What Are Cascading Payments?

Think of cascading as a synonym for routing in your payments flow. In the case of payments, cascading means taking a single transaction and moving it to the appropriate gateway or endpoint. Whereas some applications follow a fixed, predetermined payment flow when making transactions, other applications use logic and rules to dynamically decide the route a transaction should follow.

In general, cascading payments are part of a good intelligent routing strategy - we’ll dive deeper into other routing tactics in a later post. For now, we’ll break down why you should be aware of cascading payments, and how it can influence your overall strategy.

With so many gateway choices, why choose just one?

In 2020, there are lots of choices for PSPs (Payment Service Providers) and payment gateways and it’s typical to start with one you’re already familiar with by name, or perhaps due to previous experience. A more advanced strategy when starting out is to choose the gateway that has the highest success rate for your region, currency, or business type.

Spreedly’s API allows you to integrate with over 100 gateways, and we consider ourselves provider agnostic. So, instead of encouraging you to choose one gateway over another, we’ll always advocate integrating with more than one.

What happens after you’ve decided on your favorite gateway integrations? How do you control which transactions go to which gateway? And, perhaps more importantly, why would you plan that anyway? Wouldn’t it make sense to switch your integrations only when there’s a problem, planned maintenance, or planned downtime? What are the reasons you should care about cascading transactions down a list of providers?

Making cascading payments part of your payment gateway strategy

Why would you want or need cascading payments? The answer to this question comes down to two main things: improving success rates, and reducing your fees. Optimizing for both of these can have a substantial impact on the bottom line of your business. As mentioned previously, many businesses are moving away from thinking of payments as a cost center, and instead are optimizing payments to make it a strategic part of an online business.

There are additional benefits that are not directly financial, but could still influence revenue. A primary additional benefit is an improved user experience. In fact, according to a 2016 report by Business Insider, 32% of cardholders will stop shopping with a merchant after a single decline. Because you’re routing transactions, you can decrease the possibility of a failed payment, thus removing the need for your customer to retry their payment. The experience for the customer is the same as a normal successful checkout experience.

What happens in the background when cascading payments are set up correctly can take your success rates through the roof. Pre-defined rules can be put in place to route transactions to the endpoint where it is most likely to succeed - influencing a lift in your transaction success rate.

In the long term, gateway downtime ceases to be an issue or a revenue blocker. In this way, you can think of cascading payments as an ongoing insurance policy that helps avoid lost transactions due to degradation of performance.

Cascading payments can fuel geographic expansion

Having a gateway routing strategy in place can be incredibly important if you’re doing business in more than one region - or planning geographic expansion in the future. Having a cascading payments flow makes this expansion to new regions repeatable and greatly reduces friction/time-to-launch.

This is also important in regions of the world where a clear leader in terms of success rates has yet to emerge - like Latin America for example. Cascading your payments amongst the shifting leaderboard of PSPs will set up businesses to have the greatest chance to capture a payment - leading to the best experience for the customer. In regions where gateway outages are more common, this can be a game changer. You absolutely need a cascading plan to cover your bases in emerging markets.

In these markets you’d want to cascade your payments in order of likelihood to succeed in each region. You’d typically set up the highest likelihood first, then cascade and retry in descending order of likelihood.

Have you considered cascading payments before? Are you planning to implement a cascading routing strategy in the future? We’ll be talking more about various routing strategies in the future, including ways to automate your routing. Before then, let us know how we can help with your planning.

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