Payment processing has turned into an intricate web of challenges for many merchants and payment service providers. Various factors—payment types, channels, and geographical influences—have created a complex ecosystem where managing transactions and ensuring financial accuracy can feel overwhelming.
Because payment processing comprises various payment types and sales channels, merchants juggle multiple acquirers, processors, and gateways, resulting in a labyrinth of payment data that requires meticulous reconciliation.
During a recent PaymentsJournal podcast, Dan Coates, Principal Solution Evangelist at ACI Worldwide, and Daniel Keyes, Senior Analyst of Merchant Services at Javelin Strategy & Research, explored the complex payments ecosystem and how payment orchestration allows merchants and PSPs to tackle obstacles head-on.
Payment Processing Adds Complexity to Reconciliation Processes
Over the years, the payments industry has seen an influx of alternative payment methods, including cryptocurrency, BNPL, and digital wallets. On one hand, different payment methods give consumers the flexibility and convenience they crave. On the other, merchants need to add more payment channels into the mix, and that makes the reconciliation process a lot trickier.
“When you look at most merchants, especially most merchants of a certain size—even those who have one acquirer—they really tend to struggle,” Coates said. “They may have one acquirer, but they’ll have multiple channels. They have a web channel, an app channel, and an in-store channel.
“When you look at the statistics, more than two in five finance leaders don’t trust the accuracy of their financial data, and that’s absolutely wild. More than a third of the month is wasted just identifying and rectifying mistakes. Nearly two-thirds of merchants’ back-office teams’ time (is) spent on data consolidation, and then it finally takes over a month or nearly a month to close the end-of-year books. There’s a lot of waste there, and there’s a lot of lost revenue.”
As Keyes pointed out, merchants aren’t payment experts. They don’t have a full command of everything available to them and don’t often understand everything they’re looking at. Many merchants are seeing increased transaction volumes on various channels, and every one of those systems has a complex file format, and there are multiple currencies they’re dealing with. On top of that, they have to tackle disputes, refunds, and chargebacks, all of which lead to a lot of frustrations and frenzy.
“They need support in other ways in order to be able to take advantage of the tools available to them,” Keyes said.
An Overwhelming Number of Challenges
Global operations, infrastructure management, and increased costs are just some of the challenges merchants face today.
Merchants deal with multiple payment channels around the world, which means they also deal with multiple payment providers, gateways, and acquirers in those regions. And as they expand and grow their business, they end up in an infrastructure crunch. It becomes time-consuming for them to expand because of this scalability problem.
“I have more channels so I have to reconcile more things,” Coates said. “It becomes a scalability limiter because I can’t expand to more regions until I get more people to reconcile things. In the end, more money, more problems. It’s that simple. When you look at it, we have revenue leakage because we’re getting in more money from more sources.”
According to Keyes, it’s never been easier to scale a business because merchants are suddenly able to sell worldwide without too much effort—at least when compared with years prior. And a lot goes into that, particularly on the back end, to do it effectively.
All the layers merchants need to get through add up. For example, there’s the authorization layer, then on top of that are a processor’s layer, an acquirer’s layer, a network layer, an issuer layer—and so on.
“There’s just 100 considerations for each individual payment if you’re expanding to other geographies or other areas,” Keyes said.
Navigating a Complex Space
Payment reconciliation is a top priority for merchants, which helps them simplify and optimize their operations. Payments orchestration can certainly help, but first, merchants must fully understand revenue leakage and how it’s affecting their business, Coates said.
“It can mean several things, but I’ll give a few examples,” he said. “First, it’s chargebacks on refunded items. You have a customer, they have a dispute, they call you up, and you refund them for the item. But then—and maybe they were working on this simultaneously—they’ve also charged it back. So all of a sudden, you’ve given them the money back twice.
“There’s also issues potentially where you have an approval somewhere along the path, but then an upstream entity doesn’t approve it. Maybe the processor approved it, but the acquirer didn’t. And finally, you could have a situation where the transaction could be approved, but you didn’t get funded for it. All of these things tend to be problems.”
As Coates pointed out, revenue leakage can be a big challenge for merchants, and that’s why payments reconciliation is so important. Merchants need to be able to identify revenue leakage so they can tackle it.
“Merchants don’t have the wherewithal to do this on their own,” Keyes said. “There’s a need for additional solutions and support in handling reconciliation because there’s a lot of considerations the merchants don’t know about.”
Payments orchestration is still an emerging solution, one many merchants aren’t quite familiar with. But there’s a lot of excitement around orchestration because it provides a holistic view for merchants to see different types of payment methods come in and how they’re routed—and they’re able to capture the necessary data and analytics that they can pull from to sharpen their operations.
“Overall, merchants are looking to reduce mistakes, identify errors quickly, gain visibility of cross-channel and cross-region payments data, and free up resources,” Coates said. “At ACI, we have a product called Revenue Optimizer, which accomplishes all these things. It automates this time-consuming process and helps you with mistake-prone tasks. It also allows you to consolidate all of this data in one place and gives you transaction lifecycle visibility.
“Merchants need to have a platform in place that will enable them to first identify these KPIs (key performance indicators) and then make necessary changes, continue to reconcile it, and make sure they’re meeting those KPIs. They need to make sure they’re making the most of all of these opportunities, and orchestration can really help with that.”
Learn more about ACI Payments Orchestration.
