A simple card transaction requires a symphony of interactions between several entities. However, the flow of payment data from one component to another isn’t uniform.
Some routes demonstrate efficiency and speed over others. That’s where the concept of payment routing comes into play.
Payment routing is the methodology applied to guide the payment transaction across different financial institutions. The approach hinges on driving efficiencies, velocity, and cost-effectiveness by using various networks and gateways.
The route for a transaction, once initiated by the customer, is determined by this practice. This process is also known as intelligent payment routing, smart payment routing, or least-cost routing. The intent is to discover the perfect route for every transaction based on certain factors such as location, amount, and payment method.
Implementing this strategy effectively means the merchant is most likely to finalize transactions at the lowest possible processing cost.
How Payment Routing Works
The payment’s pathway is determined by established rules and available processors. Banks, payment gateways, processors, payment service providers (PSPs), card networks, and tokenization providers can all be part of the payment routing procedure for a merchant.
There are two core types of payment routing: static routing and dynamic (i.e., “intelligent”) routing. In the static process, each transaction is assigned a fixed route, whereas dynamic routing optimizes the processing route for every transaction.
Static routing involves manually configuring a fixed route for all transactions. For instance, different iframes might be switched to capture cardholder data based on the customer’s location to display the preferred payment methods for their area.
Dynamic routing t utilizes algorithms to choose the ideal route for each transaction using real-time data. In essence, dynamic routing employs multiple data pieces, and as more information is gathered, the appropriate iframe is displayed.
Among the challenges associated with static routing is the inconsistency in user experience when you need to swap different PSP iframes. On the other hand, dynamic routing with a universal third-party iframe guarantees consistency across all mediums and geographies.
Is Payment Routing Secure?
Indeed, payment routing can be secure as long as it’s implemented with robust infrastructure and security protocols.
Dynamic payment routing employs encryption and tokenization to safeguard sensitive customer data during transactions so that payment particulars remain confidential and secure. Compliance with industry norms like PCI DSS standards, having robust fraud detection algorithms, and a merchant’s choice of PSPs enhances the security level.
If configured appropriately, dynamic routing can deliver efficiency and a high degree of protection for all parties involved.
Should Merchants Deploy Payment Routing?
In most cases, the answer is “yes.”
Merchants should deploy payment routing because of the undeniable ROI. Payment routing allows merchants to intelligently steer transactions to the processor most likely to approve them based on factors like card type, issuer, or region. It also helps cut down on processing fees by directing transactions to the processor offering the most competitive rates for specific card types or regions, thus minimizing unnecessary expenses.
Last but not least, it provides a seamless and reliable payment experience across various regions and payment methods, regardless of a customer’s location.
Establishing the necessary infrastructure for payment routing can be costly. But, secure third-party options can make it manageable.
In conclusion, it’s important to note that payment routing goes beyond merely guiding a transaction. It’s a strategic tool that adds efficiency, cost-effectiveness, and security to the payment process. In today’s dynamic digital commerce space, mastering payment routing could be the difference between transactions that increase revenue and those that fall short.
