It’s hard to overestimate the importance of payment management when it comes to running an online business or payment processing company. Businesses are looking to utilize the most advanced technology, yet choose the most convenient, inclusive, and cost-effective option to maximize profits and keep costs down. And that’s where many businesses start having trouble with niche-specific terminology.
Even if a person has a general idea of what a payment gateway and payment orchestration are, they may not understand which option to choose for their business to get the best results. These concepts fulfill near similar roles, have similar functions, and yet differ in several ways. So, let’s understand what to choose in the battle of payment orchestration vs payment gateway, what these concepts mean, how they differ, and how they work.
What is a Payment Gateway?
A payment gateway is a hardware and software system that acts as an intermediary between a merchant and a customer. These systems facilitate payment processing and ensure secure data transfer.
In total, the main task of a payment gateway is the secure collection of financial information, its processing, encryption, and subsequent transmission to the payment processor. In addition, the payment gateway is also responsible for other security functions, such as fraud protection and more.
All in all, payment gateways provide merchants with a safe way to easily process online payments. They help merchants provide their customers with a fast and secure checkout process while protecting both themselves and their customers from any potential risks of danger or fraud.
How do Payment Gateways work?
To better understand what is better in the matter of payment gateways and payment orchestrators, let’s look at the payment gateway operation process step by step.
Payment initiation
A consumer who has decided to buy a product on the merchant’s website selects a convenient payment option. A customer is then taken to the checkout page where they click PAY.
Encryption
The buyer’s data such as payment information and payment card details are encrypted. They are then sent to the payment gateway.
Sending the data to the bank
The payment gateway sends the received information to the acquiring bank. The latter authorizes the transaction.
Data transfer to issuing bank
After processing the encrypted information, the acquirer transmits the data to the issuing bank, which verifies the correctness of the data and the balance of the acquirer’s account.
Transaction Approval
After verifying the data, the issuing bank either approves or rejects the transaction. If everything is in order, the bank will send an authorization code, which will be transmitted through the same chain through the acquirer back to the payment gateway.
Completing the transaction
Depending on the result, the payment gateway sends a message approving or denying the transaction to the merchant’s website. Only then is the buyer charged and paid for the product or service.
As you can see the principle of payment gateway operation is quite simple. In this case, in the battle of payment gateway vs payment orchestration, the first one impresses with its simplicity and understandability.
What is a Payment Orchestrator?
Payment Orchestrator is a complex payment processing solution aimed at providing alternative options if something goes wrong. In essence, it is a platform that also acts as an intermediary between acquirers and merchants, but in a slightly different sense. Payment orchestrator combines a variety of acquirers/PSPs, options for fraud management, and other services. If the payment gateway is static and tied to a specific acquirer/PSP, the payment orchestrator allows you to choose from several options.
Thus, if for some reason one or another service does not work, the payment orchestrator can redirect the request and the transaction can still be performed. This is one of the key differences between payment orchestration and payment processing.
How does the payment orchestrator work?
To better understand what a payment orchestrator is, it is better to consider its working principle.
Transaction initiation
As in the previous case, everything starts with the customer selecting a product and clicking PAY.
Transaction orchestration
Next, the merchant platform communicates with the orchestration platform via an API. OP defines the attributes for which the transaction is made and selects the appropriate payment method. The payment methods are then presented to the buyer for selection.
Selecting a payment method
The buyer selects a payment method from those offered by the platform and enters payment details.
Verification of conditions
Next, the platform checks the transaction for the need to apply additional services in accordance with predefined rules. For example, the platform can determine whether the transaction needs to be additionally checked for fraud.
Routing
After that, a special module of the platform called the routing rules engine will determine the most optimal route for the transaction. The attractiveness of the route is determined by several predefined criteria such as cost, approval rate, on-us, etc. If the primary route is unavailable, the platform will look for alternative routes. This is one of the key differences in payment orchestration vs payment processing, as the payment gateway in this case will simply issue a cancel.
Authorization
Next, everything happens according to the familiar scheme. Payment data goes to the acquirer and down the chain. If everything is alright, the money is debited from the acquirer’s account and transferred to the merchant’s account.
Payment Orchestration vs Payment Gateway: What’s the difference?
Now you are familiar with both terms. Let’s take a look at the key differences between payment gateways and payment orchestrators to understand which one to choose.
Payment Orchestration Platform
- A payment orchestration platform offers a wider scope of work and allows you to manage payments through multiple payment service providers (PSPs).
- Payment orchestrators are more flexible and depending on business needs, businesses can choose from different payment methods and providers.
- Payment orchestrators have built-in security mechanisms, however, they are not as impenetrable as a payment gateway. This doesn’t mean that payment orchestrators are not well protected from fraudsters and attacks, but the chances of unforeseen situations are higher here.
- In comparison between payment orchestration and payment gateway, the former supports many different payment methods.
- Payment orchestrators involve relatively easy integration with other software and systems.
Payment Gateway
- Payment gateways are limited in their ability to manage payments and all their work is limited to processing and authorization of payments between a merchant and a single PSP
- Payment gateways are much less flexible and offer a limited selection of payment options.
- Payment gateways have serious security mechanisms that are almost impossible to bypass.
- The number of payment methods and providers in a payment gateway is limited.
- A payment gateway is less flexible when it comes to integration with third-party software.
While choosing between payment orchestration or payment gateway, you should understand a payment orchestrator offers businesses a much wider range of options compared to a payment gateway. While the former is a comprehensive platform that covers several key needs at once and gives the owner flexibility and the ability to adapt quickly, the latter is more of a tool that performs one specific task.
Payment gateway vs Payment orchestration: Final thoughts
The feasibility of choosing between payment orchestration vs payment gateway rests on your business needs. If you don’t need any additional functionality but just an intermediary tool between acquirer and merchant, a payment gateway may be more suitable for you. However, if you are an acquirer or a paytech startup that wants a powerful solution that combines several functions at once, you should choose a payment orchestration platform. This solution will allow you to fully realize all the necessary tasks and provide your customers with the best service. There are many white-label payment processing solutions on the market today, which will provide you with an extremely diverse functionality, on very favorable terms.