Cascading Payments Explained: How Cascading Retries Reduce Failed Payments

No matter what type of business you operate, payment failures are bound to happen. By being strategic about how you approach these failures, you can recuperate lost revenue. Failed transactions can lead to a higher churn rate, so companies need the right retry strategy to process these payments.

With cascading payments, transactions can be distributed across different payment gateways and channels. This type of smart routing system can increase the likelihood of the transaction being approved. To learn more about cascading systems and preventing failed payments, read on.

TL;DR

• Cascading payments involve retrying transactions strategically across different gateways, processors, and payment methods.
• This approach is different from traditional payment processing, which only relies on a single payment route.
• By using this technique, you can recover revenue that would have been lost.
• Payment cascading can improve customer satisfaction.
• This technique is especially effective for subscription businesses because these organizations often lose long-term customers when a single payment fails.
• If the cascading system is poorly designed, it can lead to challenging reconciliation processes, more fraud alerts, and more costly processing fees.
• This technique is especially effective for companies with high-dollar transactions, global businesses, subscription-based organizations, and firms that already use multiple gateways or processors.
• As a part of this approach, companies should focus on retrying soft declines, using intelligent retry timing, and limiting the number of retries.

What Are Cascading Payments? 

With cascading payments, a failed or declined payment is automatically retried using a backup payment processor. This solution allows you to recuperate revenue that would have been lost, and it can enhance your customer experience. Over time, incorporating cascading systems into your payment process can enhance your conversion rates.

Cascading payments are different from traditional payment processing because they use multiple channels. Traditionally, payments would follow a specific pathway with a single processor. With payment cascading, transactions can be sent through different payment gateways and channels in order to maximize approval odds. 

How Cascading Payments Help Merchants Recover Revenue 

With payment cascading, you can recover revenue by automatically retrying failed transactions through alternative routes. Depending on the source of the problem, the transaction may be sent to a different provider, gateway, or payment method.

This type of payment optimization is more effective than just repeating the same attempt. For example, using a different processor can solve the problem immediately if a temporary processor outage is at fault. As a side benefit, this payment processing method can also improve your authorization rates by sending payments through the acquiring bank that is most likely to approve the transaction.

Plus, a cascading approach is important if you have subscriptions and recurring payments. Otherwise, you might experience involuntary churn when payments fail. Through alternative routes and processors, you can maintain your stream of recurring revenue.

How Are Cascading Payments Different From Basic Retries and Smart Retries?

To get a better understanding of how cascading payments, basic retries, and smart retries are different, we’ll dive into the basics of how each method works, when to use it, the benefits, and potential drawbacks. 

Key Issues That Cascading Payments Can Help You Overcome

Even with the best payment stacks, problems can still occur. By using a cascading approach to payment processing, you can overcome the following challenges. 

• Temporary Issuer Issues: Cascading payments are essential for ensuring you can continue to process payments while an issuer is having problems.
• Soft Declines: Many soft declines are recoverable. From authentication requirements to technical timeouts, it is often possible to successfully retry transactions by switching routes, gateways, or processors. Cascading payment logic can identify decline reason codes and determine the type of updated authentication, route, or timing needed to process the payment.
• Network and Provider Outages: Networks and providers may have periodic outages or times when payments are processed more slowly than normal. Any amount of downtime can lead to lost revenue, which is why using a cascading approach is so important.
• Lost Customers: One out of three cardholders will stop doing business with a company if their payment is declined. By avoiding this outcome and using an alternative method to process the transaction, you can lower your churn rate.

The Potential Risks of Using Cascading Payments Incorrectly 

While there are many advantages to using a cascading system, there are downsides to consider as well. If this approach isn’t implemented properly, it can result in messy reconciliation, higher fees, and lower customer satisfaction rates.

• Messy Reconciliation: As your payment orchestration becomes more complex, reconciliation also becomes more challenging. When you’re dealing with multiple acquirers and processing banks, monitoring all of your transactions, tracking settlement timelines, and integrating reports can become challenging.
• Increased Fees: When you have to retry transactions, you will likely have to pay added processing fees. If your cascading logic is aggressive and involves many different attempts, the cost of additional attempts could outweigh the benefit of recuperating the transaction. 
• Fraud Flags: One potential complication of cascading systems is that they can trigger fraud alerts. When the same card receives multiple payment attempts at the same time, it can cause the issuer to flag the card for suspicious behavior, resulting in more declines, blocked cards, and friction.

