From changing regulations to cross-border fees, there are many payment processing challenges that can impact your acceptance rates, overall costs, and network reliability. Smart payment routing is essential for facing these obstacles.
Intelligent payment routing allows you to optimize your payment routing so that transactions go to the best possible provider. The routing considers important signals, such as historical success, geographic location, and the card network, in order to make sure the payment goes to the ideal payment gateway. Through this type of change, you can lower your overall costs without making any updates to your products, services, or customer experience.
To learn more about how a smart routing payment gateway works, read on.
TL;DR
- With the help of real-time data, smart payment routing can send payments to the best-suited payment processor.
- Smart routing replaces static rules and single points of failure with dynamic routing and data-driven decisions.
- Intelligent routing tracks signals, such as geographic locations, processing fees, latency, approval rates, and historical data.
- When routing is implemented poorly, it can lead to more frequent declines, higher fees, and messy reconciliation processes.
- Through the best routing, you can improve your revenue stream, enhance your customer experience, and prevent declined transactions.
- By routing soft declines through a backup processor, you can avoid the inconvenience of failed transactions.
What Is Smart Payment Routing?
Smart payment routing is when payments are routed through different processors based on the rules you choose. These decisions are made using hard data, so the most effective route is selected.
Let’s look at how this works in practice.
Imagine you have two processors. Processor 1 has excellent fraud detection, low processing costs, and primarily serves your local region. Meanwhile, Processor 2 is known for its global coverage and low cross-border fees.
With this information, you can create different rules.
- Rule 1: If the card is from outside of your local area, you use Processor 2 because of its better global coverage and lower cross-border fees.
- Rule 2: For cards that are in your local region, opt for Processor 1 because of its low processing costs for local cards.
These aren’t the only rules you can choose. For example, you can select rules that maximize uptime, reduce costs, ensure better fraud prevention, or pick processors based on your geography. How you optimize your routing all depends on your end goal.
With intelligent payment routing, you don’t have to personally know if one processor is faster or more reliable than another. Smart routing incorporates A/B testing, so your system can test which processor returns the best results over time.
How Intelligent Routing Works To Boost Payment Performance
While our example was fixed and rule-based, modern routing is never static. The routing system is constantly testing different routes to determine which payment gateways and processors will be the most successful. Through advanced routing strategies, merchants can enjoy a few key advantages.
Fewer Payment Failures
Through advanced routing, you can prevent payment failures. If one gateway is experiencing latency or an outage, your system can redirect payments in real time. Similarly, you can avoid technical declines and underperforming routes. As a result, your company can bring in more revenue and experience fewer instances of failed payments.
Higher Authorization and Approval Rates
Authorization and approval rates are often used interchangeably in the industry. For clarity, we typically refer to authorization rates as the number of transactions approved by an issuing bank. Meanwhile, approval rates represent the percentage of orders that pass fraud, risk, and bank checks to get fully processed. Authorization occurs at the beginning of payment processing, while approvals complete the process.
With smart routing, transactions aren’t just sent to the payment processor that has the highest approval and authorization rates. Instead, your system considers which processor has the highest rates of approval for each specific kind of transaction.
Lower Processing Costs
Through intelligent routing, your transactions can be sent to the lowest cost option without sacrificing your approval rates and reliability. Cross-border fees, conversion rates, and other fee types can vary based on the transaction, which makes intelligent payment optimization even more important.
Improved Reliability During Provider Incidents
Partial degradations, outages, and other problems can occur from time to time. Because of this, you can’t afford to have a static routing system. Smart payment routing allows you to send transactions to backup routes as soon as a provider incident is detected.
What Are Routing Decisions Based On?
When routing decisions are made, they’re based on historical data, payment routing signals, and transaction information. This data changes in real time, so modern routing engines must be dynamic and capable of adjusting as the routing pathways change.
To get a better understanding of how these decisions are made, let’s look at common payment routing strategies and what different routing signals mean.
Top Payment Routing Strategies
Through smart payment routing and advanced payment orchestration, you can optimize your payment systems. There are a few common strategies that companies use to improve their payment routing.
- Performance-Based Routing: This style of routing is used to optimize success rates based on historical data for each route.
- Backup Routing: Redundancies are typically created in case one route fails or experiences higher latency.
- Geo-Optimized Routing: This routing strategy targets different routes based on the geographic region, reducing cross-border fees.
- Method-Based Routing: With this approach, the route is chosen based on the type of payment used.
