Revenue Optimization

The Payments Routing Continuum

We 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.

Written by
Marlin Boggs
Publication Date
June 16, 2023
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Level Up Your Payment Routing

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.

What is Payment Routing?

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.

An infographic explaining how payment routing works.

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.

How Payment Routing Works?

In an ideal world, payment routing can be a very simple process.

Let’s say you own a local art gallery — customers come in, purchase a painting, scan a QR code and enter their payment details on your website. This payment gateway takes that information and sends it to the card network and issuing bank for approval, then generates a receipt once this process is complete. 

This is the payment routing process that is common in traditional brick-and-mortar settings.

The payment gateway takes on the responsibility of routing the payment for approval. 

Now, on a surface level, this routing process sounds straightforward enough, but what happens if a payment gateway experiences an outage? Without the right routing strategy and tools in place, this can lead to a loss of business and revenue if you are unable to re-route a transaction with speed. 

What is most vital for merchants is to plan ahead for this scenario and have the proper strategy in place should an initial payment route go awry.

Routing Evolution: A Model

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 card present transactions. 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 or card not present transactions. 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, 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 routing solution like Spreedly's Smart Routing to solve their payment problems, future proof their payments stack, and expand geographically with ease. Our suite of smart routing tools can optimize your success rates, lower costs, and provide a better experience for your buyers.

 Merchants and platforms using smart 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.

The Power of Transaction Retry: A Routing Use Case for Merchants Operating Globally

Transaction Retry is an automated routing capability that reroutes a payment to a different gateway under specific conditions, such as a payment gateway outage or a soft decline such as a “Do Not Honor” code. 

Thinking back to our art gallery example, imagine your customer tries to swipe or tap their card and is met with a decline message. Assuming this decline has occurred due to a problem with the routing process and not a lack of approval on the customer’s behalf, it is up to you as the art dealer to find a way to re-route that payment successfully.

While a physical POS system may have limited re-routing capabilities, digital and online payments can enjoy greater flexibility when it comes to routing and retry. 

Let’s reimagine this art gallery example as a merchant selling canvas prints on an eCommerce platform. With a retry process in place, your payment system can automatically and instantly route a payment to a secondary gateway should the initial gateway fail. In turn, you can avoid losing transactions and maintain a great customer experience without having to acknowledge the failure in real time.  

To better understand the retry use case and its benefits, we can divide this process of routing and retry into three main phases:

Phase 1: Adopt a Routing Rules Solution

In any payment routing scenario, your payment system needs rules that define where to route the payment. 

Routing rules are a specific type of service typically offered by payment orchestration providers — like Spreedly — that set up business logic for controlling payment routing. 

These routing rules can be used to define which payment gateway to use depending on a variety of factors, for example, the card brand or issuing country. Perhaps more importantly, these routing rules can also determine where payments should be routed should the first payment gateway fail to obtain approval.

Theoretically, a merchant could handle setting routing rules in-house. 

The only problem with this approach is that it requires significant developmental effort, as well as adequate talent and resources. By contrast, a payment orchestration provider can enable merchants to set routing rules from an easy-to-use and intuitive interface. 

For example, Spreedly’s routing rules engine provides merchants with a ready-to-use, out-of-the-box routing component that does not require much developmental effort on the merchant’s behalf. 

Phase 2: Set Up Your Ideal Payment Routes

The second phase of the routing and retry process is all about selecting your ideal payment routes and defining them within your routing rules solution. 

In most domestic use cases, a merchant will have one preferred payment gateway to which all of their payments are initially sent. 

However, this process can become a bit more complicated when conducting business internationally, as different payment gateways may be more or less ideal depending on the geographic region you operate in. 

Picture an e-Commerce merchant that sells to customers in both North America and Europe. 

That merchant may rely on one gateway for North American transactions and a different gateway for European transactions. These gateway preferences can be defined within the merchant’s routing rules — but what happens in the case where a merchant does not have a preferred gateway or does not know the best gateways to prioritize in specific regions?

This is yet another instance where having a dedicated payment orchestration provider can come in handy.

For example, at Spreedly, we offer a wide range of connections to preferred partners, including a variety of payment gateways. By working with Spreedly for your payment routing needs, we can help direct you to the ideal gateways among our preferred partners based on the geographic location you are working in. 

Phase 3: Integrate Retry Capabilities

The third phase of the payment routing process is where retry capabilities come in. 

If you have opted to work with Spreedly, our retry feature can be easily integrated into the routing payment stack, while our routing rules can define when and where to route retry transactions. 

Even if you are unsure which secondary gateways to leverage, Spreedly can help you determine the ideal gateways from our selection of preferred partners and write those gateways into your retry rules. As a result, you can enjoy higher authorization rates and a highly optimized routing process with all the necessary contingencies in place should your primary payment gateway fail. 

Best of all, this all happens automatically behind the scenes — once you set your rules for routing and retry, the entire process becomes almost entirely hands-off, regardless of whether a transaction occurs domestically or internationally.

Spreedly Offers Endless Opportunities for Routing & Retry

If your business is currently bleeding revenue into failed transactions, it may be time to reimagine your approach to payment routing.

At Spreedly, our routing rules and retry capabilities imbue your routing process with logic. While the use case discussed above is fairly straightforward, our routing and retry capabilities can be as simple or as complicated as you need them to be. 

Along with the basic retry process, Spreedly can also enable you to:

  • Perform A/B testing with volume splits
  • Mix and match rules and designated payment gateways according to your specific needs
  • Set routing rules for an unlimited number of payment gateways, adding extra fortification against declines

Spreedly offers the technical support you need to boost your payment routing efficiency and find hidden value in your routing process. Get in touch today to get started. 

Download the Multiple Payment Gateways eBook Below

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