

List of payment orchestration providers

Subscribe to Dealroom’s Fintech newsletter, for weekly insights on finance-focused startups and investment:

The evolution of Payment Service Providers

Payment orchestration can be seen as the third model in the payment enablement space.
The first one was technical PSPs (gateways) in the early days of e-commerce (2000-2010). This model was focused on the technical integration between merchants and acquirers, instead of on collection and settling, supplying to the lack of a robust e-commerce front-end by traditional acquirers.
In the 2010-2020s, there was a broad shift towards full-stack, collecting PSPs (such as Stripe and Adyen) that could combine technical enablement with acquiring and alternative payments collecting, along with a suite of complementary services (fraud management, multi-currency etc.).
Readapted from this article by Flagship Advisory Partners.

Payment facilitation ecosystem by Silicon Valley Bank
Payment facilitation ecosystem by Silicon Valley Bank

But can a single PSPs offer all that is needed to merchants or other companies?
Certainly not, especially in the case of international merchants or businesses. The solution has been so far to integrate with multiple PSPs providers based on the different use cases. However, this brings some issues: high technical integration costs and difficulty in adapting to market changes, difficulty to reconcile payments, aggregate reporting and detecting fraud.
The Payment Orchestration model tries to address this.

The Payment Orchestration model

Payment Orchestration Platforms act as a single entry point for merchants by aggregating and integrating with many PSPs, acquirers, issuing banks and connecting with 3d party service providers.

Payment orchestration model
Payment orchestration architecture by trimplement

These players are focused on smart routing between the different providers and are therefore acquirer-agnostic. This gives merchants flexibility, independence and complete control over their payment stack to merchants. Doing so, can eliminate the pressure around adaptation, meaning that merchants can choose services fitting their market size or launch country, and easily switch to different providers as volumes, payment methods or other conditions change. This also provides resilience in case of acquirers downtime.
Additional advantages include: maximized conversion, reduced failed transactions and improved risk management and fraud detection.
Let’s focus on this last aspect. Right now merchants integrate with multiple PSPs resulting in a lack of centralized data. In payment orchestration instead, data are aggregated from the different providers and can be used for risk decisions, automatic reconciliation, treasury management and so on. The absolute importance of these fraud and security improvements is signalled by the entrance in the field of
startups from the cybersecurity world such as Very Good Security and TokenEx.

Different types of Payment Orchestration providers

Some players focus on turn-key payment orchestration, others more on self-service ones.

Turn-key providers such as Spreedly or Payooner offer a ready-to-use middleware for PO purposes that sits in between the merchant and the payment providers and gateways. Usually, these players have a core selection of partners which are supported out-of-the-box. This might not align payment routing perfectly with the client preferences but guarantees which and easy integration. In some way in this case the former dependence on external PSPs becomes a dependence on the Payment Orchestrator due to the difficulty to migrate the whole system in due time. This trade-off allows getting started at a low cost and without effort for merchants. For instance, Spreedly offers access to 120+ Gateways globally and provide a running payment orchestration to merchants in two to four weeks.

Looking at self-service payment orchestration, the approach is to let the client build themselves the architecture to fit exactly their vision of scaling and customer experience.
This is clearly more expensive and time-consuming at the start and requires a do-it-yourself attitude but brings unmatched flexibility and cost-saving in the long run.
This approach is followed by no-code such as Primer and WhenThen which focus on lowering the effort to build an in-house solution to manage the payment stack.
Middle ground solutions between the two approaches also exist. For instance, trimplement‘s “core wallet” is an API-based software framework for payment, e-wallet, and virtual account management solutions, which can be used by clients to build their own payment orchestration on top of an existing payment framework with some basic features.

Payments orchestration has also mostly been focused on e-commerce sales. The trend is expected to expand to in-store sales too, a move in this direction is Ingenico PPaaS that empowers acquirers and Independent Software Vendors to enable merchants to create compelling commerce and payment options for their customers.

To sum up, we are still early on in the journey, but the orchestration model in one of its shades couples well with the increasing emergence of complex ecosystems.

See you next week!

Subscribe to Dealroom’s Fintech newsletter, for weekly insights on finance-focused startups and investment: