Covering the cost of payments processing is an unavoidable expense, but many businesses can find themselves paying more than necessary. It is not uncommon for firms to try to mitigate processing costs by using only one payment service provider (PSP) in the hopes of limiting fees, but businesses that rely on just one PSP have less bargaining power to negotiate favorable contractual terms. This can also result in a lack of the operational flexibility that firms need to maximize their ROI.
Working with multiple PSPs through a payments orchestration layer can prove to be significantly beneficial. Doing so can help businesses process transactions at the lowest available price and enjoy more ROI from the gateways they have already integrated. In this month’s Deep Dive, PYMNTS explores how payments orchestration can help businesses reduce costs and increase their ROI by boosting their bargaining power, automating their payment routing functions and diversifying their payments stacks.
The negotiation game
Working with PSPs for processing transactions is a key element of doing business for many firms, but there is a great deal of variability in how much their services cost. Most PSPs have unique pricing structures that vary depending on a host of factors, such as the risk of processing certain transactions or the types of card payments being processed. Those prices can also be subject to negotiation.
Negotiating favorable terms can be a time-intensive undertaking, but it plays a major role in determining businesses’ payments processing costs. Businesses may even be reluctant to switch providers if they fear being unable to reach agreeable terms with potential new partners.
Using a payments orchestration layer can help firms boost their bargaining power. Application programming interface (API) technology allows businesses to integrate multiple payment gateways into their systems at once, meaning they are not bound to any single gateway at the exclusion of others. This can unlock operational flexibility, enabling firms to route transactions in the fastest and most cost-effective manner. Having access to multiple payment gateways can give businesses a leg up in negotiating payments terms with their vendors and therefore lower the cost of processing payments.
Boosting ROI with automation
The benefits of using multiple payment gateways extend far beyond their ability to boost firms’ negotiating power, however. They can also help businesses increase the ROI on the payment gateways they already have.
Having access to several payment gateways at once can help firms boost their ROI by ensuring that they are still able to process payments even when one of their gateways shuts down. Research shows that 76 percent of European merchants’ payment gateways have experienced complete outages during the past 12 months, with 39 percent saying those outages occurred during peak sales periods. These outages lasted only between 15 minutes and one hour, but they still led to massive financial losses: 11 percent of merchants lost more than a million euros in sales directly because of outages. Curbing the potential losses due to gateway shutdowns is therefore critical to ensuring that businesses generate ROI from those gateways.
Payments orchestration can help by allowing businesses to automate their payment routing systems and reroute transactions to alternative payment gateways when their primary gateway shuts down. It can also automatically reroute payments if the primary gateway’s transaction success rates fall below certain levels or if processing times begin to slow. This not only helps ensure that firms always have a backup plan in case of primary gateway failure, but also enables them to boost overall payment efficiency by automatically routing transactions to whichever gateway is most efficient.
Payments orchestration layers therefore stand out as a useful tool that can significantly improve efficiency in businesses’ payment operations. A firm’s choice of payments orchestration provider (POP) could be more consequential than which PSP to use, and while there is no one-size-fits-all solution for every business, it is safe to say that APIs, automation and smart routing technologies are universally beneficial. Firms would do best to partner with POPs that can help them leverage the three technologies to minimize costs and maximize payment operations’ ROI.