Even though payment decisions can have implications across an entire enterprise, the total cost of payments is often neither well-known nor properly measured. A true payments orchestration strategy must not only consider organizational impacts but also quantify them.
Conducting this type of assessment can help organizations identify which payment changes result in increased ROI and which do not. In the Payment Orchestration: Making the Juice Worth the Squeeze report, Don Apgar, Director of the Merchant Payments Practice at Javelin Strategy & Research, explains how organizations can ensure their payments strategy is financially beneficial.
Tracking the Additional Costs
Those handling payments for an organization are evaluated based on how effectively the payment systems perform. Their goal is to maximize the authorization rate while minimizing costs. However, as they build out their payments tech stack to achieve these goals, they also increasing the operational burden on the rest of the organization.
“Let’s say you’ve got a relationship with two processors today, and you decide you want to add a third processor because they can save you a few cents on some portion of your transactions,” said Apgar. “But that also means that now there’s a third settlement point. You have a third processor to deal with across the entire organization.”
Depending on the level of automation in the finance department, someone may need to spend several hours each month verifying that funds were received, reconciling fees and statements, and posting to ledgers. If a transaction is disputed or a customer has a question about an order, the appropriate teams may need to process it across three networks instead of two.
“It’s easy for the payments guy to say, ‘I added a third network and we improved our payments efficiency by 15%,’” said Apgar. “But maybe the finance department had to add another analyst to support the reconciliation. The IT department has a new connection to deal with, and they will periodically come back and say we’re making upgrades and implementing new code. Customer service now takes longer per call to service a customer because they have to go looking more places to get the information. All those are costs to the organization.”
Measuring the Changes
As many as 90% of merchants either don’t measure the impact of changes to the payments process or don’t know what to measure. It’s easy to fall into the trap of thinking some things can’t be measured.
Take this example: someone claims that customer service is better. That could mean anything. Did call handle time go down? Were more transactions approved—resulting in more purchases?
“It’s very hard to put a number on a feeling, but you have to you have to try,” said Apgar. “There’s no right way to do it, and there’s no wrong way to do it. There’s only how you translate that feeling and that goodwill into a dollar amount.”
Now, imagine the head of payments decides to invest $50,000 to upgrade the payments connection to shave 1.5 seconds off every transaction. Everyone likes faster card processing—but is it worth $50,000? Or could that money be more profitably spent elsewhere?
Keeping an Eye on Indirect Costs
When assessing these benefits, it’s important to consider the indirect costs as well. Changes to the payments process impact more than just payments—they carry costs or benefits for the entire merchant organization.
Payments orchestration can be thought of as the layer that connects Visa and Mastercard—and the rest of the world—to a retail store. Over time, the store may also integrate with other processors to route transactions, such as buy now, pay later services or a fraud prevention vendors. While these additions can offer clear benefits, they also introduce added complexity to the operation.
“Every time you’ve got two endpoints in your orchestration layer and you add a third, it’s got to work with the first two,” said Apgar. “When you add the fourth, it’s got to work with the first three. When you add the fifth, it’s got to work for the first four.”
Every time a retailer adds more features to that layer, it also becomes more expensive to implement each one. Each additional feature costs more because it requires increasing amounts of money and effort to integrate. At some point, the cost of adding a new feature may outweigh the benefits it’s expected to deliver across the relevant transactions.
“The punch line is, is the juice worth the squeeze?” said Apgar. “You have to know when to stop squeezing because you’ll always get some juice, but it may not be worth the cost.”
Changes Across the Organization
Payments orchestration is key to answering that question. It helps measure the effects of any change across the entire organization, providing a solid foundation for informed decision-making.
“There’s always benefit to be gained, but at some point, it stops meeting that ROI benchmark,” said Apgar. “At some point that $50,000 investment may only be worth $25,000, and you’re better off taking that $50,000 and spending it on new shopping carts or something.
“Whether or not you care enough to calculate ROI on every part of your payment stack is your own decision. But at least understand that it’s not only possible, but crucial to the decision-making process.”