- Low-Cost Routing: This routing strategy involves selecting the most cost-effective route that also fulfills minimum approval requirements.
- Retry Routing: When a specific payment fails due to a soft decline, this strategy uses backup options to avoid another failed transaction.
Common Payment Routing Signals and What They Mean
Payment routing signals are real-time data points that are used to optimize the routing process. Basically, they are inputs that your payment systems look at to determine how payments should be routed.
When a specific signal or condition is detected, it triggers a specific routing action. The overall goal is to improve approval rates, lower costs, or boost reliability.
| Routing factor / signal | What Happens | Why It Happens |
| Card Network | The best network or path is chosen for the transaction, based on which card type is involved. | Higher approvals |
| Currency | Transactions are routed to acquirers that support the local currency, so conversion fees are avoided. | Lower costs |
| Geography | To prevent cross-border declines, the transaction is routed to a regional or local acquirer based on its geographic location. | Higher approvals |
| Interchange and Processing Fees | The payment is routed through low-cost networks, so merchants pay lower fees while still obtaining a high approval rate. | Lower cost |
| Issuer Response History | The routing engine sends the transaction to the acquirer or gateway with the highest approval record. | Higher approvals |
| Latency (Acquirer or Gateway) | Transactions are routed away from slow acquirers or gateways. | Better reliability |
| Payment Method | Routes are chosen according to their performance for different kinds of payment methods, such as credit cards and prepaid cards. | Higher approvals |
| Real-Time Availability | The transaction is routed to a backup route if its initial route fails. | Better reliability |
| Retry Eligibility | When a transaction receives a soft decline, it is rerouted through a backup network or acquirer. | Higher approvals |
| Time of Day or Week | Certain routes are avoided during peak congestion days or times. | Better reliability |
| Transaction Amount | An acquirer or route is picked based on the total value of the transaction. | Higher approvals |
When Is Smart Routing Worth the Effort?
Intelligent payment routing allows you to maximize your revenue and optimize your payment systems. This type of approach is more likely to be worth the effort when it demonstrably increases your revenue, lowers your costs, and boosts your approval rates. It is especially effective for international merchants that need to route cross-border transactions.
While smart routing offers better results for some merchants than others, every merchant can benefit in some way. Intelligent routing offers convenient payment processing across different geographic regions, better resilience, and lower transaction costs. Plus, small gains in your approval rates can result in appreciable revenue increases.
Common Routing Pitfalls To Avoid
When adopting smart routing techniques, there are a few common pitfalls you should watch out for.
Over-Retrying
If you retry a transaction too many times, it can result in a worse cardholder experience and serve as a red flag with your issuer. The repeated attempts may look like fraud or abuse. To avoid this issue, it’s essential to limit the number of retries after a soft decline.
Creating False Declines
When you set up overly aggressive routing rules, it can increase the likelihood of false declines. To avoid this, it’s important to set routing rules that don’t filter out transactions excessively.
Messy Reporting and Reconciliation
Routing across different networks and processors creates a more complicated reconciliation process and paper trail. Unified reporting is essential for making sure all of the data is compiled into one cohesive record.
Only Optimizing for Approvals
While maximizing approval rates is important, it isn’t the only routing goal you should focus on. If you focus entirely on approvals, you may be routing transactions through processors that have higher costs, increased latency rates, and more risk.
Static Routing Rules
Static routing rules don’t adapt to day-by-day and minute-by-minute changes. With dynamic, smart routing, you can learn from outcomes and adjust. This ensures that each routing decision is improved as the processing environment changes.
Inadequate Monitoring
Even with an intelligent routing system, you shouldn’t just adjust your system settings and forget about it. As you receive data about how your routing rules are working out, it’s important to make modifications. Good data tracking and monitoring ensure the best level of payment optimization.
Exchanging Low Costs for Reliability
Low-cost routing is important, but it isn’t the only factor in determining the right payment processor. If you only route to the cheapest provider, it can result in more failures, downtime, and timeouts. Instead, you need to make sure low-cost providers meet a minimum standard for reliability and approval rates.
How PayCompass Supports Merchants With Smart Routing
At PayCompass, we go beyond basic routing logic. Our team optimizes payment gateways and processing setups by monitoring outcomes and refining rules. We help merchants avoid single points of failure by offering multiple routing options based on cost, reliability, and approvals.
From built-in monitoring to redundancies, our team can help you ensure uninterrupted payment flows. Through better visibility, you can optimize your processing performance and routing strategies.
