Payment Gateways vs. Payment Orchestrators: what’s the difference?

By Mark Patrick, Global Head of Payments

Growing businesses are often looking for ways to optimise revenue while keeping costs low. Innovations in digital technology have meant that the expectation of a fully integrated, seamless payment experience is widespread. This can be a make-or-break factor when it comes to customer conversion for online retailers, e-commerce and other business types.

However, when it comes to creating a smooth, secure and user-friendly payment process, the language can be jargon-heavy, with the highly distinct features of the payment system seen as interchangeable. Alongside this, the adoption of Payment Orchestration across numerous industries has led to questions about the exact role this plays in a payment ecosystem, and how it differs from the role of the traditional payment gateway.

As a result, we’ve created this article to help you understand the key differences between two important aspects of modern online payments: Payment Gateways and Payment Orchestrators. Read on to get the essential info on what these terms mean and how they operate in the total transaction process.

What is a Payment Gateway?

You may not be familiar with the term, but it’s likely you are familiar with the functionality of a payment gateway. Otherwise called a gateway, it is the front-end technology that oversees the transmission of customer information to the merchant’s acquiring bank (known as an acquirer) that processes a successful transaction on behalf of a merchant.

In essence, it is the bridge between businesses and customers, and the technology that securely authorises the transaction.

How do Payment Gateways work?

A payment gateway at its most basic level provides a technical connection between a merchant’s online website or mobile app and the merchant’s acquirer or Payment Service Provider (PSP). This gateway connection provides secure collection and transmission of consumer payment data in accordance with industry standards such as PCI-DSS., between these two parties.

Connectivity between the merchant’s platform and gateway is determined by the security level of the platform itself and the level of control the merchant wants to maintain over the user experience. For merchants whose platforms are themselves PCI compliant, the merchant may choose to integrate using the gateway providers API’s. In this scenario, the merchant is presenting the payment page and collecting the consumer payment information within their platform.

The benefit to the merchant of this approach is that they are in complete control over the consumer experience. The downside is that the merchant is responsible for any potential data breach associated with the collection and storage of sensitive data. The merchant’s platform is also subject to annual 3rd party audits associated with PCI compliance, which are expensive.

For merchants whose platforms are not PCI compliant, there are several Hosted Payment options available. One option is a fully hosted payment page, where the merchant redirects the consumer to a payment page hosted within the payment gateway provider's secure environment. Another is the use of individual payment fields which are hosted within a provider's secure environment but are embedded into the merchant’s own payment page. Each has pros and cons related to control and security.

Transaction flow

While not every online payment is identical, a typical transaction flow process follows these steps:

1. Once a consumer has selected and confirmed the products/services they wish to purchase on the merchants checkout page, the consumer will click on the “PAY” button.

2. Based on one of the options highlighted earlier, a payment page will be presented to the consumer.

3. The available payment methods for that merchant will then be presented to the consumer (Cards, Wallets, Bank Transfers, etc.)

4. The consumer will then select the preferred payment method, enter the requested details associated with the selected payment method and then hit submit.

5. Upon submission, the payment gateway will send the payment information to the appropriate payment processor (card acquirer/PSP) for authorisation.

6. Once the payment has been authorised by either the card Issuer or APM processor, a response is returned through the payment gateway to the merchant informing them whether the transaction was approved or declined.

  • If approved, the merchant will inform the consumer and proceed with processing the order for delivery.
  • If declined, the merchant can request the consumer to try a different payment card or different payment method, and the process would repeat itself.

7. To receive the funds associated with the purchase from their acquirer or PSP, the merchant must capture or settle each of the authorised transactions. This can be done at the same time as the authorisation for instantly delivered products (digital content), or as a delayed process subject to shipment or confirmation of the purchase. Submission can take place online via an API call or via a batch upload. Either way, the merchant will initiate a capture transaction which the gateway will consolidate. At a defined cut-off time (or at intervals throughout the day), the gateway will submit a capture/settlement file to the acquirer/PSP for settlement.

8. Once the Acquirer/PSP has received the funds from the issuer/payment method provider, they will settle the funds into the merchants defined settlement account.

What is a Payment Orchestrator?

We have established how Payment Gateways enable secure transmission of payment data between merchant platforms and the merchant acquirer/PSPs.

In this sense, a payment gateway is at the foundation of a Payment Orchestration Platform (POP). However, a traditional payment gateway is a static service, meaning the payment methods are presented in the same way under all circumstances, the route to the acquirer/PSP is fixed, and all transactions are sent to the same location. Any alternative routing decisioning (technical failover, alternative acquirer/PSP) is managed by the merchant – in most cases manually.