Customer Frustration: Depending on how cascading transactions are dealt with, they can lead to dissatisfied customers. For example, customers may be upset if there are duplicate pending charges and temporary holds on their accounts.

When You Should Use Cascading Systems

While most businesses will receive some degree of benefit by switching to cascading systems, this type of approach is especially useful for a few specific situations. 

Global Operations

When your business sells to clients around the world, there are regional differences you have to deal with in approval patterns and issuer behavior. By using cascading and smart payment systems, you can make sure that payments are sent to the right alternate route, such as a local payment processor.

High-Value Transactions

If you are dealing with large transactions, a sudden bump in your decline rate can lead to a significant amount of lost revenue. A cascading system can help you recover lost payments that occur because of processor downtime and issuer problems.

Subscription and Recurring Billing

Even when a subscription is for a relatively small amount, a decline can be costly. Once a subscription has one payment declined, it can deter the customer from continuing their subscription. Additionally, the same problem may recur in the future unless you use a cascading approach to resolve it.

Multiple Gateways, Processors, and Acquirers in Use

One of the biggest disadvantages to using a cascading strategy is that it can be harder to reconcile different processors, gateways, and acquirers. If you already use multiple gateways, acquirers, and processors at your company, then there are very few drawbacks to using a cascading approach. 

When You Shouldn’t Use Cascading Systems

While there are benefits to using a cascading strategy, these systems won’t work in every case. They will not help you recover hard declines or failures from poor payment data quality. Additionally, a cascading approach isn’t ideal if you have a low transaction volume because the cost of processing additional transactions may outweigh the benefit of recovering the transaction.

How To Design Retry Rules To Improve Your Recovery Rates

When designing a cascading system, it’s important to be strategic about setting it up. Your goal is to maximize your recovery rate without harming your authorization rates. 

• Recover Soft Declines: In a single year, $81 billion is lost due to false declines in the United States. While you can’t recover hard declines, soft declines are good candidates for cascading retries. Your team should identify which decline codes represent soft declines and are worth recovering.
• Limit Retries: If too many retries occur in a short amount of time, it can trigger a fraud warning and lead to a blocked card. Retries should be limited and selective.
• Use Smart Retry Timing: Smart retry timing involves spacing retries apart so that issuer problems, authentication requirements, and other issues have a chance to resolve. If you run a subscription business, you can also optimize your retry schedule based on your historical issuer approval behavior.
• Always Route Through the Best Provider: Each payment processor has different success rates for specific issuers and regions. Your system can use historical data to figure out which fallback processor has the highest approval odds for each transaction type.
• Monitor Constantly: For the best results, you should monitor your payment metrics before and after each change. Understanding authorization rates, decline codes, approval patterns, and other metrics will help you determine which changes should be kept and which ones are ineffective.

How PayCompass Can Support Smarter Retry and Routing Strategies

With PayCompass, you can get help designing your smart retry and routing system. We start by analyzing your current decline reason codes, metrics, and setup. Then, we use this information to design the right gateway setup and payment optimization tools.

Once your new system is ready, our advanced monitoring tools allow us to see which routing and retry strategies are working the best. Over time, this allows us to tweak your existing strategy for the best approval rates possible.

Payment ecosystems, financial regulations, and fraud detection technology are constantly evolving, so you need a partner who understands the latest changes in the industry. From resilient payment infrastructure to cascading payment systems, we can help you maintain high approval rates and recover failed transactions.

Final Thoughts

When payment failures occur, it is often possible to recover them. Soft declines are typically recoverable because they are due to reasons that can be fixed, such as incorrect data or authentication problems. Through cascading payments, you can retry failed transactions with a different gateway, processor, or payment method. 

An effective cascading approach allows you to recover failed transactions and improve your revenue stream without negatively impacting your authorization rates. However, the right approach can vary from one business, industry, or region to another. By monitoring your metrics and making adjustments, you can ensure your payment processing strategy matches your company’s existing needs. 
At PayCompass, our team has years of experience in helping companies design comprehensive processing strategies. To learn more, reach out to our payment experts today.