Payment Orchestration vs Payment Gateway

Payment orchestration platforms and payment gateways help merchants optimise their business operations. They also facilitate a seamless customer journey that is vital to online payments.

From accepting electronic payments to securing payment information, payment orchestrators and gateways are the bridge between customers and business.

These tools are invaluable to merchants looking to scale-up their business and international vendors alike.

In this blog, we compare the different characteristics of orchestration platforms and payment gateways. As well as the ways merchants can integrate these tools within their payment infrastructures.

Payment orchestration: A definition

Payment orchestration is a technology system that integrates different payment service providers into a single, unified software layer.

The key benefit is a system for routing transactions through the payment flow to achieve either the fastest speed or lowest transaction costs for the merchant.

Payment service providers (PSPs) facilitate payment processing, authorization, and capture, thereby simplifying the integration with multiple payment processors and methods.

Merchants can use the same payment orchestration platform (POP) to handle multiple payment gateways and payment processors. While doing so, merchants also need to unify APIs.

Payment orchestrators support cross-border transactions and international payments.

They offer multiple payment methods and currencies for online payment options, including alternative payment methods, while complying with the rules and regulations surrounding payment security.

What are APIs?

An API (Application Programming Interface) refers to a structured set of protocols, tools and definitions that allow different software applications to communicate and interact with one another.

In payments, developers can integrate payment functionality seamlessly into their software or website.

Types of payment orchestration platforms

Payment orchestration platforms have different features and designs.

Most platforms accept multiple currencies. But some are limited to a single currency.

When orchestrators offer multiple currencies, they are automatically programmed to route the transaction into the optimal payment channel.

Depending on their technological and financial capacities, merchants can integrate payment orchestrators in different ways.

1. Vendor-agnostic

Vendor-agnostic platforms can be integrated with other payment providers, and they tend to be less expensive.

2. White-label

A white-label platform is company specific and can be customised to fit the companies' brand, i.e., logo and design.

How payment orchestration platforms work

There are five main steps in the functioning of a payment orchestrator.

Payment gateway: A definition

A payment gateway is the front-end technology that collects, verifies and transmits the customer's payment information to the merchant's acquiring bank.

The acquiring bank is the merchant's own bank in the card payment chain, and it is where every gateway sends the transaction for settlement.

All businesses need to use a payment gateway to process electronic transactions, whether in-store (e.g. via a QR code), via mobile or online.

In addition to collecting and transmitting information, payment gateways inform the customers and the merchants whether the transaction has been approved or declined.

Types of payment gateways

Depending on their technological features and compliance protocols, eCommerce websites can integrate different payment gateways.

1. Hosted payment gateway

This is the easiest method to integrate and works well with platforms that are not PCI compliant.

They operate via a third party, where customers can select their preferred method of payment and introduce their payment information.

2. A self-hosted or an API-hosted payment gateway

These options enable payments to be made on the eCommerce website or mobile app directly.

They are harder to integrate as they place more technological capacities on the merchant. But they provide a more seamless customer experience.

API-hosted gateways are usually integrated with PCI-compliant platforms.

3. Local bank integration

Customers are redirected to their online banking portal where the payment is completed.

Often, a local bank integration system is required by law, and will come in addition to the hosted or self-hosted payment gateways.

How payment gateways work

There are three main steps to the functioning of a payment gateway:

1. Customers are directed from the shopping cart to the checkout page of the eCommerce website. They input any required financial information (e.g. credit card details) and select the payment method (e.g. debit or credit card).
2. Upon submission, the payment gateway encrypts the customer's information and sends it to the customer's issuing bank or card issuer. The transmission process is usually made via a payment processor and card network.
3. The customer's bank or card issuer either authorises or declines the transaction. The result of the transaction is then sent to the merchant and the customer via the payment gateway.

Payment orchestration vs payment gateway: The differences

Payment gateways are a vital tool in completing eCommerce transactions.

But the services provided by a business may dictate that it also needs payment orchestration to process transactions.

Compared to a gateway alone, payment orchestrators lend a significant degree of control and efficiency to the payment system.

This means that all international businesses or those handling cross-border payments will need a payment orchestrator.

Small and medium-sized companies operating locally may not need to use a payment processor. Even though this may be useful to reduce customer waiting times and streamline operations.

By contrast, all businesses should use a payment gateway, regardless of their size or scaling-up plans.

Without a payment gateway, businesses cannot accept customers' data or keep such data secure.

Can a merchant use both?

The two are not alternatives in the strict sense. Orchestration sits above the gateway layer, so a merchant running an orchestrator is still using one or more gateways underneath it.

The practical question is whether a single gateway route is enough, or whether the volume, the number of markets and the number of provider relationships justify a routing layer on top of it.

Payment orchestration and payment gateway: Benefits for online merchants

1. Streamlines operations and increases security

A payment orchestration platform allows customers to use their preferred method of payment and can reduce payment processing times, as well as fees for merchants.

Orchestrators ensure safe transactions and mitigate cybersecurity threats using risk management and fraud detection tools.

