During this edition of Payments Dialog, we're talking about Smart Routing, how it fits into your Payments Orchestration strategy, how it helps with increased optimization and increased ROI on your payments. Our subject matter expert is Marlin Boggs, product manager with Spreedly.
Questions about your payments compliance needs and how Spreedly can help with Payments Orchestration? Reach out to us here.
Rough transcript of Payments Dialog:
Peter Mollins:
Hi everybody. And welcome to another edition of Payments Dialog. And My name is Peter Mollins of VP marketing here at Spreedly. Really excited about today's discussion. Today we're going to be talking about Smart Routing and how that fits into payments orchestration, how that leads to increased optimization, increased ROI on your payments. So very excited to have joining with me today is Marlin Boggs, who is product manager here at Spreedly. So Marlin, welcome to Payments Dialog.
Marlin Boggs:
Hey, Peter. Happy to be here.
Peter Mollins:
Terrific. So Smart Routing is getting a lot of coverage these days. We're seeing it in payments. We're seeing it in papers. We're seeing a lot of merchants and platforms talking about it these days. But probably good to start the conversation by talking about, well, what is Smart Routing? And how it fits into payments orchestration. So maybe you can give us a little bit of a foundation for that.
Marlin Boggs:
Absolutely. So Smart Routing is a service that Spreedly recently launched. And allows companies to intelligently decide where they want to send their transactions to. Each company has their own individual business needs. So it's important to use a data-driven approach. As such, Spreedly relies on billions of dollars worth of transactions on an annual basis in a 100 plus currencies, over 120 plus gateways to make that decision.
Peter Mollins:
Okay. Terrific. So it sounds like Spreedly has a solution for this. So what does that solution actually look like?
Marlin Boggs:
Specifically, Smart Routing introduces a new end point for purchase and authorized transactions sent via our API. So this allows Spreedly to make that routing decision on behalf of the customer. Specifically, what we look at are three primary factors. So that's card type, so whether it's credit or debit. Card brands, Visa, MasterCard, Amex, et cetera. And then currency, which can be mapped to a region. Based on these three factors, we then calculate in real time, which gateway has the highest probability of success. And then automatically route that transaction to the gateway. We also give the customer the ability to set their own default gateway in the case that any of these checks fail for whatever reason.
Peter Mollins:
Great. So, but how do you actually know that it's working? If I'm a merchant, what's going to tell me that I'm having success with my routing?
Marlin Boggs:
Yeah. So we provide reporting and analytics that tells the customer that production level increase over the course of a month, or maybe over the course of a year. On top of that, customer should see a revenue increase and also consequently, an increase in their customer experience scores.
Peter Mollins:
Okay, great. So let's step back a little bit. You've covered a little bit of the value, but maybe it'd be good just to itemize what exactly is the value of the benefit of using Smart Routing in the context of payments orchestration?
Marlin Boggs:
Yeah, sure. So let's start with some of the problems we're looking to solve. What we're seeing is that rejection of legitimate cards is a serious problem in the industry. According to a study, legitimate card declines led to $331 billion in 2018. For customers, a payment decline is frustrating. If you've ever been on the opposite end of maybe your credit card was declined in a store or online, it's a really irritating experience. And actually the 451 Research group, which is part of the S&P Global Market group found that 32% of customers leave a merchant outright. And another 26% reduced future purchases when that transaction is declined.
Marlin Boggs:
And then lastly, as customers take advantage and shift to multiple payment provider strategies, there is more complexity and ultimately developing that orchestration solution. So by providing an out of box solution, such as Smart Routing, we enable small businesses, medium businesses, and enterprises, to take advantage of some of these more advanced data-driven techniques to power their routing decisions.
Peter Mollins:
Great. Now I'll come back a little bit later to the data, because that sounds like it's incredibly important in that ability to have the scale to see across all these transactions is really important. So we'll come back to that in a minute. But if I were just to pull out a few things out of what you just said, it sounds like there's really three big things in there. One is improving success rates, right? So you want to get higher success rates so that you're generating more revenue. The second one you mentioned was that frustration around the experience, if you get a false decline. So having improved reliability of that customer experience. And then operational costs also sounds like a big one. So maybe we could explore those three in a little bit more detail.
Marlin Boggs:
Absolutely. Well, let's start with the boost in revenue. An increase in authorization rate feeds directly into a merchant's top line revenue. For many businesses, this can be viewed as low-hanging fruit that can improve sales near immediately. To use an example to illustrate this, let's take a merchant that is making, say a million dollars a month. If they were to increase their success rate by 3%, which is reasonable to infer using some of the initial results we've seen, this is a $360,000 annual increase in their revenue.
Marlin Boggs:
And for some enterprise customers, even a few basis points can lead to a sizeable, additional revenue as you can imagine. Shifting to the customer experience benefit. With every false decline, you turn would be promoters of your product, into detractors. Businesses, work hard to craft their marketing funnels and should not ignore the payments experience, the last and critical step to converting the customer. And then lastly, Smart Routing minimizes those operational and development costs by requiring a minimal code change and easy configurability via user interface. This enables businesses to again, take advantage of that out of the box solution that we've already built and doesn't require them to build custom in-house solutions that might require constant maintenance.
Peter Mollins:
Okay, great. So it sounds like companies can get started pretty quickly. If you were to look at like, what kind of business leavers, or how someone would get started, what would you recommend?
Marlin Boggs:
Yeah, so depending on where a customer is in their payments journey, they can use Smart Routing in a number of ways. So if a customer is starting with a single gateway strategy, I would recommend the first step is to look at adding an additional gateway partner. Based on four companies we profiled earlier this year, we saw a revenue increase anywhere from 5% to 12% in one case resulting in a $2 million per week increase in revenue for one company that just merely added a new gateway to their profile.
