Orchestration: The Key to Untangling Messy Multi-Vendor Integrations

Having a multi-payment-service-provider model (MPSP) allows a business to scale, diversify risk and attract new customers but the complexity of managing multiple integrations can weigh heavily on a company's time and resources.  

 

In this session, business leaders from PayPal and a merchant partner will discuss ways that orchestration—a process that coordinates and manages multiple backend systems into one seamless integration—has empowered their innovation, maximized company efficiencies and enabled them to expand their offering.


Transcription:

Vanessa Towers (00:09):

Okay, so what we thought we'd do this morning is a more sort of relaxed fireside chat, so please get cozy. I have two amazing guest speakers, of course, Daniel and Irina. And what we'd like to do, as Chris was saying, is really make this a conversation. And so we really do invite you from the get go to engage with us and raise your hands if you'd like to ask questions. We'll keep an eye out for that. And of course we'll save a little bit of time towards the end for Q&A. So let's get started. Today we're going to be diving into the topic of payments orchestration, which is becoming increasingly critical as an emerging solution for global payment global merchants who need to sort of navigate and manage their increasingly complex payments infrastructure and ecosystems. And this is becoming especially timely as consumer expectations are evolving and for merchants that are scaling up or trying to expand into new markets and new regions.

(01:14):

At ThoughtWorks, we've had the privilege of working with a number of leading global merchants to design and even implement their payments orchestration platform. What we've learned is that by bringing platform thinking into this problem space, we're able to create a unified approach to managing multiple payment service providers in the ecosystem while also really pulling together a set of value added payment processing capabilities and services into a single platform or a centralized payments hub. With that said, I'd love to really set the stage by starting with Irina to maybe help us unpack orchestration a little bit more. I know we have a wonderful visual that you might be able to walk us through. Perhaps you could share sort of what are those key business challenges that it sets to solve for? What are the key advantages that it's providing merchants today and how is it enabling that seamless payment experience for end users?

Irina Nichol (02:17):

It's a super simple visual that's really there to describe an incredibly complex ecosystem. So payments are very complicated. You guys spent a lot of time, I think yesterday talking about partnerships and how much value partners add throughout the ecosystem. Payment orchestration allows a single point of access one front door to connect a variety of different payment service providers that can unlock all different types of use cases. So the most simple is multi PSP strategy. So as merchants start to outgrow having a single payment service provider, they might want to either use multiple for load balancing to drive costs down to say maybe you have a better cost for Visa with one provider and for MasterCard with another. So you can have some thoughtful routing strategies. And then as it gets more complex and merchants want to expand into new geographies, we can unlock any part of the world very quickly in a matter of days or weeks, literally almost anywhere for merchants.

(03:17):

So if they want to start processing payments in Qatar, but they're not ready to stand up a legal entity there, we can work with partners like Ebanks to stand up a merchant of record to serve as a merchant of record for them to be able to unlock payment processing wherever they want to meet their consumers. So that's the most kind of simple concepts of payments orchestration. And then it gets really interesting and gets into connected commerce. So we can actually connect merchants to different fraud providers, even though we're a fraud provider ourselves. We want to democratize payments. We are your payment processor, but we can also connect you to any of our competitors. We're a fraud provider, but we can also connect you to any of our competitors there as well. And then we can actually connect merchants to each other. One of the coolest things we do is if you want to add insurance to your flight or insurance to your concert ticket purchase, for you as a consumer that experiences a single checkout transaction, you just say, do you want to add insurance?

(04:18):

Yes, and so on. But what happens in the background, we as an orchestrator split it into two transactions and send your one payment. We divide it into two and send it to the insurance provider and they can process it wherever they want to process it. So the connection of the ecosystem is how orchestration got its roots. And so we have hundreds of connections that we can unlock for you. But then the super interesting part and what's been sort of like the game changer over the last couple of years is optimization. So it's one front door and a single connection, but it's not just connecting you. It's not just pipes gluing pipes together anymore. It's what can we do for you in that orchestration layer to optimize payments for author rates, fraud, cost latency. So every transaction that comes in, we decide what's the smartest way to route it for you to the cheapest network or the cheapest PSB or what's the likelihood of it getting approved here versus there?

(05:16):

And lastly, we are your single vault, right? So let us be your one front door. Let us be your vault provider. We'll keep your credential safe. You never have to touch the consumer data, right? You never have to become PCI compliant. We'll keep it fresh for you. We'll update your network tokens for you, we'll optimize for payments, and then we can send it for processing anywhere because the processing itself is a commodity. So we would love it if you use PayPal brain shape. We're also quite happy to connect you to any of our competitors because that component is the commodity in the simplest piece.