Payment gateways use encryption and compliance protocols to protect customer data. These protocols secure the customer's account information before it is being sent further into the payment chain to the customer's card issuer or bank.

SSL: a common encryption protocol, used to code the cardholders' account information in such a way that fraudsters cannot access it.

PCI-DSS: a common compliance protocol, standing for 'Payment Card Industry Data Security Standards'.

Tokenization: goes a step further by replacing the card number with a substitute value, so a merchant can support repeat and one-click payments without ever storing the real card details.

2. Aids global growth and scaling

Payments orchestration supports the scaling-up and expansion of companies. By facilitating international payments and offering currency conversions, orchestrators support cross-border transactions.

This also increases sales and reduces card-abandonment rates.

3. Data insights and customer journeys

Payment orchestrators embed data analytics and centralised reporting mechanisms. These tools assist merchants in understanding their customers' behaviour, as well as analysing payment flows, performance metrics and eCommerce trends.

Using this data, merchants can tailor a more personalised and unique customer experience.

Integrating with a payment gateway means that customers can pay via card and make electronic purchases, whether it is in, or out-of store.

Payment gateways allow customers to make payments on the spot, without the need for additional transactions.

Choosing between payment orchestration and a payment gateway

1. Technology needs and integration effort

Merchants should assess their technological needs and capacities when integrating with a payment orchestrator.

Payment orchestrators may be challenging to navigate and their integration method needs to be compatible with the existing systems a company has in place.

Without a specialised tech team, merchants should look for an orchestrator that does not require advanced technical expertise for integration.

Payment gateways, by contrast, can be simply integrated and accommodate multiple devices and sales channels.

They are usually used to support electronic payments via credit or debit card but can also process payments on a mobile device or at a POS system (e.g. via a card reader).

2. Business needs and routing flexibility

A key distinction between orchestrators and payment gateways is their flexibility and availability in routing payments to the various payment service providers available.

Flexibility

In contrast to orchestrators, gateways are a static service, which use a singular payment processor to deal with the customer's information.

This means the payment methods are always presented in the same way, the route to the acquirer is fixed and all transactions are sent to the same location.

When alternative routing decisions need to be made (e.g. due to technical failovers), they are usually managed by the merchant.

Multiple payment service providers

Orchestrators allow merchants to adapt their infrastructure and integrate with multiple payment service providers, fraud management systems and 3D-Secure Merchant Plug-ins (MPI).

An MPI is the component that triggers the 3D Secure authentication step at checkout, so being able to choose it separately means a merchant can tune authentication without changing processor.

Payment orchestration allows real-time, dynamic decision-making to optimise the payment experience.

Orchestration platforms implement payment routing rules that enable transaction routing in the most optimal way. This is in accordance with approval rates, availability and cost.

Cascading is the rule that sends a declined transaction on to a second processor, which is how orchestration recovers payments a single gateway route would simply lose.

3. Provider specialisation

Compared to gateway providers, payment orchestration providers are often specialised in different areas of expertise and knowledge.

They can be industry-specific or company-level specific, i.e. start-up companies looking to scale up vs. international corporations.

Some providers may also tailor their services based on geographical areas and support a particular currency or a payment method that is preferred in that area.

No matter the area of expertise, payment providers need to be reliable and comply with encryption protocols and the required PCI.

Small and medium-sized companies may opt for the same payment provider to handle the payment gateway and the merchant account.

Large companies can choose different providers for the merchant account and the payment gateway. They may also have multiple payment gateways.

4. Costs and pricing models

Payment orchestrators have different pricing models. These can be tailored to the needs and financial capacities of each company.

Usually, orchestrators request an initial set-up fee, followed by a monthly subscription and / or transaction-based fees.

Payment providers charge differently for payment gateways. These fees usually include:

Some providers also charge a fraction for each purchase that the customers make.

Conclusion

Payment orchestration platforms are playing an increasingly important role in the payments industry by optimising the payment processing operations.

They are very different to payment gateways, which help facilitate a smooth, secure and user-friendly payment process.

Payment orchestration integrates multiple payment service providers into a unified software layer, enabling merchants to manage various payment gateways and processors through a single platform.

This technology facilitates cross-border transactions and compliance with payment security regulations. Payment orchestration platforms vary in features and integration methods, including vendor-agnostic and white-label options.

In contrast, payment gateways are interfaces used to collect and transmit customer payment information to the acquiring bank, essential for all businesses regardless of size or scaling plans.

Payment gateways operate through hosted, self-hosted, or local bank integration methods.

Orchestrators streamline operations, enhance security, and support global growth by offering insights into customer behaviour and facilitating international payments. They also provide dynamic decision-making for optimising payment routes.

Merchants should consider their technological needs, provider expertise, and cost structures when choosing between payment orchestration and gateways. Gateways offer static services, while orchestrators allow flexibility and real-time decision-making.

Costs for both orchestrators and gateways vary based on setup, subscription, and transaction fees.