Payments Orchestration Tracker® Series Report

Optimizing eCommerce Payments Demands Dynamic Routing

September 2023

Our last edition sought to demystify payments orchestration, emphasizing the difference between the commonly conflated terms of “payments orchestration” and “payments optimization.” This month, we offer a merchant’s manual on one aspect of payments optimization: dynamic routing.

PYMNTS

The inability to reroute a transaction can lead to a loss of revenue and business that, depending on the merchant and the gateway, can be substantial.
Transaction retry is a basic must-have for any merchant wishing to capture all potential sales, as it offers an automated way to turn stalled transactions quickly and easily into revenue.
From basic failover to customization based on cardholders’ preferred payment methods, dynamic routing ensures that merchants are always online and maximizing authorization rates while minimizing costs in any market.


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    As discussed in the recent PYMNTS Intelligence “Primer on Payments Orchestration,” the key difference between payments orchestration and payments optimization is that orchestration extends the reach of a payments stack by integrating all the components needed to manage and capture every legitimate transaction for a given merchant via a single application programming interface (API). Optimization, on the other hand, can then be applied to boost the likelihood of success for any given transaction, wherever, whenever and with whatever customer it transpires.

    Payments orchestration serves as the foundation for optimization. It provides seamless access to all the tools and services needed to optimize payments. Chief among these tools is dynamic routing.

    Routing 101

    The inability to reroute a transaction can lead to a loss of revenue and business that, depending on the merchant and the gateway, can be substantial.

    76%

    of consumers say a satisfying checkout experience
    influences their decision of whether to buy
    again from a merchant.

     

    Routing diverse payments to the correct
    Mix of payment gateways is essential to
    Ensuring a smooth checkout experience,
    Regardless of payment method.

    What is payment routing?

    Payment routing refers to a transaction’s pathway immediately following a customer’s purchase. Upon a business’s acceptance of a payment method — such as a credit card — for a transaction, that payment must be passed in turn to each participant in the entire payments ecosystem, including the payment service provider (PSP), the acquiring bank, the card network and the issuing bank, moving from the phases of authentication and authorization to clearing and settlement.

    The payment routing process varies across industries, business models and organizations, often metamorphosing over the course of a company’s life cycle. Routing runs the gamut from fairly simple to extremely complicated, with its complexity determined by such factors as company size and growth, as well as the business’s emphasis on payments as a means of tailoring customer experiences.

    However simple or complex it is, routing diverse payments to the correct mix of payment gateways is essential to ensuring a smooth checkout experience. With more than three-quarters of consumers basing repeat purchases on a satisfying checkout, proper payment routing is critical to business success.

    Payment routing is simple — until something goes wrong.

    In the simplest scenario, customers purchase items and enter their payment details on a merchant’s point-of-sale (POS) system or website. This payment gateway passes that information to the card network and issuing bank — in the case of a credit card transaction — for approval, generating a receipt upon completion of the transaction.

    However, in the case of an outage, a payment can be stopped in its tracks without warning. What happens if the payment gateway experiences an outage, possibly with extended downtime? The inability to reroute a transaction at this juncture can lead to a loss of revenue and business that, depending on the merchant and the gateway, can be substantial. Digital and online payment systems afford flexibility to reroute payments — in particular, via the option of “transaction retry.”

    Transaction Retry: From Outages to Soft Declines

    Transaction retry is a basic must-have for any merchant wishing to capture all potential sales, as it offers an automated way to turn stalled transactions quickly and easily into revenue.

    Andy McHale

    There are no impacts to the users [of dynamic routing], and the transactions can keep flowing — and it’s a seamless transition.”

    Andy McHale
    Senior director of product and market strategy

    ‘Transaction retry’ saves lost revenue due to payment gateway outages.

    A payments orchestration platform has the building blocks in place to reroute payments stalled by outages. Through its multiple payment gateway partners, the orchestrator has at its disposal alternative routes to which a merchant can swiftly shift payment traffic in the event of an outage or a downed gateway. This takes the form of automatically retrying the transaction using a different gateway — a simple detour that quickly and seamlessly can prevent lost revenue and customers.

    Merchants can reverse ‘soft’ declines.

    Other instances that can benefit from transaction retry are the so-called soft declines with which merchants are all too familiar, such as “Do not honor” codes. A soft decline results from a sporadic error affecting a particular transaction — for example, a processor issue or a flag indicating an unusual purchase — rather than a lack of approval of the customer’s payment or a gateway that is malfunctioning altogether. Ultimately, merchants can salvage many of these transactions.

    With transaction retry, if a preferred gateway declines the transaction, it can be retried via a secondary gateway, often allowing an apparently failed transaction to succeed. Such alternatives offer simple avenues for turning soft declines quickly and easily into revenue.