 Vanessa Towers (05:48):

Thank you, Irina. So I think payments orchestration, it's both a technical architecture and a pattern, but as you were saying, it's a connected ecosystem that's a core part of it as well, right? And so the partnerships ecosystem is critical. Daniel, perhaps you can share your perspective in terms of the partnership between Ebanks and PayPal, Braintree. How does that partnership create value for global merchants? And tell us more about the partnership ecosystem.

Daniel Kornitzer (06:15):

Yeah, thank you Venice. And just touching on what Irina was saying, it's easy to cobble together vendors, but this is a blueprint for merchant value creation. It's partnerships that actually the value chain extends all the way to the consumer because ultimately when there is less fraud, the consumer wins. When you get more transactions approved, you can get that purchase authorized. So consumer wins, the merchant wins because they sell more, their top line grows, and that way we contribute. In our case, our focus is enabling some of the world's biggest companies to sell into rising markets or emerging economies. So Latin, Africa, India, Southeast Asia at some point through, again, touching on a concept that are in the single door into those capabilities. No company wants to have 30 integrations to address 30 countries in Latin and Africa. They would rather have a single integration and then be able to service all these countries for go-to markets, speed, et cetera. So it is the creation of that virtuous circle and the relationship between the partners, in this case, PayPal, Braintree, and Ebanks to collaborate to deliver a better outcome for merchants and consumers. That's really the end goal.

 Vanessa Towers (07:48):

And I know you've got some really compelling data insights that you can share with us around the kinds of performance uplift that you've seen, payments, orchestration drives. So I will see if we can pull that up.

Daniel Kornitzer (08:03):

Yeah, super.

 Vanessa Towers (08:04):

And do you think you could tell us a little bit some of the specifics of,

Daniel Kornitzer (08:08):

What kind of,

 Vanessa Towers (08:09):

Outcomes are you driving?

Daniel Kornitzer (08:10):

Absolutely. What we tried to do is to create a bit of a bridge drawing of what elements contribute to the uplift in performance. And we looked at two areas which are both super interesting and relevant cards obviously, and APMs or alternate or local payment methods. And in the countries that we serve, we're seeing both being almost equally important in terms of market share or things like that. So I'll try and go through the key points, but the first one has to do with cross border acquiring versus local acquiring. If you have a, I don't know, a Brazilian consumer using a Brazilian issued card trying to buy on a US or European mid merchant id, you are going to have fairly low acceptance rates because the issuer is going to see that foreign transaction is going to block it for some reasons. So it's not uncommon to see 30 40% auth rates, which is pretty awful.

(09:22):

Now when you bring that same transaction onto local rails, by using local acquirers, you can easily gain an uplift of 15 to 30%. So that 40% could potentially go to like 70%, but that's a massive uplift just by going through local acquirers for that transaction. There's other things that you can do in that same vein. You can address issues with certain issuers in country. So if you have a certain, I don't know, Brazilian bank where you're having lower oath rates, you can approach them locally and talk to the risk team and find a way to reduce that pain point and augment the author rates. You have smart routing obviously to lower costs, but also optimize author rates. You have smart retries when you have a transaction that fails for insufficient funds, for example, let's say for example, that you see that same card used on a successful transaction that could inform when you do the retry because hey, I just saw that card, it got an off meaning that it is got funds.

(10:33):

Why don't we do the retry now as opposed to waiting until the first of the next month or whatever. So again, using intelligence that you gather through the network to deliver a better outcome, localized anti anti-fraud as opposed to applying sort of generic global ways of looking at fraud mitigation. When you do it locally, like for example in Brazil, you collect the tax ID on peaks transactions. Well, there's a lot of stuff that you can do locally to reduce chargebacks and again, benefit the merchants by way of lower bad debt. And there are specific country features that every geography is a bit different, but one point that we talked talked about before, the average strategic merchant for Ebanks has 15 payment methods enabled and six entries on average. They want that single connectivity and roll it out on multiple countries. And the second graph underneath is the APMs graph, alternate payment methods or local payment methods.