For instance, if the merchant's primary acquirer goes down, the merchant would need to manually reconfigure the Merchant ID (MID) and the acquirer/PSP that the transaction needs to be routed to, if they have a secondary provider. Additionally, Payment Gateways typically provide single solution options for value-added services such as fraud management and 3D-Secure. In this case, you can only use the service they provide, as opposed to having a choice of preferred providers.

By contrast, a Payment Orchestrator maintains a comprehensive payment ecosystem of global, regional, and local acquirers/PSPs, fraud management providers, 3D-Secure Merchant Plug-ins (MPI) providers and other value-added services. This provides merchants the choice of who their preference for each service.

The core of a Payment Orchestrator is a sophisticated rules engine that allows real-time, dynamic decisioning against an infinite number of attributes. True orchestration platforms have rules engines that can not only determine the optimal transaction routing based on cost, approval rates, availability, and other factors, they can also dynamically determine which available payment methods should be presented to the consumer at the point of checkout.

Additionally, the platform can handle intelligent decisioning of what services to apply to a particular transaction (invoke 3DS or not, send for fraud review or not) based on the results of previous action. All of this is engineered to drive customer conversions while reducing merchant cost.

How does it work?

Payment Orchestration is integrated with a merchant’s existing commerce platform. These are typically – but not limited to – digital payment platforms. Through a single API integration, a merchant can add numerous payment methods to their website, mobile app or call centre through wider access to acquirers, PSPs and APM providers. Payment Orchestrators combine and manage payment technologies, processors, and acquirers to automate payment authorisation, transaction routing and settlement.

At first glance, a Payment Orchestration platform resembles a traditional payment gateway, and to the consumer the process is invisible. However, within the platform, multiple decision-making engines are at work. These are applied to ensure the relevant payment methods are presented to the consumer, appropriate fraud measures are being used to minimise false positive and unnecessary rejections, and optimal authorisation routes are selected. All of this is designed to help drive conversions, increase approval rates, and reduce overall costs.

The flow

The following is the flow of a payment from checkout to settlement through a Payment Orchestration platform:

1. Customer selects and confirms the product/service they wish to purchase in the merchant's shopping cart and presses the “PAY” button.

2. Merchant platform makes an API call to the POP, including a number of decisioning attributes.

3. Payment Orchestrator will apply defined presentment rules against the provided attributes and will determine the appropriate payment methods (from those made available to individual merchant) and present these payment methods to the consumer. For example:

  • Are installments available? If so, present installment options
  • Are split payments available? If so, present split payment options.

4. Consumer selects which payment method they wish to use and enters requested data.

5. Once a consumer enters their payment data, the Payment Orchestrator will apply defined business rules to determine what, if any, services need to be applied to the transaction and what actions to take based on the response. For example, “3DS is invoked and is successfully authenticated, do not send for fraud review, proceed with authorization”.

6. After internal business rules have been executed, the transaction is passed to the routing rules engine which will determine the most optimal route to send to the transaction (lowest cost, highest approval rate, on-us, and more).

  • If the primary route is unavailable, the transaction is sent to the secondary provider.
  • If authorization fails with a soft decline code, it can retry with a secondary acquirer.

7. Successfully authorised transactions are captured for settlement.

8. Payment of funds are deposited into merchants’ settlement accounts by the acquirers/PSPs.

The architecture of a Payment Orchestrator is like a traditional gateway, but with infinitely more built-in possibilities.

For example, in the case of a failed payment when a payment is pending and the buyer account has insufficient funds, or the cardholder data is identified as inaccurate, the issuing bank will not authorise the transaction. When this occurs, the Payment Orchestration platform reroutes this transaction to an additional processor, managing multiple vendors and providing buyer and merchant with another opportunity for a successful transaction.

Why is Payment Orchestration important?

Payment Orchestrators serve to enhance the overall transaction process to drive merchant sales and improve profitability. In the world of payments, the priority is to be frictionless – the last thing that should be on a consumer's mind is the technical processing of their payment.

Therefore, as ecommerce transactions account for $8.1 trillion US dollars worldwide, smooth and effortless payment is crucial for improving customer experience, efficiency and revenue. Here are just a few of the benefits of payment orchestration, and why they matter:

Better customer experience

The goal of Payment Orchestration is to create a frictionless consumer journey at every juncture. With embedded checkout and broader availability of relevant payment methods, consumers encounter fewer hurdles to clear in order to complete their purchases. What’s more, recent reports revealed that lack of preferred payment methods contribute to 40% of customer abandonment. If the end-consumer experience can be improved to decrease the level of payment abandonment or failures, this will significantly enhance revenue per every transaction.

