The topographical processing of the financial technology (FinTech) industry is ever-evolving. Businesses and consumers are constantly presented with myriad solutions designed to streamline the payment process to make their digitalised and virtual lives much more straightforward and manageable. There are two essential components of this FinTech ecosystem: payment processing and payment orchestration. While these two concepts have a phonetical similarity, they serve distinct roles and represent deviating facets of payment platforms in the world of FinTech.
This blog will investigate the differences between payment processing and payment orchestration and unpack how they respectively contribute to the efficiency, flexibility, and functionality of modern banking and financial systems and their unique role and significance in FinTech.
Payment Processing: The Foundation of Payment Transactions.
Payment processing is foundational to the payment industry, the fundamental component of any financial transaction. It refers to the series of steps and technologies that facilitate the transfer of funds from one party to another.
Historically, payment processing primarily focused on moving money from customers’ to merchants’ accounts. Payment processing involves various stakeholders, including merchants, payment processors, banks, and card networks like Visa or Mastercard. This straightforward approach was practical for many years but lacked adaptability and flexibility. While this function remains vital, businesses and consumers demand more than basic transactions.
Business and customer demands, parallel to the increase of payment diversity in banking, financial institutions and FinTech, the inundation of digital and mobile wallets, and the globalised nature of e-commerce, have seen traditional payment methods, such as payment processing, become almost obsolete, as they collectively struggle to keep up with the rapidity of change occurring in FinTech and the wider world.
The following are the critical elements of payment processing:
- Transaction Handling: Payment processing involves transferring funds from one party to another. This can take place through various channels, including credit/ debit card transactions, bank transfers, and digital wallets;
- Authorisation: When a customer initiates a payment, their payment details are verified first to ensure sufficient funds or credit are available. This step involves sending a request to the card issuer or the customer’s bank;
- Authentication: Once authorisation is granted, the payment processor ensures the transaction is legitimate and secure, a process that often involves additional layers of security, such as two-factor authentication (2FA), and biometrics, such as a fingerprint or retinal scanning, tokenisation, and voice recognition;
- Settlement: After successful authorisation and authentication, the payment undergoes clearing and settlement processes, during which the funds are transferred from the customer’s account; the financial institutions involved reconcile accounts and transfer funds to the payee, the merchant’s account. Settlement typically occurs within a few business days;
- Security and Compliance: Payment processors are responsible for ensuring the safety, security, and compliance of transactions, including adherence to regulatory standards;
- Reconciliation: The payment processor reconciles all transactions, ensuring that funds are correctly transferred and merchants receive [their] payments. Any discrepancies or disputes are addressed during this phase.
Payment Orchestration: The Next Level. Streamlining the Payment Ecosystem.
On the other hand, payment orchestration is a more recent development in the FinTech industry, an advanced concept that builds upon the foundation of payment processing. Payment orchestration introduces the processing process as a layer of sophistication and flexibility to the payment ecosystem. It is a level of abstraction that simplifies the complexity of payment processes, enabling businesses to optimise their payment strategies. The following are the critical elements of payment orchestration:
- Aggregation of Payment Methods: Payment orchestration platforms provide a centralised interface that connects businesses to various payment methods, including credit and debit cards, digital wallets such as Apple Pay and PayPal, bank transfers and more, allowing merchants to offer customers multiple payment options without integrating each one separately;
- Multi-Channel Integration: Payment orchestration enables businesses to integrate multiple payment methods, gateways, and providers into a unified system seamlessly, empowering them to offer customers various payment options, enhancing the user experience;
- Dynamic Routing: One of the critical features of payment orchestration is dynamic routing. Dynamic routing allows businesses to route transactions intelligently to the most cost-effective or reliable payment methods in real-time based on various factors, such as currency, location, and payment method. This optimisation can lead to cost savings and improved transaction success rates;
- Adaptability: With payment orchestration, businesses can easily adapt to changes in the payment landscape, such as emerging payment methods or regulatory requirements, without requiring extensive system overhauls;
- Unified Reporting and Analytics: Payment orchestration platforms offer comprehensive reporting and analytics tools, giving businesses insights into [their] payment data across different providers and channels. This data-driven approach can help companies to make informed decisions and improve their financial strategies;
- Data Insights: Payment orchestration platforms often provide invaluable data (and analytics), offering businesses insights into customer behaviour, transaction performance, and trends, assisting in strategy refinement and decision-making;
- Enhanced User-Experience: By offering a seamless and diverse range of payment options, payment orchestration enhances the customer experience, reducing cart abandonment rates and increasing conversion rates for online businesses;
- Global Reach: Payment orchestration solutions are designed to cater to international markets, supporting various currencies and payment methods, which is vital for companies with a global customer base.
In the expansive and expanding world of FinTech, payment processing, and payment orchestration are two essential concepts that play distinctive roles in the seamless movement of funds. Payment processing forms the foundation, ensuring the secure and compliant transfer of funds. In contrast, payment orchestration adds sophistication, flexibility, and optimisation of payment methods, routing, and reporting for businesses in the payment ecosystem.
For businesses aiming to thrive in the highly competitive and dynamic world of FinTech, understanding the difference between these two concepts is crucial. Payment processing remains essential for secure and reliable transactions. In contrast, payment orchestration empowers businesses to offer a seamless and diverse range of payment options, optimise transaction routing, and gain invaluable insights into their financial operations. Together, these components drive innovation and convenience in the modern financial landscape.
Businesses must understand these differences to choose the right solutions that align with their objectives and customer expectations. Pioneering FinTech Youtap is one of those companies. Youtap has established itself as a trailblazer in the realm of payment orchestration, setting a new standard for what is possible in payment experiences. Youtap’s transition from traditional payment processing to payment orchestration represents a monumental shift in the FinTech landscape. Youtap empowers companies to offer superior customer experiences, optimize their operations, and tap into new markets seamlessly. As companies and consumers continue to demand more from the payment ecosystem, Youtap is a shining example of how innovative payment orchestration can drive growth and success in the digital age.
Whether simplifying payment flows or expanding to new marketplaces, the right approach to payment technology can be a game-changer in the competitive FinTech ecosystem. Youtap is the right approach to attain that.