Intelligently Organized Payments – Payment Hubs and Orchestration

In the world of growing instability, payments, especially cross-border, is one of the most susceptible spheres. That is why the necessity to have a modern and smart way to manage payments comes to the fore now. The more so, the payments technology landscape is complex and full of legacy solutions that are fragmented by instrument, payment type, currency, and clearing mechanism. Many payment solutions have grown through acquisitions and maintain multiple systems. They can also operate internationally and need to build bridges to support different versions of software or solution packs. As a result, payments infrastructure has become “spaghetti architecture”— there are often multiple direct connections between channels, payment systems, and clearing settlement mechanisms.

Typical Merchant Payment Functionality Deployment Requiring Multiple Maintenance Efforts. Source: RPGC Group

To meet demands for simplicity, seamlessness, scalability, and regulatory mandates, payments systems need to create a digital payments ecosystem based on newer hub models (like payment orchestration platforms). Depending on business needs, that can mean integrating fraud tools into the platform, adding payment gateways, and distributing resources based on geography. The most valuable parts of your system still need to be protected and easy to maintain, and business strategy and business rules need to take the front seat.

The most common pain points for CNP merchants can usually be addressed by technologies. These pain points include: managing fraud and security (as well as compliance with modern standards, e.g. PSI DSS), cost of payments, an increasing need to accept alternative payments, and supporting growth and geographical expansion. All of these can be addressed with the help of innovative technological approaches.

Over the last few years, the concept of payment services hubs (PSH) has become the leading approach to innovative payment infrastructures. A Payments Hub, sometimes referred to as an ‘enterprise payments architecture’ or ‘payment engine,’ is a solution that can process any payment on a single platform, regardless of instrument type, value of payment, customer, channel, or transaction type. It delivers core payment processing functionality for each of these scenarios and is built on a modern technology architecture. A payment hub offers an integrated infrastructure for all payment types and allows companies to combine and normalize financial messages from divergent systems to stabilize payment flows and reduce operational risk. Payment hubs can also include money management, reconciliation and reporting, compliance test, data governance, and other services for treasury management. It supersedes the roles of Generic Payment Hubs, Platforms, Frameworks, and Gateways and is a dedicated solution for end-to-end payment processing.

Payment orchestration platforms, also known as a payment orchestration layer, are new business-oriented payment architectures. These proposed architectures address the shortage of technical expertise and provide non-engineering staff with the tools to manage payments platforms with minimal involvement from engineers. It orchestrates the payment workflows with rule-based processing, manages all exceptions, and provides real-time business activity monitoring and information delivery. Payments orchestration is a hot topic in e-commerce and can involve working with multiple payment providers to optimize customer conversion, enhance cost savings, and improve fraud prevention processes. According to a recent Business Impact Brief by S&P Global Market Intelligence, more than 60% of merchants work with various payment processors, and more than 25% see upgrading payments orchestration as one of their highest priorities. Merchants are not the only ones who benefit from payment orchestration platforms — the list can be extended to shopping platforms, telecom, and banking companies.

  Payment hubs can be a great choice for:

• Multiple connectivity solutions between merchants and banks
• Numerous, fragmented payment systems and processes
• Little visibility of all payments and payment processes
• Various support teams, focusing on particular payment systems/processes
• Issues with recurring payments
• Legacy systems with unsupported enhancements that have been bolted on over several years
• ERP, TMS, and in-house systems all generate different payment formats and connect to banks in a multitude of ways
• Slow payment system implementation and integration times
• Different payment strategies and unclear business rules

Why to use Payment Hubs. The key benefit to payment orchestration is its ability to automatically identify best route to manage payments. The special software layer can send payments to multiple payment processors to reduce false online payment failure messages and decrease the likelihood of lost sales. Routing transactions to the best-performing processor leads to more approved payments (i.e., higher conversions).

Payment hubs are especially useful in high-performing enterprises that need to standardize and streamline payments across business applications, payment types, and banks. In this sense, payment hubs can be compared to a unified payment gateway that facilitates an increase in efficiency and visibility, risk reduction and better control over funds.

Front-end orchestration ensures fragmented systems can integrate with payment gateways easily and rapidly. Integration can come from multiple shopping websites, mobile shopping apps, and call centers, but it should be as easy and efficient as possible. A unified interface can integrate these services while offering access to additional services from payment gateways and other service providers.

Back-end integration orchestration layers typically offer the greatest value. Online merchants focus on customer conversion rates, and every merchant wants customer journey to be successful. Offering multiple payment methods ensures that shoppers have a choice between cards, wallets, buy-now-pay-later, direct-to-account, cash on delivery, and other payment methods. This is a major factor in maximizing conversions.

Benefits of using payment hubs:

1. Makes integration easier

• Manages the interface between back-office systems, treasury workstations, and other systems associated with payment and cash management
• Fast and efficient adoption of new payment technologies including contactless, mobile, and online
• Reduces time of bringing new payment standards and regulatory requirements
• Support open banking interaction through APIs
• Provides a platform for integration of various PSPs

2. Improved payments visibility, both for liquidity management and for broader risk management and customer service.

3. Handles the ever-growing volumes and spikes of payments with an increasing share of near-real time transactions.

4. Allows you to easily adapt to consumer payment preferences.

5. Allows to scale your e-commerce business faster.

6. Optimizes conversion rates, which results in more approved payments (and more sales).

7. Enhances the customer experience and payment flows:

• Minimizes friction during the shopper’s checkout process
• Selects the best acquirer to route the payment authorization request based on the conversion rate of the acquirer for the various parameters
• Providing alternatives on the particular service outage
• Decision making on the particular flow tailored for merchant/customer needs

8. Reduces costs associated with payment processing.
9. Comes with centralized reporting and data analytics.
10. Provides payment security and compliance.

• Eliminates unnecessary data transfers between services
• Controls data flow, which is good for complying with GDPR, EPR and other regional data privacy laws

11. Reduce complexity and improve efficiency.
12. Enables you to expand into different regions.
13. Centralizes payment activity and provide a consistent workflow process.
14. Controls and full view of all transactions in real time.
15. Supporting global customers.

Payment orchestration platforms should be cloud-native and ready for operating in public, private, or hybrid cloud environments. They should also be based on microservices and API-enabled. Continuous real-time operation and 24×7 availability are essential components.

Payment hubs are also good for embedding ISO 20022 messaging into every step of the payment lifecycle. Banks that implement this approach recognize the need for more advanced, flexible platforms that can improve innovation and meet client demands, using a digital scale for better fraud protection and client intelligence.

To address concerns about creating a single point of failure, POLs are designed to be resilient, fault tolerant, highly secure, and capable of handling thousands of transactions per second. Although it is impossible to create a platform that never fails, POLs are designed to minimize the probability of complete outages by leveraging cloud-based distribution, scalability, resiliency, and security advantages.

The era of faster payments and open banking solutions is upon us. Financial institutions of all sizes are reconsidering the use of hubs as a realistic option, and they are revisiting project opportunities that align with the need for digital transformation required to compete in today’s market. The case for a Payment Orchestration Layer (POL) is clear. Regardless of how POLs are implemented, their time has arrived.