With almost all goods and services delivered online these days, there’s an increasing demand for innovative payment technologies that can efficiently handle large volumes of transactions, streamline their acceptance, and provide a frictionless customer experience. Payment routing is the primary tool modern payment solution providers offer for addressing this demand. Payment routing, also called intelligent or smart routing, is preconfigured to automatically optimize payment flow and improve payment conversion by mapping transactions to specified banks or payment providers. The complexity of this technology requires an in-depth analysis.
This article will explore what is payment routing, discover how routing works, and analyze the opportunities it presents to payment service providers and merchants worldwide.
What is payment routing?
Payment routing is a technology that automatically chooses the most relevant payment provider for each transaction, contributing to the company’s revenue and transaction approval ratio. With advanced routing parameters, this technology replaced transaction processing prone to delays and declines on the payment processors’ side, internal limitations on certain types of transactions, their amount, blocked countries list, and other factors.
Evolution of payment routing
The rise of e-commerce platforms introduced online card payments, and payment gateways and processors were developed to facilitate secure transactions between online merchants and customers. However, the concept of payment routing as we know it today did not exist in the early days of digital payments. At that time, most payment service providers connected to a single regional acquiring bank, processing transactions slowly and with a high decline rate.
As online payments have continued to evolve, reaching new heights and attracting a diverse user base from various regions, coupled with an expanding array of acquirers to choose from, it has become increasingly evident that there is a pressing need for gathering different banks and payment providers under one roof to address clients’ needs.
The emergence of payment routing revolutionized online payments, as this technology could choose the most suitable payment provider for each transaction automatically and seamlessly for the customer according to internal payment routing data. The evolution of payment routing within the digital payments industry has been particularly dynamic and transformative. Over time, the number of parameters that can be used to route transactions has grown, giving merchants more control over their transactions.
Types of payment routing
There are two main types of payment routing businesses can rely on: static and dynamic. Let’s take a closer look at each of them.
What is static payment routing?
Static payment routing involves the creation of routing schemes through the manual configuration of routes. Imagine you’re running an e-commerce platform, and your customers are making online purchases. If you set up a fixed payment service provider to process a transaction, and the transaction does to it for processing no matter what, then it is static routing.
With static payment routing, your transactions will fail or be delayed if a particular payment service provider experiences downtime or high traffic. Consequently, the inability to adapt routing rules to changing conditions will lead to lost sales opportunities and multiple declines.
What is dynamic payment routing?
Dynamic payment routing also has predefined routing schemes, yet they are highly adaptive. So, if you set up a dynamic routing path for a transaction, it will be sent to the most relevant payment provider among the available ones, considering real-time factors like their performance and currency conversion rates. Furthermore, if the initially chosen by smart routing payment gateway becomes unresponsive, the transaction will be automatically cascaded to another gateway within a single payment attempt.
In dynamic payment routing, a payment system assesses various factors and conditions for each transaction and selects the most appropriate payment gateway or acquirer to route that specific transaction through.
Now that we’ve covered all the fundamental aspects of payment routing let’s delve into a more detailed understanding of how it operates.
How intelligent payment routing works
Global intelligent payment routing falls under the dynamic payment routing type and aims to enable the user to independently and efficiently manage traffic through the system’s admin panel. Initially, smart routing’s preprocessing system evaluates all transaction data and compares it with databases such as Bank Identification Number (BIN), currency conversion, payment processor databases, etc. The user’s role here is to set the appropriate criteria to redirect the transaction to a particular payment provider.
The user sets the routing path for different transaction types to begin the technology’s operation. Right after a customer confirms payment on a merchant’s website or application, multi-step smart routing technology enters the game, automatically determines which MID or Acquirer is most appropriate for each transaction, and redirects the payment there based on specific criteria, such as the lowest processing fee, issuer’s country, currency, transaction amount, etc.
Each payment software provider has their own payment routing technology configurations.
The diagram below shows how the Akurateco Payment Routing solution determines the most relevant payment provider for each transaction step by step.
- After the client confirms payment on the website or application, the fraud prevention system verifies the payment;
- If the payment is verified, intelligent payment routing determines which payment providers could potentially process this transaction according to the payment method (shown in the image) or another given parameter;
- Based on additional parameters, such as the geolocation of the billing address, transaction amount, or low interchange fee, payment routing identifies the most suitable payment provider to route payment to and directs the transaction there.
- In case the transaction is declined due to issues on the payment provider’s side, a cascading mechanism activates, redirecting the transaction to another payment provider for processing. This process continues through multiple providers as needed, ensuring a successful payment within a single attempt.
Intelligent payment routing: The main benefits
Akurateco’s CEO and Co-Founder, Vladimir Kuiantsev, shares his insights into the transformative benefits of intelligent payment routing.
Intelligent payment routing is crucial for businesses to optimize transaction success rates and enhance the user experience. It’s a revolutionary technology in the world of payments that ensures transactions are processed efficiently and securely, regardless of any issues with individual providers. By dynamically selecting the best payment path, businesses can reduce payment failures and increase customer satisfaction.
