The dynamics between a leading payment orchestration layer provider and payment gateways / aggregators have sparked a crucial conversation about the future of merchant choice and market dynamics. I recently published a blog titled ‘The Digital Payment Ecosystem: Championing Open Choice and Fair Competition’ on www.comviva.com/blog presenting my views on the importance of open choice, fair competition, service quality and how it should be the sole criterion for market success. I argued that the true measure of an OL’s value lies in its ability to deliver exceptional service, optimize payment processes, empower digital merchants with flexibility and choice. Now I delve deeper into the transformative potential of payment orchestration.
The Promise of Payment Orchestration
Payment orchestration layers (OLs) are emerging as a critical component within the payment ecosystem. By connecting digital merchants to multiple payment solution providers through a single, efficient integration, OLs offer several key advantages:
- Streamlined processes and faster transactions
- Simplified global payment processes
- Optimized transaction routing through AI-driven “smart routing”
- Unified reporting and better payment data analysis
These advantages can lead to increased payment conversion rates and consequently higher revenues for digital merchants. Further, OL enables businesses to scale more efficiently by:
- Reducing technical debt associated with payment integrations
- Facilitating faster expansion into newer markets
- Providing flexibility to quickly adapt to changing business needs
Modern OL platforms also provide powerful insights through:
- Consolidating transaction data from multiple providers for comprehensive analysis to provide a unified data view.
- Tracking key performance metrics like conversion rates, transaction success, and cost efficiency across different payment methods and regions.
- Leveraging data to deliver predictive analytics to forecast trends and optimize payment strategies proactively.
AI-Driven Optimization
Traditionally, OLs offered static rule-based routing, but now OLs are becoming smarter by leveraging artificial intelligence and machine learning technologies to enhance their capabilities. These advanced systems can:
- Analyze transaction patterns in real-time to optimize routing decisions, improving success rates and reducing costs.
- Predict and prevent potential fraud more effectively and accurately.
- Provide data-driven insights for digital merchants to make informed decisions.
- Enable tailored payment solutions based on user behavior and preferences, enhancing customer satisfaction.
Global Expansion and Cross-Border Payments
As digital merchants expand internationally, OL plays a key role in easing the management of complex cross-border transactions. Key benefits include:
- Support for local payment methods across diverse markets
- Compliance with region-specific regulations
- Simplified currency conversion and reconciliation
Platforms now offer seamless currency conversion and local payment method integration, making it easier to adapt to local payment preferences and habits.
Subscription and Recurring Payment Optimization
For subscription-based businesses, OL offers specific benefits:
- Smart retry logic and automatic card updates help maintain continuity in recurring payments and reduce involuntary churn.
- Support for flexible billing models for subscription types and billing cycles without complex integrations.
Integration with Emerging Technologies
OL platforms are evolving to incorporate cutting-edge financial technologies, including:
- Blockchain and cryptocurrency support, offering more diverse options for consumers.
- Integration with central bank digital currencies (CBDCs).
- Adoption of open banking standards.
- Facilitating seamless transactions from connected devices in various sectors like retail, automotive, and smart homes.
- Enabling purchases within social media, messaging apps, and other non-traditional commerce environments.
Focus on Customer Experience
Beyond backend efficiencies, OL is increasingly prioritizing the end-user experience:
- Implementing one-click payments and remembering customer preferences across multiple platforms offering frictionless Checkouts.
- Enabling contextual commerce through purchases within social media, messaging apps, and other non-traditional commerce environments.
Challenges and Considerations
However, as with any transformative technology, OL also presents challenges that need careful consideration:
- The need for human expertise alongside AI capabilities
- Potential loss of control over the customer journey
- Technical challenges in facilitating multiple payment formats
- Regulatory compliance, particularly with GDPR, PSD2 and SCA rules
- Risk concentration when relying on a single OL provider
Cost Optimization
By leveraging payment orchestration, digital merchants can reduce operational costs through:
- Negotiation of better rates with payment service providers
- Intelligent routing to minimize transaction fees
- Reduced need for in-house payment infrastructure development
The Growing Market
Due to the benefits articulated above, the OL market is experiencing significant growth. The global OL platform market size was valued at USD 1.1 billion in 2022 and is projected to reach USD 6.5 billion by 2032, growing at a CAGR of 19.9% from 2023 to 2032. The OL platform market is projected to experience significant growth, estimated to reach $6 billion by 2030, growing at a CAGR of 23.2% from 2023 to 20301.
Evolving Regulatory Landscape
As the payment industry continues to develop, orchestration platforms will play a crucial role in helping businesses navigate:
- Increasingly complex regulatory requirements
- Data privacy and security standards
- Cross-border compliance challenges
Looking Ahead
The future of OL lies in platforms that can:
- Offer truly unbiased, AI-driven routing decisions
- Provide comprehensive security measures
- Maintain flexibility and interoperability with various payment providers
- Empower merchants with data-driven insights while preserving their control over the customer journey
As a firm believer in free market forces, I support solutions that foster innovation while preserving the principles of open choice and fair competition. Only then can we ensure that the digital payment ecosystem evolves in a way that benefits all stakeholders – from merchants and consumers to payment providers and technology innovators. By embracing these advancements in OL, digital merchants can position themselves to thrive in an increasingly digital and global marketplace, while continuing to prioritize merchants’ choice and fostering healthy competition in the payments ecosystem. By embracing these advanced features and trends, digital merchants can leverage OL not just as a tool for operational efficiency, but as a strategic asset for growth, customer satisfaction, and competitive advantage in the rapidly evolving digital payment ecosystem.
