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Payments orchestration platforms are vital for any successful merchant. By integrating and managing various payment service providers (PSPs), merchants increase efficiency, authorization rates, and customer satisfaction. Payments orchestration is perhaps even more crucial for merchant aggregators whose offerings support any number of merchant customers.
To learn more about payments orchestration and the value of a flexible payments strategy from the perspective of merchant aggregators, PaymentsJournal sat down with Peter Mollins, SVP of Marketing at Spreedly, and Don Apgar, Director of Merchant Services Advisory Practice at Mercator Advisory Group.
Merchant aggregation 101
The merchant aggregator market has been exploding over the last few years, especially as merchants have been trying to digitize in the wake of the COVID-19 pandemic. “Essentially, [a merchant aggregator is] a digital business that is rolling up multiple merchants and providing a venue for those merchants to reach out to and expand their own markets,” Mollins explained.
As in other integrated businesses, there are two broad flavors of aggregation: vertical and horizontal. Vertical aggregation bundles multiple components of particular industry spaces, such as gym management or travel. Horizontal aggregation deals more with infrastructure-based approaches that are applicable across industries, such as e-commerce or subscription management platforms.
Whereas merchants of record (i.e., the name that appears on the payment statement) deal primarily in a B2C space, merchant aggregators have “B2B2C” relationships, providing a different value to end customers by serving both merchants and consumers.
Added value as a prime differentiator
Merchants that seek out the services of an aggregator vary in size, but they have all the same needs as any other merchant of record: fraud prevention, omnichannel commerce, loyalty programs, alternative payment offerings, etc. For the merchant aggregator, there is an added degree of complexity because the are often supporting these needs for their merchant customers.
“Instead of the merchant having to go out and source this on their own, it’s now that those sub-merchants are relying on the aggregator to deliver that suite of services on their behalf,” noted Apgar.
The reality is that merchant aggregators do not exist in a vacuum; they are in a competitive space where any merchant client can easily turn to another platform that better suits their needs. “Aggregators can’t just get by on selling a bigger market or a better brand,” Mollins clarified. “They need to be selling value-added services as well.”
Building connections – and maintaining them
One particularly challenging area for merchant aggregators is around managing payment gateways and processors. If an aggregator offers a “bring your own gateway” added-value service, the aggregator needs to build and then sustain connections to the various markets each merchant wants to reach. While it might seem like everybody uses the same payments messaging standards, ISO 8583 or ISO 20022, the details are more complicated.
“When you get into the full service stack,” Apgar pointed out, “everybody’s got their own API for reporting and financial settlement data, you’ve got an API for chargebacks and exception handling, an API for customer service, and those don’t follow any ISO standard.” Handling all of those connections is not just a “write once, run many” scenario; it requires full interface support.
While building these gateways is an important component of merchant aggregation, it can require a huge time expenditure, and development teams would rather expend energy building core value and differentiation. Spreedly can offer payments orchestration support to help merchant aggregators meet all of their needs and then some.
Improving authorization rates and lowering costs
Smart transaction routing allows payments orchestration to bring an incredibly positive impact to authorization rates. “Being able to apply rules to route transactions to different services depending on what card is coming through and where they are located, that has an incredible impact,” stated Mollins.
As far as lowering costs, the truth is that building and maintaining these routing models is very expensive for developers. However, the cost of potentially losing that first transaction is even greater, as it could be the first in a trend of failed payments that happen over the course of a customer life cycle. The opportunity cost may also seem like a roadblock, since it can feel easier to live with subpar performance than to change payment processors, but it need not be that way. “Orchestration gives you the flexibility to test, measure, and compare [processors], and do that dynamically so you’ve always got the best solution without that big dev investment,” said Apgar.
As a provider of payments orchestration, Spreedly managed data across 120 different PSPs in 100 currencies around the world totaling $40B in transactions last year. In addition to raising authorization rates, Spreedly learned that providing a good mix of services is essential. “It was almost never the case that the most popular gateway was the best-performing in terms of authorization rates,” Mollins noted.
How flexible payment stacks attract and retain new customers
There are clearly many ways in which a merchant aggregator utilizing payments orchestration can support merchants. “I would group it into two camps,” said Mollins. “One is the speed with which they can onboard a new merchant. The second would be around added value.” Getting a merchant up and running with full services, and authorizing that first transaction in a timely manner, is extremely important.
With so many PSPs, though, aggregators must ensure each new addition works within the larger system. “The biggest issue is not so much the dev time per se,” Apgar clarified. “It’s regression testing to all the other systems that the merchant or the aggregator is running.”
Once those payment connections are ready to go, they become monetizable and critical to the customer experience. “Aggregators tend to offer payments as part of a larger offering,” said Apgar. “The value is that payments are very tightly integrated in every phase of the platform to create that really smooth user experience.”
At its core, payments orchestration is about connecting merchants to an arsenal of payments functionality that adds value. The in-house orchestration experts at Spreedly can share all of their data with the aggregators themselves, who can then act as the trusted advisors to the customers. “If I’m a merchant, I want to make sure that the platform that I’ve chosen to build my business around – that aggregator – is offering me continuous value that allows me to attract more end customers, get higher authorization rates, reduce fraud, and have a great customer experience,” Mollins concluded.