Now, let’s delve into the major benefits of payment routing in detail:
Reduced processing cost
Payment gateway routing reduces processing costs by sending transactions to payment providers with the lowest Interchange + and Interchange ++ fees merchants pay for transaction processing. The fee amount differs depending on many factors, such as card level, type of card used, the issuer, the issuer’s country, etc. Accordingly, if the payment provider routes the transaction to a MID with a lower interchange fee, they capture more revenue.
Increased approval rate
The approval rate rises when the transaction is sent for processing to the payment provider or bank that is most likely to approve it. This is because it considers each payment connector’s limitations in processing certain payment types, such as from users whose countries are blocked or from high-risk industries, and does not send transactions for processing to such providers in the first place.
Enhanced transaction flow management
Besides payment routing, some white-label payment gateway providers like Akurateco also provide prerouting. It is a technology that enables routing transactions to MIDs based on data unrelated to credit or debit cards. Prerouting is used to allow routing transactions to Alternative Payment Methods (APMs). Prerouting to APMs can be done by currency, payer’s country, and other parameters. Fundamentally, prerouting is an additional technology that helps users manage transaction flows.
Akurateco Payment Routing: Taking your payments to the next level
Akurateco is a cutting-edge white-label payment gateway created by experts with 15+ years of hands-on experience in online payments that took into account all the problems faced by merchants and payment service providers in developing intelligent payment routing technology.
Akurateco payment routing operates according to these parameters:
Geolocation of billing address
To help the merchant save on processing fees, smart routing technology forwards transactions to local payment providers based on the geolocation of customers’ billing addresses. For our users’ convenience, the Akurateco system allows them to include and exclude specific countries regarding a particular MID or acquirer.
Payment method
A customer’s payment is sent to the relevant provider group depending on whether they use a credit/debit card, Alternative Payment Methods (APMs), or cryptocurrencies. Then, based on your mappings, each transaction will be processed via the most relevant bank or payment provider within this group.
White Lists
There is an opportunity to send transactions from white-listed clients to the MID specified by the user.
Bank Identification Number (BIN)
BINs are used for identifying card type and Issuer Bank name to send transactions for processing to the payment connector that has the best success rate processing transactions from this issuing bank.
Bank Identification Number’s country
Transaction routing according to BIN’s country stated in BIN’s databases is also possible.
Credit/Debit Card Brands
By routing transactions to payment connectors that offer lower interchange fees for certain card brands, merchants can lower their overall payment processing costs.
Currency
Currency-based intelligent payment routing automatically sends transactions for processing to the most cost-effective Acquirer or MID based on the transaction’s currency. The technology considers exchange rates and fees to ensure the transaction is routed through the most efficient and cost-effective payment connector.
Transaction amount
Since each payment processor offers different rates for different transaction amounts, you can route a transaction to the most relevant payment provider based on this parameter.
Any routing parameter can also be added to the routing rules.
Akurateco provides an opportunity to set up intelligent payment routing according to any custom parameter that can be evaluated based on the collected data in the system and used to route the transaction to the specified MID or acquirer.
Also, users can combine the mentioned parameters when routing transactions. For instance, if a particular MID offers lower interchange fees for MasterCard in Slovenia, you can set this MID for routing such transactions, increasing profit.
To sum up
Here are some intelligent payment routing results in numbers: by leveraging payment routing technology, some of Akurateco’s clients have increased their approval rate by up to 20%. On average, our clients experience a 10%-15% increase in approval rates. Generally, the rise in approval rates depends on industry type, transaction volume, regions of operation, and other factors. If you want to discover how this technology will help your business specifically, feel free to book a Free Demo with Akurateco experts. They will gladly provide an extensive analysis of your case and answer your questions!
FAQs
What is the meaning of transaction routing?
Transaction routing is the process of directing a payment transaction through the most suitable payment channel, gateway, or network. It ensures each transaction is handled efficiently, maximizing success rates and minimizing costs. The routing process considers factors like cost-efficiency, success rates, currency, and location. For example, it might send a transaction to a processor that charges lower fees or has a higher approval rate for a specific region or payment method.
What is smart payment routing?
Smart payment routing is an advanced payment processing strategy that uses data-driven algorithms to determine the best path for a transaction. It analyzes factors such as cost, success rates, geographic location, payment method, and processor performance to optimize the routing of each payment in real time.
How long does it take for a routing payment to go through?
The time it takes for a routed payment to go through depends on the payment method, processor, and routing complexity. For most card payments, the process is near-instantaneous, typically taking a few seconds to a couple of minutes. Bank transfers, such as ACH or SEPA, can take longer, ranging from a few hours to several business days depending on the network and countries involved. Alternative payment methods, like e-wallets or buy-now-pay-later services, usually process quickly, though this can vary by provider.
What is a payment routing information?
Payment routing information refers to the data required to direct a payment transaction to the appropriate financial institution or payment processor. This information ensures that funds are transferred correctly and efficiently between the payer and the recipient.
