Make the PSP obsolete!

Ingo Blum

Business Development Manager

Why payment processing has to become a core competence for merchants

Imagine the following situation: You have an online shop and want to expand further. “Internationalization” is the right call –especially in these times when e-commerce is growing exponentially.

You have been working for years with a Payment Service Provider (PSP) who gives you everything you need for payment processing: You have access to all payment methods with which your PSP works, good reporting, risk protection for your business. Apparently an ideal situation.

  • What if you want to expand to countries and work with local payment methods that your PSP does not offer?
  • What if you have chosen new payment partners that are cheaper and faster than those offered by your PSP?
  • What if the internationalization of your PSP itself is limited and it is more of a local hero?

Basically, the big providers in the industry like Stripe, Adyen, Checkout.com and so on all offer the same thing – they help online merchants to process their customers’ payments. Unfortunately, however, they do not solve the actual retailer problem.

But why?

Part of the problem is that once merchants decide on a provider and have integrated it with a lot of effort, they are to a certain extent “married” to it. The technical and operational integration is a connection for a very long time, if not for life. A PSP tries to standardize. Only those who can present a corresponding business case are relevant for individual adjustments and integrations for customers. So what if the merchant is not big enough, but the PSP has already been laboriously integrated?

Merchants must be flexible with regard to their partners (e.g. acquirers), their USPs, or omnichannel solutions and also be able to rely on their payment provider offering them the best possible solutions – which is often not the case.

Check who binds himself forever – flexibility vs lock-in

For example, what happens if a PSP changes its API, and every merchant has to update their integration? This undoubtedly involves costs that can hardly be factored into an annual budget plan.

How do you react if there is a case like the one we have seen at Wirecard and the PSP “crashes” overnight?

The easy answer? You need a backup!

Successful examples such as Amazon, OTTO, or Real Digital have proven that at least large merchants no longer want and have to rely on a single PSP. In the worst case, however, due to a lack of experience on the merchant’s part,  this can lead to senseless action. It is not uncommon for several providers to be integrated and managed more poorly than right with regard to internal shop systems.

In the best case, as seen at OTTO, a dedicated infrastructure is set up to cope with the problem. Behind this is the desire to no longer be dependent on just one PSP. The first step is to build up relevant know-how and handle operational processes internally. The disadvantage of such a model is of course the complexity of the approach with regard to processing, regulation, technology, and operational implementation. Not to forget the fee structures of potential payment partners.

Still, merchants want better performance, more control, and flexibility. Or simply put more choices!

Best of breed and payment backup

Payment Orchestration could have saved many merchants from plummeting sales after the Wirecard debacle. But what does Payment Orchestration actually mean?

An example: You have prepared the internationalization for your online shop and decided on several countries. All the countries you expanded into are also profitable. Except one.

  • Wouldn’t it be nice to just switch off payment methods in this country at will if it turns out that this country is not profitable for you?
  • Wouldn’t it be advantageous to work with local PSPs who also have the best local know-how?
  • How about knowing that in the worst-case scenario, you can “switch” to a large number of PSPs if one fails?

This in no way makes the PSP obsolete, as the somewhat provocative title of this article suggests. But it makes him replaceable!

These are exactly the goals of Payment Orchestration:

  • Creating flexibility to use the best possible solution for every requirement
  • Guaranteeing the manageability of the connection through the single integration principle
  • The improvement of the negotiating position towards partners

Switch your payments

A Payment Orchestration Platform (POP) will not compete directly with a PSP. On the contrary: A POP is still dependent on them to process transactions. It is monetized through a software license and a transaction price. However, PSPs and providers of payment methods will be one of many connected to the POP and will enter into direct price competition with one another, which in turn means a decisive advantage for the merchant.

The power balance between PSP and merchant is changing, the Payment Orchestration Platform is just the leverage for this.

To say it plainly: In the future, only one merchant integration into a POP, such as SwitchPay or IXOPAY creates a whole vendor’s tray of international payment options. A merchant can decide to continue to work with his “home” PSP for Europe, to use another provider for secure direct debiting, and to work with another local provider for the market entry in Brazil. Individual payment methods can be activated directly via the POP in order to avoid third-party costs, and cheaper local acquirers can be activated.

As an independent consulting company, aye4fin has dedicated itself to the development and optimization of payment systems as well as the topic of payment orchestration. In the past few years, there have been successful projects with international customers from trade, industry, and logistics who have particularly valued the independence and the available expert knowledge.

You want to find out more about Payment Orchestration – talk to us: