The Complexity of Cross-Border Payments
Let’s start with a very simple explanation of something exceptionally complex: a cross-border payment is a financial transaction between parties* based in different countries at the time of the transaction.
Now, that is the easy part. Enter finance law, regulations and financial technologies, and the plot thickens! At the consumer end, slow speed, high cost, low transparency, and lack of flexibility are barriers to efficient and inclusive cross-border commerce.
The longer the value chain is, the more fees and time are added to a transaction. Multiple banks are usually involved, and an extra fee is added at each payment gateway. Local taxes and exchange rate variations can seriously dampen the enthusiasm for shopping.
If you are not familiar with terms like «payment orchestration», «smart routing», and «real-time transaction data analytics», you need to know that these are keywords in optimising cross-border payments for your business, whether online or offline.
Explaining Payment Orchestration
Payment orchestration is a poetic term for managing and streamlining the flow of payments in a complex ecosystem involving multiple payment methods, providers, and channels.
The aim is to coordinate and streamline the numerous stages of the payment lifecycle, from the initiation of a payment to its settlement, while ensuring security, efficiency, and a seamless customer experience.
Businesses must often integrate and manage multiple payment gateways, processors, and acquirers, each with technical requirements, interfaces, and protocols. This fragmented approach can be time-consuming, costly, and error-prone.
To simplify and centralise payment management by acting as a middleware layer between the merchant and the various payment providers, a payment orchestrator, in contrast to other parts of the value chain, reduces complexity and cost.
Furthermore, to consolidate and abstract the integration with multiple payment methods and providers, offering a unified interface and a single point of control for businesses to manage their payments.
Global Acquiring & Smart Routing
Having one sole source and connector for all global payments simplifies the integration process by providing standardised APIs, SDKs, and plugins that enable businesses to connect their systems with various payment providers easily. This reduces the technical complexity and time required for integration and maintenance.
The gateway intelligently routes payment transactions to the most appropriate payment method or provider based on cost, availability, customer preferences, and risk management. It can dynamically select the optimal payment route to maximise transaction success rates and minimise costs.
Payment orchestration platforms aggregate various payment methods and providers into a single interface, allowing businesses to offer their customers a wide range of payment options. This can include credit and debit cards, digital wallets, bank transfers, alternative payment methods (APM), and more.
Your eCommerce business can reap significant awards from offering APMs like AliPay+, WeChat Pay and digital wallets like Apple Pay. Allowing customers to pay with their preferred method is a significant conversion rate booster and growth factor!
Realtime Payment Analytics
The singular payment gateway brings other benefits besides bringing costs down and speeding up, like real-time payment analysis. Not having to reconcile data between disparate systems and various levels of compatibility is a significant business asset.
Precise data on transaction volumes, success rates, revenue, and more can be used to build more informed payment strategies, identify trends, and make the right business decisions.
Besides saving time and costs, you are also reducing fraud risk. Having your business's full transactional data overview allows for faster detection of patterns and abnormalities within systems.
Payment orchestration platforms often include built-in fraud prevention and risk management capabilities. They employ advanced algorithms and machine learning techniques to detect and prevent fraudulent transactions, providing an additional layer of security.
Orchestrating Cross-Border eCommerce Success
What a payment orchestrator can offer your eCommerce business.
- Regulatory Compliance. The more countries you do business with, from an EU or UK business, the more crucial it becomes to have a payment partner with a payment orchestrator compliant with PSD2 regulation and more. For business in the EU General Data Protection Regulation (GDPR) mandates local storage and management of citizens’ payment data. For the UK, the Data Protection Act 2018 essentially incorporates the GDPR into UK Law, post-Brexit.
- Local Acquiring. Although global acquiring allows you to expand your business across territories, it does not offer to save on cross-border fees. Local acquiring simplifies payment processing for businesses by establishing a direct relationship with a local financial institution, resulting in cost savings, faster settlements, and improved customer trust and compliance.
- Low currency conversion rates. Being able to sell your merchandise in a local currency keeps settlement costs and currency conversion rates low.
- Approval Rates Boost. An innovative connect solution between Payment Service Providers will choose the PSP with the highest probability of approving a transaction. And, failing that, quickly move to the next option. With a cascading feature, local processing and fraud checks, your business is connected to global and regional card schemes worldwide.
- Alternative Payments. With a business that caters to customers from different countries and perhaps even different generations, it is crucial to deliver their preferred payment method at the point of check-out. Besides the traditional international card schemes offering digital wallets (like Apple Pay), pay-by-link, geo-specific methods like AliPay+ and WeChat Pay (for Chinese customers) etc, are significant growth factors. With payment orchestration, these options can be added to your payment methods without lengthy licensing or integration processes.
- Easier Fraud Prevention and Risk Management. Payment orchestration solutions include fraud prevention mechanisms and risk management tools to mitigate the risk of fraudulent transactions. They leverage data analysis, machine learning, and artificial intelligence algorithms to detect and prevent fraudulent activities.
- Business Intelligence. One source for your payment suite equals one source for all transactional data. This allows for easy tracking of all KPIs, from the bird’s eye view to the most minute details. Reducing fraud, cart abandonment, and chargebacks while increasing conversion rates and revenue. It’s all in the numbers, laid out coherently and completely.
Payment orchestration is more than yet another payments industry buzzword. It accurately depicts a business-crucial feature and process of effectively growing your eCommerce business across channels and borders.
*Footnote: Referring to the card-issuer location.