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Intelligent payment routing explained

Intelligent payment routing explained

Jun 30, 2023
Checkout.com

Ensuring the continual optimization of your payments performance requires you to be permanently prepared and sure-footed in an ever-shifting payments landscape.

With the headwinds of changing regulations, network mandates, and issuer preferences a constant threat, you need an arsenal of tools at your disposal to stay informed, to keep your acceptance rates high, and to maintain customer experience.

That’s where intelligent payment routing, or smart routing, comes in. It automates transaction routing to the payment providers (also known as payment orchestration) or networks that give you the highest chance of acceptance for the lowest fees, maximizing revenue while reducing costs.

Smart routing is essential to tackle the problem of false declines, which cost merchants more than $20bn a year. Currently, 65% of merchants say they don’t receive detailed raw response codes on their failed payments, while 67% don’t receive fraud and chargeback analysis data.

This lack of actionable information makes it next to impossible to make informed decisions on improving acceptance rates. But with intelligent payment routing, merchants are empowered to optimize their payments performance with confidence.  

On this page, we explain how intelligent routing works, the benefits for merchants, and how Checkout.com can help with your smart routing needs.  

What is Intelligent Payment Routing?

Intelligent payment routing is the capacity of a payment platform to decide which path is best to route a payment down in order to maximize the number of successful transactions for the lowest possible cost.

This routing could be conducted through either different payment providers - more commonly referred to as payment orchestration - or different networks, but takes into account efficiency and reliability, balanced against costs for merchants. You, the merchant, can define the criteria that automated intelligent payment routing uses to decide on the most optimal routes, depending on your objectives.

In essence, intelligent payment routing optimizes merchant’s payment performance by helping them to mitigate the risk of declines and slow processing, and to increase the chances of acceptance.

Intelligent payment routing through different PSPs

More commonly referred to as payment orchestration, intelligent payment routing through different payment service providers (PSPs) automatically detects which provider is likely to perform the best and sends each transaction down the most appropriate route. How does it decide? The routing software considers a variety of factors, including the region in which the customer is located, the payment currency, the transaction amount, and card type, as well as key details about the merchant, and then routes the payment through whichever provider has the highest chance of getting the payment approved.

Intelligent payment routing through different networks

In a similar fashion to routing a transaction through the best PSP, in the US, intelligent payment routing can assess the performance of different card networks - e.g. Mastercard, Visa, American Express - in order to determine the route with the highest chance of approval. The ability to choose between networks has been enabled by changes to US law over the last decade.

Learn more: Introducing Intelligent Acceptance

The laws that enabled this in the US

There was a time when merchants had no choice over which card network to use for payment routing, meaning they were stuck with whatever interchange fees their network charged.

Thanks to the Durbin Amendment, part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2011, interchange fees charged to merchants that accepted debit card payments in the US were capped, as long as those cards were issued by banks with more than $10bn in assets. The Amendment also stipulated that issuing banks had to ensure it was possible for all in-person debit card transactions to be processed by at least two card networks. This legislation was designed to break up the monopoly of the large card networks and give merchants a way to control their expenses by giving them choice over the most cost-effective way to route payments.

While it has long been acknowledged that the legislation should also apply to card-not-present transactions, it has taken a while for the market to develop technology capable of supporting multiple networks for online payments. However, the tech has now caught up and, as of this year, debit card issuers must ensure all ecommerce transactions can be processed by at least two unaffiliated card networks.

Benefits of intelligent payment routing

Smart routing through both different PSPs and different networks present a number of benefits to merchants.

Through different PSPs

Here are the benefits of intelligent payment routing through different PSPs:

  • Increased revenue - by simplifying payments, increasing acceptance rates, improving customer experience, and accepting more payment types, you can vastly increase the volume of successful transactions you’re taking and, in turn, the amount of revenue you’re making.
  • Lower processing costs - as you have a choice of providers for payment routing, you can decide to route transactions through the channels that offer the lowest fees, reducing the cost of processing.
  • Better performance analysis and optimization - you can benchmark your payment performance against other businesses and use that information to improve inefficiencies and improve cost savings.
  • Dynamic routing - as well as routing transactions through the most cost-effective channels, you can establish rules to automatically route payments through the channels with the best conditions. For example, the most efficient routes or even those that are most appropriate for riskier transactions.
  • Real-time reporting - smart routing platforms give you access to a wealth of real-time data on everything from fraudulent activity to new payment trends, which you can use to improve your payment experience and seize opportunities
  • Easier integrations - with multiple payment provider options available through one integration, it's easy to work with both local and international PSPs depending on your needs.
  • Wider choice of payment methods - likewise, you can easily adopt new payment methods to suit your requirements and your customers’ preferences. For example, buy now, pay later (BNPL) and digital wallets.
  • Increased acceptance rates - intelligent payment routing allows you to choose the provider with the highest chance of acceptance, and to automatically retry transactions when declined, which helps to boost acceptance rates.

Through different networks

Here are the benefits of intelligent payment routing through different card networks:

  • Capture untapped revenue - by reducing the number of declines you experience and lowering your transaction fees, you can capture plenty of untapped revenue that makes a big difference over time.
  • Optimize performance - intelligent payment routing platforms allow you to optimize your payment flow management end-to-end, taking a lot of the hassle out of keeping up with changing regulations, mandates, technology, and issuer preferences.
  • Customize to your goals - you can choose which elements of the payment flow to optimize and how to optimize them, whether your preferences are to, for example, improve acceptance rates, cut costs, or both.
  • Continually access new optimizations - as your payments partner has direct relationships with issuers, schemes, and regulators, you have constant access to new optimizations across the payment value chain, so you can ensure you’re always maximizing performance
  • Quick set-up - intelligent routing tools are available as out-of-the-box solutions, allowing you to take advantage of the latest innovations without having to manage additional integrations.
  • Optimize the full payment lifecycle - it’s also easy to optimize every element of the payment lifecycle from one platform, maximizing the chance that a payment will be accepted on the first try. If a payment is declined, built-in retry logic can work to recapture any lost revenue.  
  • Performance insights - finally, with access to real-time data and reporting, you can understand how your intelligent routing is performing through your dashboard and make necessary improvements to your strategy.

Does Checkout.com support intelligent payment routing?

Yes, Checkout.com supports intelligent payment routing in a number of ways.

Firstly, our payment orchestration product, ProcessOut, is a vendor-agnostic platform that helps you optimize your payment performance by automatically smart routing transactions through the most suitable payments provider and retrying failed transactions across different providers. It also reviews global payments data and comes with a free audit tool to help merchants continually review performance and improve their payment setups.

We also offer Intelligent Acceptance, a machine learning tool that leverages our global data network to assess the performance of conversions, costs, and compliance on both an individual scheme and issuer basis in order to increase acceptance while reducing scheme fees. To learn more about how Intelligent Acceptance can improve authorization rates and save revenue see this case study from Reach where Melissa Pottenger, VP of Payment Operations shares details on how the product is delivering value for the business.

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June 30, 2023 9:58
June 30, 2023 10:01