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.
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.
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.
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
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.
Smart routing through both different PSPs and different networks present a number of benefits to merchants.
Here are the benefits of intelligent payment routing through different PSPs:
Here are the benefits of intelligent payment routing through different card networks:
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.