Marlin Boggs:
Secondly, once a customer begins to work with multiple providers, the next step is to leverage a data-driven approach. And this is something that Smart Rounding does enable companies to do easily. Some enterprise companies do have deep pockets and might have anywhere from 50 to 100 plus employees just working in payments and they're able to build their own in-house sophisticated solutions custom to their business. But the reality is, most of our customers and most companies out there don't have that kind of resource power. And instead want to focus on their core business as opposed to really optimizing every percentage point or every basis point in their payments. So what Smart Routing does is it really democratizes this optimization and enables businesses, regardless of how much resources they have, to ultimately use a solution that does use data to drive their routing logic.
Peter Mollins:
Great. And Spreedly's position as being the first and the leading player here. That's got to be a big strength in terms of being able to gather the maximal amount of data in order to make those decisions better.
Marlin Boggs:
Absolutely. I would argue that, us as a company, we have some of the most data across different platforms and different providers, more than most companies in this industry.
Peter Mollins:
So building on that notion of data, you're already analyzing success rates versus, not using Smart Routing. So what are some of the results that you're seeing?
Marlin Boggs:
Yeah. So our team ran some numbers to predict what would happen to aggregate success rate in the case that each customer was using Smart Routing. Now granted, we did make some assumptions for this model, but our initial results were really exciting. Looking over the course of just last week alone, we saw an average increase of 5.2% across all of our merchants. So you can imagine even the outliers might see a much higher percentage than this. But in aggregate, most businesses saw a significant lift from using a success rate for their multiple provider strategies. And it's also important to note that this 5% is on top of the additional benefit of actually adding a multiple provider to the mix. So before we talked about maybe a 5% lift by using a multiple provider versus single provider approach, now we're talking about 5% on top of that to optimize where that routing decision-making is happening.
Peter Mollins:
All right. Great. So this Smart Routing, it certainly sounds like there's a lot of impact. Oh, there's other kinds of routing to that matter. And I think we should talk about, and especially in a multi gateway world, other kinds of routing come into play. I think about cases where a merchant might be doing an on sale for an event. Or they might have cyber Monday or black Friday as part of a big part of their business. And if there's an outage for gateway that can have a major, major impact on their bottom line. Is that right?
Marlin Boggs:
Yeah. Yeah, absolutely. I'm glad you mentioned that because a lot of our merchants view outage as being a big issue that they want to avoid. In fact, according to a recent study conducted by SafeCharge on European merchants, 76% experience at a minimum of one outage during the course of that year. And this led to anywhere from 10,000 to a 100,000 euros in lost revenue.
Marlin Boggs:
And for 11% of those merchants that equated more like one million euros over the course of the year. So ultimately having a multiple provider strategy by design does help these customers avoid outages like this. And by introducing Smart Routing, this will help customers manage that multiple provider portfolio. And as Smart Routing looks at a [inaudible 00:11:09] window to make our calculations, this will help customers avoid outages and extreme cases of degradation. And ultimately use the gateway that is best for them for a particular transaction at a given point in time.
Peter Mollins:
Okay. Terrific. Now I know you can't mention gateways or customer names, but any kind of examples or case studies you want to pick out?
Marlin Boggs:
Yeah, sure. So just last month, one of our customers did experience a fairly major outage with their primary gateway provider. And according to our monitoring system, this popular gateway started to degrade their performance over the course of the week.
Marlin Boggs:
And this company that we looked at, which is in the online logistics space, relied on this gateway for most of their production volume historically. But fortunately, because they were integrated to a backup gateway via Spreedly, they were able to quickly shift those production volumes to their secondary gateway. And over the course of two days, this amounted to nearly $500,000 of revenue, which multiplied by potential for customer experience, customer churn, this could be even more. So fortunately they had that strategy in place and they were ready to go. But what we're seeing is not all companies are getting there. So that's what we were really encouraging companies to start doing.
Peter Mollins:
Great. Well, let's wrap it up, I just really enjoyed the conversation. But what do you see as some of the next steps or for Smart Routing?
Marlin Boggs:
Yeah. So we've view success based Smart Routing as really the pivotal first step in developing and building out this revenue optimization program, which is aiming to deliver some more value to our customers.
Marlin Boggs:
We're currently exploring more ways to give customers even more control and value added services on top of their orchestration layer. Specifically, we're looking at exploring an automated proactive failover solution. And also give customers ability to use declined salvage on top of their transactions to really ensure that maximum probability of transaction success. Even when at first, trying that transaction, they might not get approval, maybe second, trying it at a different time of the day. Or going to a different provider. They might see some better success.
Marlin Boggs:
Additionally, there are, with any kind of prediction model, there are always ways to kind of tweak our data models and improve it. And add advanced analytics such as machine learning on top of it. So that's what we're additionally looking to do over the course of the next year. Ultimately, these solutions will enable customers to earn more revenue, increase their customer experience. And then ultimately doing so while keeping costs low by giving them a solution that works out of the box and is easy to track.
Peter Mollins:
Terrific. Yeah, it sounds super exciting to hear what customers are already using, and already have in hand, and where you're headed. So great stuff. Well Marlin, really enjoyed the chance to connect on Smart Routing and the benefits for customers. So really appreciate you taking the time.
Marlin Boggs:
Thanks so much, Peter.
Peter Mollins:
Absolutely. Well, we'll see you again on the next edition of Payments Dialog. And thanks for tuning in.
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