(11:43):

And they're essentially by connecting directly to those local rails, like in our case where an institution of payment in Brazil, meaning that we connect directly to picks and we've processed picks transactions for 40 million Brazilians, you get very high author rates and you can optimize even the UX, the way that you collect information, the terminology that you use, the way that you allow someone to enroll on a recurrent payment. All those things are material in terms of the conversion rates that you achieve. And just one last point that I wanted to bring some data on, which is what happens if you have, let's say you're processing cards in one geography, Argentina, Brazil, Nigeria, and then you add a single local payment method, what uplift can you expect? And you have some categories of payments. So for example, digital wallets, we've looked at our, this is actual data that when you add MercadoPago, you get an 8% uplift just by adding that payment method.

(12:56):

When you add NE in Colombia, 25% new pay in Brazil, 47%, of course it varies by vertical. It may be 47% for travel and 29% for another vertical, but it's material account to account. Well, obviously peaks in Brazil, that's 16% just by adding peaks, you get that uplift and installments in places like Mexico and Brazil in Brazil is about 20% uplift. And in Mexico is about 41% uplift by having installments, either by way of installments supported by Visa, MasterCard, or installments by way of BNPL. But the point here is if I had three local payment methods that are relevant to that country, I could find myself with an 80% uplift through the combined effect of, and this is where I guess the value of bringing these things to the merchant for go-to-market. So there's some examples.

Irina Nichol (13:50):

One other thing worth adding too is cross-border payments not only have very, very low auth rates, but also are incredibly expensive for merchants. So as they think about expanding geographically, it's very cost prohibitive to go into markets because of interchange, right? So by standing in as the merchant record, Ebanks can make those local transactions and make them improve the author rates by 30%, but also reduce costs dramatically.

 Vanessa Towers (14:16):

Thank you, Daniel. Thank you, Irene. I do want to pause that to see if there's any questions actually from the audience. We did say this would be a conversation, so if anyone has any, please go ahead. If not, we'll keep continuing with our conversation. Oh, I do see a couple. Yeah, we've got one in the front and one in the back there.

Irina Nichol (14:33):

He really wants that prize.

Audience Member 1 (14:35):

God,

(14:37):

I'm pinching myself, right? Because when you think about payments orchestration in 1998, PayPal invented it because every account had to be open with two credentials, right? The ACH or routing and transit and DDA and a credit card. And here we are 27 years later and others are just discovering the value of having an all-in-one account. In fact, MasterCard, I guess two weeks ago released MasterCard one credential and then several months before that visa flexible credential. What do you see? Actually, it's not just for I arena for all three panelists, what do you see as the network's opportunity to be a network of a network to emulate the lease cost routing? That's certainly PayPal invented by drawing upon prepaid balances first. Where do you see the networks going with this flexible credential? Will there be one credential to rule them all? Are they going to carry more than just debit and credit? Does prepaid and pay by bank and crypto and emerging payments fall on these networks as well? Knowing that incrementally the marginal cost to add another payment credential on Visa or MasterCard is near zero and the profit margin is exponential?

Irina Nichol (16:08):

Maybe I could start.

 Vanessa Towers (16:09):

That was quite a question. Yes, Irina Please go ahead.

Irina Nichol (16:13):

It's a hard question. I think the single credential, which is not orchestration per se, right? That's more consolidating a consumer's experience into one credential, but that's Visa and MasterCard's in the network's way of competing or trying to remain competitive with all of the wallets of wallets with the debit networks, like you said, right? So there's lots and lots of cheaper, more effective ways to pay. Visa and MasterCard want to maintain their almost monopoly, right? So they continue to come up with ways to get back into the ecosystem so that we stop routing volume away from them and to open banking to all of the lower cost, more efficient ways to pay. So as we get smarter or different wallets get smarter and continue to introduce those new opportunities, visa and MasterCard will continue to think of ways to remain competitive and to block the routing of volume and the role we play. You're thinking of PayPal as a wallet. The role Braintree plays as an orchestrator is to advocate for the merchant. What's the best, cheapest, fastest, highest author rate experience for the merchant? And that's often not going to be Visa and MasterCard, even if they have the one credential.

Audience Member 1 (17:32):

Daniel.

Daniel Kornitzer (17:34):

So as a ticket heart, I think that there are two flywheels here. There is the consumer flywheel, which is wallets and where that's going. And I think it's all about identity. That's the key to any digital wallet. And what I foresee, if you look at open banking, open finance, open data, I foresee the ability for a consumer to have their funds, their credentials, their id, but also their medical records all under their control so they can decide not just consumers, but small business as well, with whom they want to share certain info, medical data, et cetera, and they can pick and choose. I want to share that because I'm applying for life insurance, so I would allow that insurance company to tap into this, that, and that, but not my passport, not my. So that I think is where things are going from a wallet and all anchored by ID from the merchant flywheel. I think that with the proliferation of all these payment methods account to account, even in the states with RTP and Fed now and stuff, there is no doubt that the schemes are buying some of the operations so that they're diversifying as they did for risk management. But ultimately I think if I see what's happening in India with UPI in Brazil with peaks, that tide is unstoppable, real-time payments, lower cost push and pull recurring. I see these two things kind of combining, but there's still a merchant side or aspect than a consumer aspect.

