When was the last time you heard someone say “Honey, we’ve got to pay the Netflix bill this month!” Or perhaps, “Mom, did you renew my Xbox LIVE subscription?” Rarely do today’s consumers think about these things, yet services continue on, day after day, uninterrupted. This is due to something called payments orchestration.
Payments orchestration is about making all the moving pieces of a financial transaction work together seamlessly, increasing both customer satisfaction and merchant income. To learn more about the nuances of payments orchestration and its role in the digital goods and subscription-based industries, PaymentsJournal sat down with Randy Guard, Chief Marketing Officer at Spreedly and Raymond Pucci, Director of Merchant Services at Mercator Advisory Group.
Payments orchestration platforms are vital to the subscription economy’s growth
The subscription economy has been on the rise for years, and the stay-at-home lifestyle of the pandemic has only accelerated its growth further. Recent research from Mercator Advisory Group shows that this growth is only expected to continue.
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The report splits the subscription economy into two categories: online subscriptions (music and video streaming, software downloads) and box subscriptions (food, beauty products, pet supplies). Combining the profits for both, this was an estimated $28 billion dollar market in 2020, a 66% year over year increase from 2019.
“To put that into perspective of these online subscription services, that represents about 4% – 5% of e-commerce overall, if we think of e-commerce as about a $700 billion pie,” said Pucci. “So these the online subscriptions, including the box of the month, would be about 4% – 5%.”
The subscription economy is very closely connected to digital goods, especially with the inclusion of additional products and services, as well as geographical expansion. The report also notes that subscription service growth is partially due to bundled offers and partnerships.
“That intense growth is really driving the need for flexibility, enabling speed to market, and it raises the bar for improving the customer experience–to retain a customer and grow with them,” added Guard.
Defining payments orchestration and its role in the digital goods market
Both merchants and platforms have a lot of roles to fill in terms of serving the customer in a digital experience, and it’s only gotten harder to meet expectations since the pandemic. Payments orchestration is all about simplification and optimization of the payments components.
“That boils down to a few key components in payments orchestration,” explained Guard. “One is a desire for a single API to integrate and maintain for payment flow processing and making sure a transaction is processed successfully. Also, a need to easily integrate with all types of payment services in the ecosystem.” These are fraud management services, loyalty and affinity program services, which are all important services in the flow.
“The other aspect,” continued Guard, “is the nature of evergreen tokens to drive high success rates.” Subscriptions require payment methods to be up-to-date, and before each renewal, the customer should not be required to make updates each time. The idea behind the evergreen token is to route transactions in such a way that they are processed clearly and quickly in the digital goods space.
The final component of payments orchestration is ensuring access to the data and insights so that the optimization processes can be completed to their fullest potential. “Both the merchants and platforms, as well as the customers, know where they stand across the entire payments ecosystem,” concluded Guard.
How is payments orchestration helping to address the unique payment needs of digital goods?
When a customer makes an online purchase, it is important to have a successful transaction on the first try. Therefore, the technology must be in place to allow the payment processor to retry the transaction as needed. With smart routing that retry can be done all within the same transaction. This both increases revenue and improves the customer experience.
There is also the idea of scalability and the obstacles that arise from it. “You see this [need for scalability] with large spikes [in purchases]…with new product launches, and high demand offerings in the digital goods area,” noted Guard. “Those spikes can come at any point in time. And sometimes [merchants] know they’re coming, and sometimes they don’t.” This is why it’s crucial for these organizations to work with a payments orchestration provider to ensure transactions are routed as efficiently as possible for maximum success rates.
The final component here relates to flexibility and time-to-market (TTM). “If you think about the digital goods provider, and again in the subscription model, the speed in which an organization can launch new products is tremendous,” said Guard. “They also often have bundled relationships with other providers making a roll out even more complex but still requires the speed to market.”
The time taken to package the release of new goods and products and put them out into the market must be done as quickly and efficiently as possible in order to secure market share. And with customers being geographically dispersed, there must be flexibility in how payments are processed and in what integrations are required in a given market.
How to enable a better payments experience with a payments orchestration layer
Customers expect a great customer experience, and thus far, most merchants have been able to provide satisfactory service. While the market continues to grow, customers are becoming more demanding. So how can merchants keep up with the immediacy of online sales of goods?
“We make sure in this case, the provider, the merchant, [and] the platform [have] the throughput, they have the redundancy, and they’ve got all of those components in the payment ecosystem knitted together as easily and effective as possible because not all transactions are the same,” remarked Guard.
One of the ways payments orchestration works to fulfill the individual payments needs of purchasers is through a functionality called network tokenization. For example, if a customer lost and replaced their credit card and now their primary card number has changed, a one-time cloud based token takes the place of the physical copy, allowing the transaction to process without interruption in service. “I might get notified that it was up to date, but I didn’t get this alert [saying that] you need to go into a different system and re-enter your credentials,” explained Guard.
“Friction is really the enemy of online transactions,” added Pucci. Consumers don’t want to be bothered with finding out their subscription has lapsed because their credit card expired, so having those cards updating as part of a service is critical to customer satisfaction, as well as merchant profit.
Payments orchestration platforms are vital to the growth and sustentation of the subscription economy and sales of digital goods. And continued growth is anticipated for 2021 and beyond, with consumers expecting the conveniences of a pandemic world to carry into the “new normal.”
“There’s [going to] be more adoption around payments orchestration, especially by the faster growing merchants and platforms,” said Guard. Merchants must prepare themselves for the digital future, which means having the appropriate infrastructure in place, or otherwise risk losing capital. When the time comes for those organizations to begin looking at payments, turning to companies like Spreedly is the most efficient way to outsource their data to effectively build and run their business platform.