01-04-2025
Payment Orchestration: Market Dynamics And Trends
Multi-processor payment architectures are becoming more widespread, fueled by merchants' growing desire for payments flexibility and adaptability. Consider that 64% of US headquartered merchants with half or more of their sales occurring online indicate their organization prefers to work with multiple payment processors, according to 451 Research, part of S&P Global Market Intelligence. This is creating a need for capabilities to optimize results and, importantly, abstract complexity. Payment orchestration targets this market opportunity and has quickly become one of the most prolific and important merchant acceptance trends of the past half decade.
The acceleration of e-commerce is creating a greater need for payment connectivity
Payment orchestration encompasses approaches targeted at enhancing the reach, adaptability and performance of a multi-processor payments stack (e.g., using more than one payment processor). Once limited to only the biggest and most sophisticated global merchants with large in-house payments teams, dozens of vendors have emerged in recent years to help merchants outsource many if not all of the tasks associated with payment orchestration.
Vendors in this category offer services such as payment credential vaulting and tokenization, transaction routing, consolidated reporting, prebuilt gateway integrations, rules engines, optimizers (e.g., 3-D Secure, network tokens), and more. As the CTO of a $500M+ beauty retailer in the UK put it to us, payment orchestration platforms "… allow the merchant to create efficiencies by managing and coordinating their payment stack and offering a unified view of their payments estate."
Payment orchestration providers are coming at the opportunity from multiple different angles, including:
Payments are becoming more global, more complex and more strategic. These factors bode well for the opportunity for payment orchestration. Looking ahead, we see several key trends defining the market.
Recent moves by Stripe and to enable multi-processor support demonstrate that payment service providers are looking to position themselves as more flexible and accommodating suppliers in the eyes of large merchants. A key advantage of this strategy is expanding the market opportunity for their value-added services portfolios, as Stripe has done with Billing and Radar. This creates a larger market opportunity for PSPs to sell certain capabilities as standalone products, especially to enterprises that may not be ready to leave their incumbent processor. This then opens the door to upselling payment processing to those customers down the road. We expect multi-processor support to be offered more widely by PSPs and incumbent processors in coming years.
We believe there could be a larger market opportunity for orchestration beyond payment processing. Adjacent categories such as fraud prevention, digital identity, logistics and open banking are all possible areas where payment orchestration platforms can broaden their role and value for merchants. Spreedly, for example, has already begun moving in this direction with its open payments platform vision.
In recent years there have been some signs of consolidation. The first four notable deals in the space — PayU's acquisition of ZOOZ Mobile (2018), Payoneer's purchase of optile (2019), reach for ProcessOut (2020) and MangoPay's pickup of WhenThen (2023) — involve payment service providers getting into orchestration. However, TokenEx's acquisition of IXOPAY last April bucks the trend and indicates that other types of buyers aspire to participate more directly in this sector. We anticipate an uptick in payment orchestration M&A between now and the end of the decade given the number of subscale payment orchestration providers that will likely need an exit in the next 24 months. We also anticipate new entrants — PSPs, tokenization vendors and even large IT infrastructure providers — to consider making inroads inorganically by reaching for market leaders.
Payment orchestration providers have a key role to play in helping merchants unify their payments data estate and deliver actionable guidance on their business. This remains a major challenge for many merchants. As the VP of e-commerce at a North American fashion retailer put it to us, "Right now, we don't have good data on how different payment methods are being used. Payment analyses are manual and one-off, leading to challenges identifying opportunities and road map priorities."
Players like Pagos have emerged to address this opportunity directly, but we believe orchestration platforms will have a seat at the table as well. However, this could require orchestration providers to shift to a more modular approach where capabilities like analytics can stand alone independent from their platform. Advancements in areas like generative AI will have an obvious role to play in deepening capabilities in this arena.