Optimised transaction flow

In the scenario where a customer is lost due to a failed payment, it can be because of processing failures on the side of either the acquirer or issuer. The intelligent routing function of Payment Orchestration allows pending transactions to be sent to the best-performing processor in order to avoid this outcome. In addition, if one payment processor is down, the transaction can automatically be routed to another processor without any interruption to the customer, which is especially important as customers expect a frictionless payment process.

Increased scalability

Since Payment Orchestration functions by integrating all processes and aspects of the transaction flow under one API, the time required to set up new payment options and add-ons is reduced. Consequently, a merchant can take its product to the market quicker and reach more potential customers with a wider range of payment options – offering the right payment type at the right time.

Enhanced security and compliance

With traditional payment processors, cardholder data is shared between multiple Payment Gateways and providers, weakening protection against potential fraud. The automatic data routing provided by Payment Orchestration lets you control transaction routing, helping identify data inconsistencies in real time.

The architecture of Payment Orchestration also allows merchants to assess a number of providers while maintaining consistent fraud and compliance management across all providers, helping to make online transactions smooth and secure in a shorter amount of time. This is especially useful for executing smooth cross-border payments, as the integration lets merchants adjust payment systems, services and software (the payment stack) to accommodate international transactions. These would otherwise require dealing with region-specific compliance and regulations like PCI DSS, PSD2 and GDPR.

Reduced costs

As merchants grow their business and need to enhance payment performance, developing new features or integrating further payment options may be required. In turn, this requires investment in maintenance, IT, resource, development, and licensing – all of which incur costs that add up. With full integration of Payment Orchestration total expenses can be reduced by up to 20% by consolidating costs under a single platform.

A Payment Orchestrator is built to integrate with existing cloud software, helping merchants to reduce the cost of storage and bandwidth. It enables them to aggregate data and share data with other merchants and fraud detection services to spot, and thereby reduce financial risk. This way, the payment stack incurs fewer fees for setting up integrations and add-on costs for providing services like automated transaction routing.

Finally, additional cost savings can be found in using multiple acquirers and routing payments to the lowest cost or local payment providers.

Centralised reporting and analytics

Besides integrating with existing systems for smoother transactions, Payment Orchestration platforms adapt to the payment preferences of each merchant. Payment Orchestrators gathers transaction information spread across multiple Payment Gateways and PSPs in a single view allowing merchants to make alternative strategies driving transparency and efficiency. These analytics and insights make it easier for merchants to better manage their payments ecosystem through more informed decision-making.

What's the difference?

Both Payment Gateways and Payment Orchestrators bring together and support multiple methods of payment to carry out the payment transaction processes. However, a Payment Orchestrator lends a significant further degree of control and efficiency to the payment system.

Gateways use a singular payment processor to deal with the relevant cardholder data to execute a transaction, but Payment Orchestrators are payment provider-agnostic. This means they enable merchants to have stronger payment stacks by making it easier to manage multiple acquirers and route payments for the best possible outcome. By using insights across payment providers, a merchant can maximise revenue while lowering costs.

The key distinction is the level of unification and flexibility in the system. As we have discussed, the integration of payment software and technology through Payment Orchestration platforms enables merchants to adapt their payment infrastructure to changes in customer preferences, security requirements and new payment types in the rapidly evolving payment landscape. Payment Orchestration is significantly more integrated and optimised – with better outcomes for the merchant and their customers.

Learn more

Payment Orchestration is a future-proof payment solution that gives any online business with a scalable, resilient, and cost-effective payment ecosystem. It provides end-to-end visibility to payment processing, gets new payment methods to market quicker, and can integrate new acquirers or backend processes as and when your business deems them necessary. On top of that, it brings greater ease and simplicity to the customer’s online experience.

Reach out today to begin your Payment Orchestration journey and learn how CellPoint Digital can help tune up your payments to perform like a symphony.

Mark Patrick

As Global Head of Payments for CellPoint Digital, Mark Patrick is responsible for expanding the company's service offerings within the payments ecosystem to drive and optimise customer value.

Mark is a highly regarded veteran of the payments industry, bringing 25+ years of expertise in international sales, product management and operations with leading card schemes and payment processing companies – across merchant acquiring, e-commerce, mobile commerce, and fraud management – to the CellPoint Digital Executive Leadership Team.

Before joining CellPoint Digital, Mark was the COO at Intrapay Inc, a global provider of payment processing solutions and services. His prior leadership roles have included serving as General Manager of Southeast Asia for Verifone Inc, Regional Head of e-Commerce Solutions for MasterCard, General Manager APAC for Ingenico ePayments and CEO of GoSwiff International. He has an MBA from the University of Technology in Sydney, Australia – and a rocking Harley.