 Vanessa Towers (19:07):

So true. Thank you. Great question. I'm not sure I can add much more from those expert opinions. I know we had another question. Shall we continue the conversation at the back there?

Audience Member Alexandra (19:23):

Can you hear me? Yes. Hi, I am Alexandra of Capital One and I had a question. Can you say something more about the optimization with issuers here and where you see the uplift coming from? I think question mostly for Daniel here, but very interested in what everyone has to say.

Daniel Kornitzer (19:42):

I'm sorry, I missed the first part. The optimization with,

Audience Member Alexandra (19:45):

Sorry, like the third bar on the upper chart. Oh, on the

Daniel Kornitzer (19:51):

Top,

Irina Nichol (19:52):

The top issuer optimization. I can maybe start with less of a low point of view, but in general off optimization, there's a couple of ways that you can look at issuer preferences and assess what data does each issuer want to see in the transaction message, and where do you get better author rate lift if you do or don't send certain data elements. I'll use a favorite example for Capital One specifically. Capital One is one of only a couple of issuers that has higher approval rates if you share the consumer's risk score, right? So we have a fraud tool that calculates a risk score based on millions of data points. And if you share that risk score with Capital One, you'll get better author rates. And there's a couple of other issuers that are starting to play in that space. So that's one really great relevant example for you.

(20:45):

There's also a three DS data only product that just became available in the US where three DS is really mandated in parts of the world outside of the us but in the US there's all this data that you can share that's part of that three DS authenticated message right about the consumer that's really valuable to the issuer to decide if they want to approve or decline that transaction. It tells them a story about the cardholder. And so that's another way, for example, we can optimize payments by collecting those data elements upfront as a consumer's checking out and sending it in a three Ds message without really introducing any friction in the shopping experience. And I'll let Daniel answer that.

Daniel Kornitzer (21:24):

No, actually I was going to talk about three DS info only flow because it doesn't cause a liability shift, but it does provide the issue with more info so the author rates are improved. So that's a good example, a great example actually providing issuers with more info so they can do a better job at assessing risk on that transaction. But,

 Vanessa Towers (21:48):

Thank you. Thank you so much. Oh, we have another one. Thank you.

Audience Member 3 (21:58):

In the optimization, the decision about exchange rate is also optimized or is just automatic. If you are going this route, that's the cross border payments you have or you have a second decision to optimize cross border payments?

Daniel Kornitzer (22:21):

So those payments are processed typically locally, so not we give the example of a Brazilian consumer. The Brazilian issuer sees a Brazilian merchant, so it doesn't see it as a cross border transaction. So it has by definition a much higher auth rate. And then it's the fact that you offer that consumer also the possibility of using, if you're in Brazil peaks, MercadoPago, new pay methods that are very, very relevant to those geographies or even Boleto or OXO in Mexico. So anything that's relevant to that geography that contributes to the optimization of conversion rates.

Irina Nichol (23:10):

I'll just add, if you have a consumer that wants to pay in Brazilian real, but you have a merchant that wants to get paid out at the end of the day in US dollars, there's an FX event that happens there and payment service buyers like we for example, are market maker in FX, so we will actually do that conversion for you. We'll take a cut of that spread of course. And so our competitors do the same thing, or the networks also do the same thing. A payment orchestrator could route it to a PSP with the best exchange rate for that particular market, right? That could be a routing decision when we think about one front door smart routing and then you have a series of decisions to make. I want it to be the cheapest, the fastest, the highest author rate, and you have a sense of priority, like what matters most to me as a merchant. Is it the author rate or is it the best FX conversion rate? But yes, you could orchestrate based on that as being one of the decisions for sure.

Daniel Kornitzer (24:10):

And that's also a very important point. The consumer in Peru wants to see the price in solace. If they're going to subscribe to Netflix, they don't want to see a price in US dollars or Euros because at the end of the day, they don't know how much they're going to be charged actually. Whereas when they see the price in local currency, it's much more predictable for the consumer.