Final Thoughts
With smart payment routing, you can enhance your payment processing approach and achieve a strategic advantage. In today’s world, using a single payment processor isn’t enough. You need to route transactions dynamically. Whether there’s a sudden outage or you’re dealing with a cross-border transaction, it’s essential to find a gateway or processor that can meet the needs of the moment.
Intelligent payment routing considers real-time feedback and historical data to determine the best routing options for each transaction. Through these measures, you can optimize your approval rate, reduce soft declines, decrease processing fees, prevent payment failures, and achieve a great level of resilience.
Adopting smart routing for payment gateways doesn’t have to be difficult. To get professional help with your routing strategies, reach out to the payment experts at PayCompass today.
Ready to Transform the Way You Do Business?
Don’t settle for less when it comes to payment processing. With PayCompass, you get smarter, faster, and more reliable solutions tailored to your unique needs. Join thousands of businesses who trust us to keep their business moving forward.
Similar Posts
Merchant Account Reserve: What It Is and How Rolling Reserves Affect Cash Flow
Getting approved for your merchant account is only the first step in bringing in revenue. As a part of your account setup, you’ll have to agree to specific terms and processing fees. If your company is considered a higher risk, you may be required to have a merchant account reserve. Reserves are used to offset […]
Digital Goods Chargebacks: The Hidden Cost of Instant Delivery
Last year, the global e-commerce market brought in $33.91 trillion in revenue. While e-commerce sales are projected to grow significantly, there are potential risks involved for merchants. Because of fast fulfillment timelines, friendly fraud, forgotten subscriptions, and customer confusion, digital goods chargebacks occur at a more frequent rate than chargebacks from physical goods. By understanding […]
Payment Processing Fees by Industry: Average Rates and What Businesses Should Expect
Each industry has a different risk level driven by fraud, chargeback rates, and other factors. For instance, low-risk industries typically have chargeback rates as low as 0.1% to 0.3%. Meanwhile, high-risk industries can easily have chargeback rates of 0.7% to 1.5%. Higher chargeback rates lead to more risks for the payment processor. In turn, these […]
MCC 6050: Quasi-Cash & Member Financial Institutions (Description and Payment Processing Impact)
Merchant category code (MCC) 6050 is designed for quasi-cash and member financial institutions. As such, it is often used for foreign currency transfers and remittances. When merchants are classified under the 6050 MCC code, it increases their regulatory scrutiny. Because of the higher rates of fraud and chargebacks, processors often charge MCC 6050 merchants more. […]
Mastercard Send vs. Visa Direct: How the Major Payout Rails Compare
As a business, there are times when you need to send real-time payouts to your customers, employees, vendors, and business partners. The right payout rail can make a difference. Traditional rails, like ACH and wire transfers, lack the speed and user experience that global companies require. By using Mastercard Send and Visa Direct for push […]
Chargeback Rates by Industry: Benchmarks, Averages, and What Counts as High
As a merchant, your chargeback rate can impact your processing fees, terms, and account availability. Your ideal rate can vary based on your industry benchmark. Some industries, like travel and SaaS, have higher chargeback rates than others. By understanding major drivers and variations in chargeback rates by industry, you can take the next step toward […]
MCC 6211: Securities Brokers & Dealers (Description and Payment Processing Impact)
Because of its connection to the financial industry, merchant category code (MCC) 6211 involves extra regulatory burdens and compliance rules. On top of these challenges, businesses that are classified under MCC 6211 also face more underwriting requirements and transaction limits. As a result, it’s important for merchants to work with a payment processor that understands […]
High-Risk ACH Processing: How ACH Works for High-Risk Businesses
When you are considered a high-risk merchant, you have to deal with the constant threat of account terminations, holds, and card declines. Because of this, many high-risk merchants turn to Automated Clearing House (ACH) processing as a backup payment method. Instead of relying on cards, ACH uses a customer’s bank account to complete the payment. […]
High-Risk Payment Gateway Providers: Best Options for High-Risk Businesses
When you operate in a high-risk industry, locating a payment gateway can be daunting. Because certain industries are more likely to experience fraud and chargebacks, payment gateways are less likely to approve these businesses. Even when a gateway is willing to work with high-risk businesses, they’ll often charge significantly higher fees or require rolling reserves. […]
Best Payment Analytics Software Companies To Know
According to recent measures, there are more than 34 million businesses in just the United States. As these companies grow in complexity, their payment strategies have to adapt. The right payment analytics software is essential for understanding trends, getting detailed insights, and optimizing payment systems. Basically, a payment analytics platform can convert raw data into […]