Deep Dive: Smart Routing And Transaction Success Rates

Keeping transaction success rates high is a crucial part of digital business operations, especially during the pandemic.

Consumer spending has plummeted since the pandemic began, leaving merchants scrambling to improve their sales figures and ensure that the transactions they initiate are processed without issue. Consumers can quickly grow frustrated if their eCommerce payments are declined, and many would sooner abandon their carts than try to make another purchase. Some studies suggest that as much as 20 percent of card users would stop using their cards altogether if their transactions were declined twice or more within six months, for example.

Even consumers who do not stop using their cards after their payments are declined tend to spend less with them thereafter. Their average expenditures drop by 15 percent in the six months following two or more thwarted transactions.

Cart abandonment is a more immediate risk, though, as 42 percent of would-be eCommerce customers are likely to abandon their carts if their cards are declined. Merchants therefore need to maintain high transaction success rates to prevent customers from ditching or forgoing purchases, and payment gateway management solutions could give them the tools they need to do so.

Making The Most Of Payment Gateways

Payment gateways are digital platforms that merchants can use to process credit and debit card payments online. Merchants often rely on payment service providers (PSPs) to gain access to payment gateways, including PayPal, Stripe, Amazon Pay and Google Pay, among others. Payment gateways’ usage can change depending on the geographic location, however. PayPal is common in the U.S., for example, while Mercado Pago and WeChat Pay are far more common in Latin America and China, respectively. Retailers doing business overseas thus commonly use local PSPs to cater to their international customers’ payment preferences.

Partnering with multiple PSPs can do more than help international merchants accept consumers’ preferred methods. The action can provide customers and business partners with more payment options and give merchants more operational flexibility, allowing them to use whichever gateways suit their needs. It is perhaps unsurprising that 49 percent of businesses and 69 percent of eCommerce merchants prefer to partner with multiple PSPs. The real issue merchants face entails determining how they can best navigate the gateways they use to optimize their payments operations.

Payments orchestration requires merchants to manage relationships with numerous PSPs in ways that optimize the payment gateway experiences they provide and boost transaction success rates. This is no easy feat. Payment gateways can be widely available in one or more markets, but their effectiveness can change depending on location and consumer usage. WhatsApp offers a prime example. The two largest markets in which Facebook-owned WhatsApp operates are India and Brazil. When consumers use WhatsApp to transact in India, the gateway processes the payment by integrating with India’s UPI system, a real-time payments network that connects domestic banks and does not exist outside India. WhatsApp payments made in Brazil, on the other hand, are processed through Facebook Pay.

Payment gateways’ transaction speeds and success rates can therefore fluctuate dramatically depending on which payment methods are used as well as consumers’ locations. This means a merchant using a single PSP could see a transaction success rate of 90 percent for domestic card transactions made in U.S. dollars, 85 percent for those made in euros and 80 percent for cross-border card transactions. Merchants may therefore find it difficult to decide which payment gateways are best suited to their needs with so many factors in play.

Getting Smart About Routing

Smart routing offers a potential solution to the payment gateway conundrum. It relies on advanced data analytics and algorithmic tools — including artificial intelligence (AI) and machine learning (ML) systems — to help merchants that use multiple PSPs and assess which payment gateway will yield optimal returns per transaction. These techniques can collect and analyze myriad data points to determine which payment gateways have the highest transaction rates by payment method, location or other factors. These analyses, in turn, can help merchants efficiently process payments and boost their bottom lines.

Firms around the globe are turning to dynamic routing techniques to improve their transaction success rates both at home and abroad. Uber Money announced in February that it would implement smart routing technologies when it expanded into India to ensure that users had access to the most effective payment gateways for their circumstances, for example.

Smart routing is also emerging as a valuable asset as merchants confront the pandemic-driven economic downturn. Payment technology provider PayU India recently upgraded its payment gateway solution from a rules-based approach to an advanced ML decision-making system, for example, enabling it to leverage historical as well as real-time data to make the most-informed decisions about which payment gateways to use. It also reported that upgrading to a more sophisticated routing system has boosted its conversion rates by 12 percent, which could help its merchants better weather the current economic slump.

Smart routing can help merchants improve their transaction success rates, but choosing the right payment gateway is only one variable in the complex and interconnected payments process. It is therefore critical that businesses focus on implementing well-rounded payments orchestration strategies that offer holistic approaches to payments optimization.