 Vanessa Towers (24:30):

Okay. I'm cognizant of our time, so let's look to the future next in terms of where this space of payment orchestration is headed. Daniel, I know Ebanks does a lot of market research in terms of what are the key trends that you're seeing in rising markets and what does it mean for service providers?

Daniel Kornitzer (24:50):

Yeah. Well, I mean what we're seeing is I guess the no secret here. The progress of account to account payment methods that have been rolled out almost universally across emerging markets, UPI in India, PIX in Brazil, but pretty much in every country there's methods that are the real time, the cost of fraction of other payment methods there, push and pull. And in many instances, those methods have been created in conjunction by the regulators and the industry working together. And many now support also recurrent payments for subscriptions and stuff. So that's definitely one big area. Cards are still very much relevant, but I think the way I see is our job is to give the consumer the choice to choose the payment method that's more relevant to that consumer. If someone wants to get the points by using their credit card, then fantastic. We shouldn't be prescriptive as to what the consumer needs to use.

 Vanessa Towers (25:54):

I think that's fundamental. It's really about catering to those unique customer preferences that may be very country specific. Irina. Let's talk a little bit about innovation that you're seeing in the space of payment orchestration. What do you see in terms of key trends coming up ahead? And let's see if you can answer this one without talking about AI.

Irina Nichol (26:18):

No, It would not be a payments conference if we did not bring up AI. So that's of course anything that's rule driven today when I was describing the decision making that has to happen in the routing or the smart routing process, all of that is being replaced with ai and that's not even the future that's happening right now. We are working on that even today. And if you think about being one front door, you get to see every single transaction that that merchant accepts, even if you're not the one processing it, that's incredibly powerful. Think about all the data that you get through that and the hyper-personalization that can come from having access to all of that data. So when I was mentioning three DS earlier, you have so much information now you can decide when to introduce the friction in the checkout experience and challenge the consumer to provide three DS authentication or not, because maybe you know that they're a good guy and you can forego and get an exemption for that one.

(27:16):

So there's so many more experiences like that that can unlock through AI and you can just continue to sharpen that pencil of making it cheaper, faster, improving auth rates, relying on that data. So AI is going to be really game changing in the orchestration and optimization space. The second thing is the ecosystem is broadening, so it's going to go far beyond payments into things that I can't even predict or understand. But right now we're connecting all different types of payment services, like I was mentioning, fraud or the connecting merchants to each other. There's any number of use cases that will get unlocked that I probably don't even know exist yet. Loyalty is the one that is very adjacent to payments lending, embedded finance, and then there are things that I can't even think of that are just the ecosystem will continue to expand. And then lastly, no one does this today where you are one front door and also, I dunno if you can call it a back door, but if you think about the ecosystem being a single connection, then all the different places you can get connected to, no one yet brings it all together at the end.

(28:25):

And one of the things that's really hard for merchants is reconciliation reporting, having to consume all those different formats and reconciled for themselves. There's a bunch of fintechs now that are doing that as a separate value added service, but there isn't an orchestrator yet that has the full end-to-end ecosystem that's both a front door and it's not really a back door, but you kind of get the idea. I think that's what we should all as orchestrators be working on now.

 Vanessa Towers (28:54):

Thank you. Irina. We are running out of time very swiftly, and I do want to see if there's any more questions out there. I know Chris has an amazing giveaway in the front.

Irina Nichol (29:06):

Quick question.

Audience Member 4 (29:11):

How much are you seeing creation from traditional e-commerce merchants to embedded payment on social media and that community of creators and sellers?

Irina Nichol (29:34):

I dunno that it's a migration versus in additive, right? But I mean, TikTok meta are some of our biggest clients and certainly we see volume continuing to grow in that space. So I don't know that it's a an additional channel. It's a little bit different from moving from hard present to e-commerce where we're actually seeing a shift of volume and it's actually not shifting as fast as people think. Like 80% of commerce still happens in physical stores globally. And so I think that's more additive if you think about it, versus a shift from, because it's still e-commerce, right? It's still e-commerce transaction that just comes through a different channel social versus a website shopping cart. What do you think, Daniel?

Daniel Kornitzer (30:26):

I couldn't agree more. Yes, it's additive to the other flows.

 Vanessa Towers (30:32):

Well, that brings us to the end of this morning's fireside chat. Thank you so much for joining us. We love talking about payment orchestration, so please feel free to come and connect with us later today and we are happy to continue the conversation. Thank you so much, Irene.