Deep Dive: Using Payments Orchestration To Power International Growth

The cross-border eCommerce market presents a massive growth opportunity for businesses looking to expand, as eCommerce sales are expected to reach $18.9 trillion by 2027, and more than half of all eCommerce shoppers buy from merchants abroad.

The ongoing pandemic is fueling this demand for digital commerce options. Recent studies show that global retail eCommerce sales grew 209 percent in April 2020 compared to the same period in 2019, driven largely by consumers’ embracing digital options as local brick-and-mortar stores continue to either remain shuttered or operate in limited capacity to prevent the spread of disease.

Businesses may be eager to tap into this expanding market, but it is not uncommon for them to underestimate the challenges associated with appealing to a cross-border consumer base. Seamless shopping experiences for both domestic and international customers requires businesses to invest in overhauling user interfaces as well as developing back-end infrastructure that can securely accept a variety of payment methods that match their customers’ preferences. This includes complying with anti-money laundering (AML) and know your customer (KYC) requirements, having the ability to screen transactions for fraud and supporting localized payment methods, and it can be particularly challenging for small- to medium-sized businesses (SMBs), which do not always have the technical know-how or the necessary infrastructure.

There is a simple solution to this conundrum, however: payments orchestration. Adding a payment orchestration layer atop existing payments processes can help businesses more effectively authorize, optimize and process payments. Businesses must therefore decide whether it suits their needs to build these solutions in-house or rely on third-party providers that specialize in such services. Those that work with third-party specialists must decide whether they want to build and manage the connections to their various payments services or focus instead on orchestrating them to optimize revenue.

Grasping the Complexity of Enabling Seamless Cross-Border Payments

Selling to consumers in different countries requires merchants to accommodate local payment preferences, but few U.S. businesses are equipped to do so because the majority of U.S. consumers use credit and debit cards to digitally buy products and services, which is simply not the case in other parts of the world.

Card-based payments do not hold broad appeal in China, for example, where 86 percent of all consumers pay using digital wallets, such as Alipay or WeChat Pay. Merely accepting card-based payments is also not the best path forward for merchants wanting to expand in Latin America, where only 27 percent of consumers own credit cards and anywhere from 25 percent to 40 percent of eCommerce transactions are made using cash, depending on the country. U.S. businesses selling in China and Latin America would therefore need to partner with local payment service providers (PSPs) such as Ant Financial or Tencent in China or Mercado Pago in Latin America.

Partnering with local PSPs only gets a business’s foot in the door, unfortunately. Merchants must also develop strategies for mitigating the frictions that go along with sending and receiving funds across borders, such as fraud and data security risks, exchange rate volatility and chargebacks.

Such frictions can chip away at businesses’ margins if they are not mitigated. These risks are even higher for businesses in recreation, entertainment and retail sectors, where margins are already razor-thin and even slight decreases in revenue can make big differences in profitability.

Mitigating these risks requires businesses to manage relationships with multiple PSPs to keep operating costs at a minimum while maximizing profitability on each transaction. Many firms discover too late that they are not equipped to accomplish all these tasks and have neither the time nor the resources to manage multiple payment integrations in-house. It can therefore be not only useful but even necessary for these businesses to outsource the fulfillment of these needs to payment orchestration platforms (POPs).

Providing the Tools for Payments Optimization

The primary way in which POPs can help businesses more effectively design and deploy payments strategies is by introducing an orchestration layer into a firm’s payments stack that allows the POP to effortlessly analyze and manage payments systems.

Application programming interface (API) technology allows eCommerce merchants to add or remove payment methods as they please as well as manage the connections they share with their various PSPs from a single system — all without having to invest in extensive reprogramming and ongoing maintenance.

APIs can also be integrated with artificial intelligence (AI) and machine learning (ML) tools. The combination of these technologies can then be used to facilitate cross-border payments that process exchange rate differences and AML/KYC screening standards automatically.

POPs can also support businesses’ payments orchestration strategies by providing advanced data analytics. Having tools that can store and also analyze information, including transactional data, profitability, payment speed and other key logistical factors, can help businesses determine whether their payments orchestrations are effective — and what improvements to make if they are not.

The combination of advanced data analytics, AI, ML, APIs and other technologies can all aid businesses in building and continuously improving their payments operations to maximize revenues. Those customized for payments operations by POPs can provide them these essential tools without incurring the costs needed to develop them from scratch.