The online world of payments is changing so rapidly that it’s hard to stay up-to-date on the latest trends, technology, and regulatory shifts. One such rapidly evolving area, and the focus of this article, is payment routing. We’ll define what payment routing is, discuss how it can help your business, and consider leading indicators to look out for when it’s time to improve or “level up” your payment routing approach.
Payment routing is the path, or route, that a transaction takes after a customer makes a purchase. After a business accepts a payment method, like a credit card, it must then flow through the entire payment ecosystem composed of multiple parties: payment service provider (PSP), acquiring bank, card network, and issuing bank. Most of the time, a transaction goes back and forth through the payment ecosystem to move from Authorize → Authenticate → Clearing and Settlement.
Payment routing does not follow a one-size-fits-all approach and can look vastly different across industries, business models, and organizations of various sizes. Routing often evolves over the life of a company and as the payments industry changes. In some cases, routing is relatively simple. In other instances, routing can be incredibly complicated. The level of complexity varies on several factors like size of the business, growth goals, and focus on payments in the customer experience. Let’s start with an example using an art store named Painting the Future.
Painting the Future has humble beginnings in a farmers’ market located in downtown Durham, North Carolina. At first, they were content working with a single PSP that allowed them to accept physical cards from local shoppers (known as a CP or Card Present transaction). As demand for their unique artwork spiked, they expanded their business by selling online. Initially, they worked with the same PSP to accept payments online (known as CNP or Card Not Present). Sales exploded, and they ramped up their artwork production. Painting the Future launched an art subscription service, where customers received artwork quarterly based on their favorite painters. To their customers’ delight, they launched virtual painting classes for all skill levels.
Demand for Painting the Future grew even further into international markets as word caught on. To expand into Europe (Peindre le Futur) and Latin America (Pintar el Futuro), they needed to integrate with new PSPs to allow them to accept more payment methods around the world and meet local financial regulations (like 3DS2), all with a single checkout experience. Due to high sales volumes, having resilient backup gateways in case one PSP was unavailable was doubly important. Payments Orchestration helped them quickly integrate with new PSPs and provide payment tokenization that reduced their PCI burden and transact securely. Initially, they built their own routing solution that sent a transaction to a region’s preferred gateway. However, as they added more PSPs, this became increasingly complex. Their inability to route each transaction to the best gateway hampered their international growth. Transaction success rates, a critical metric that directly impacts top-line revenue, suffered, and they lost would-be customers who experienced payment issues.
Painting the Future used a dynamic data-driven solution like Spreedly's Smart Routing to solve their payment problems. Smart Routing ensures an optimal routing path for each transaction by looking at factors like currency, BIN, card type, and card brand. By leveraging advanced analytics, Smart Routing makes a routing decision in real-time by using insights gleaned from $20B in annual transactions over 100 countries. Merchants and platforms using dynamic routing boost revenue through higher success rates and improve customer experience via reduced payment decline rates, unlocking growth and transforming payments into a strategic advantage. All while keeping the cost of implementation and operations minimal.
As we learned from walking through an example business, Painting the Future, payment routing evolves over the business lifecycle and changes with industry standards. We created a framework to map out the routing journey.
Many businesses start by working with a single provider [Stage 1]. As the business grows in size, moves to digital-first payments, and expands internationally, many companies find it advantageous to move to a multiple provider strategy [Stage 2]. Spreedly can help with this step-up by offering direct integration with 120+ gateways over 100+ countries via a single API.
Some businesses choose to start with static routing when working with multiple providers. For example, use Authorize.net in Europe and use Stripe in North America. Static routing is a good starting point for companies to dip their toes in a multiple provider strategy. However, the benefits of multiple providers are not fully realized without a data-driven, dynamic routing solution [Stage 3]. Having a true parallel, multi-provider per region approach boosts success rates for some global businesses by up to 8%. Massive enterprises like LinkedIn, Uber, and Amazon have dedicated payments teams that have already built a custom dynamic routing solution to boost their margins and optimize customer experience. Otherwise, companies can use an out of the box dynamic routing solution, like Smart Routing, that is ready to implement with minimal code changes. This allows any business to build a first-class payments stack, one that leverages data to drive payments routing, with ease.