What is payment routing?

In the ever expanding landscape of payments solutions, payment routing ranks among the top features for merchants who want to optimize their internal payments setup. But what exactly does payment routing entail? And what are the benefits for merchants? We answer all of these questions in this edition of Payments 101.

What is payment routing?

Payment routing is a product feature that intelligently directs payments to the most appropriate PSP or partner. The “most appropriate” route is determined by applying predefined rules and considering factors such as processing fees, location, transaction value, risk factors, and more. 

How does payment routing work?

When businesses integrate a payment routing solution, they have the power to predefine the routing rules. They can set up many different transaction routes at once, depending for example on the market they are operating in or the customer segment. This is determined by the merchant in the set-up process and can be finetuned and updated at any point. 

Payment routing is an essential part of a successful payments strategy that involves integrating multiple PSPs. By having multiple processors at your disposal, you can route your payments in such a way that you get the best rates, depending on factors like geography, payment method and transaction type. This can vary from country to country and from region to region. Some processors have higher acceptance rates in certain countries while others may have higher acceptance rates with certain BINs. 

By identifying these combinations, merchants can route payments in a way that has the lowest processing fees possible. It’s recommended to connect with a local acquirer whenever possible, as they usually provide the best rates for local transactions. To find the most effective routing rules for your business, we recommend A/B testing different routes across multiple third parties and to leverage that knowledge to create a smart routing system that works for you.

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The benefits of payment routing

Smart payment routing can help merchants across all industries to tackle some of the most pervasive problems related to payments, including addressing the costs associated with payment processing and high payment decline rates.

Business continuity

Payment routing ensures that a transaction will always be processed. This means that even if there’s an emergency, like a processor goes down or experiences a technical failure, the transaction will be automatically re-routed to a different processor. The dynamic payment routing system will automatically retry to process the transaction, sending it to a fallback processor that was predetermined by the merchant. So for instance, a merchant might make the routing rule that after two failed retry attempts, the transaction is routed onto a different PSP. 

Increased payment authorization rates

‍The automatic retry feature of payment routing ensures not only that payments can be accepted by the merchant regardless of the situation, it also increases the payment success rate. A multi-PSP strategy therefore supports active revenue generation, helping merchants to transform their payments setup from a cost center to a growth driver. Payrails customers have seen their payment authorization rates increase by up to 6%.

Lower processing costs

Smart payment routing helps minimize transaction costs by selecting the most cost-effective route, allowing businesses to save on processing fees. By integrating local processors and taking advantage of their more competitive pricing, merchants can fine-tune their routing strategy per country and even per region. 

No vendor lock-in

Payment routing reduces reliance on one payment provider by diversifying the transaction processing across multiple providers. A multi-PSP strategy is the best way for enterprise merchants to remain competitive and to reduce risk. 

Contact Payrails

Every merchant has unique needs. That’s why Payrails creates custom payment strategies tailored to each merchant so that they receive the best possible results. Whether you’re just looking for payment routing or are interested in a full payment infrastructure overhaul, discover your options by getting in touch with our team today. 

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