    Transaction retry is a must-have for any merchant wishing to capture all revenue in the event of outages and soft declines. Dynamic routing, however, encompasses far more than this basic need.

    Leveling Up: Dynamic Routing for Payments Customization

    From basic failover to customization based on cardholders’ preferred payment methods, dynamic routing ensures that merchants are always online and maximizing authorization rates while minimizing costs in any market.

    Andy McHale

    Dynamic routing helps serve the ultimate ambitions of any merchants operating online. [They want to] get as many transactions through with the lowest amount of fraud possible.”

    Andy McHale
    Senior director of product and market strategy

    Routing sophistication often evolves over time.

    Routing may not be on a company’s radar early in its life cycle, instead developing as a business grows. For example, a small brick-and-mortar shop might at first be accustomed to working with a single PSP to accept card-present (CP) transactions from its local in-person clientele. With the widespread digital shift, the business may then expand to selling online, but it may continue to use the same PSP for its card-not-present (CNP) transactions.

    However, as demand drives a business further into eCommerce with new markets and customers desiring to use any number of local and alternative payment methods, that single PSP likely will no longer serve its needs. In addition to having backup options in case of transaction failures, the business will want to establish ties with new PSPs to accept local payment methods around the world and to meet diverse markets’ regulatory requirements.

    Dynamic routing optimizes global business expansion.

    We have described how payments orchestration allows merchants to expand easily into new geographies by offering a wide range of locally preferred payment options — often consisting of unique or alternative payment methods — for any given market. This enables the swift addition of new PSPs to merchants’ payments stacks to send transactions to a region’s primary or preferred gateway.

    The addition of PSPs, however, can lead to a need for more complex routing logic. Payments orchestration can help here as well — through an intelligent, dynamic routing solution. The value proposition of such a solution is that it provides the ideal payment route in a seamless experience for any customer in the world — all through a merchant’s single checkout.

    Dynamic routing helps make payments a revenue generator — rather than a back-office cost.

    As businesses grow and add new payment gateways, the challenge of routing each transaction to its preferred gateway grows as well. A payments orchestrator can allow merchants to customize routing based on a wide range of variables even beyond the preferred payment method and geographic region. For example, if a transaction is above a certain value, it could be routed through a fraud prevention tool. Such plug-and-play dynamic routing solutions can permit the business to grow unimpeded, increasing transaction success, lowering costs and offering a smoother customer experience. That improved experience generally translates to increased revenue — and customer loyalty.

    According to a recent PYMNTS Intelligence article, dynamic routing can be instrumental in cementing customers’ loyalty to merchants. Andy McHale, senior director of product and market strategy at Spreedly, told PYMNTS Intelligence that in addition to detecting gateway outages, dynamic routing can be customized to route transactions to different gateways on parameters such as the lowest cost or the highest authorization rates. Leveraging this strategy can help merchants achieve the ultimate goal of maximizing transaction success and revenue anywhere, anytime.

    McHale also noted that dynamic routing allows merchants to collect rich data on customers’ payment preferences and other conditions to inform their choices of payment offerings wherever they look to sell.

    An Intelligent Routing Strategy Is Essential for eCommerce Payments

    Routing rules are the foundation of an intelligent routing strategy. Partnering with a payments orchestration provider can allow merchants to set rules simply and intuitively without a resource-intensive effort to build and maintain them.

    A merchant looking to implement a payment routing solution should approach it stepwise as follows:

    Step 1: Adopt a routing rules solution. This involves choosing a program or partner for setting up rules about the use of different payment gateways depending on factors such as card brand, issuing country or the event of an outage or decline.

    Step 2: Establish ideal payment routes. This step involves the selection of preferred payment routes and incorporating them into the rules solution. Generally, merchants will have any number of relationships with payment gateways, each serving a unique business need, market and customer segment.

    Step 3: Integrate payments retry capabilities. The last step involves establishing retry capabilities and secondary gateways for when transactions fail or are declined.

    Even if a merchant is a novice when it comes to deciding which gateways to use, an orchestrator can make these recommendations and easily incorporate them into the routing payments stack. A good payments orchestrator can help merchants select the best gateways and build them into retry rules to optimize payments in each market they serve and back them up with alternatives if primary gateways fail. Once these rules are set, the process happens automatically, freeing merchants’ hands to do the work they do best.

    About

    Spreedly’s Payments Orchestration platform enables and optimizes digital transactions with the world’s most complete payment services marketplace. Global enterprises and hyper-growth companies grow their digital business faster by relying on our payments platform. Hundreds of customers worldwide secure card data in our PCI-compliant vault and use tokenized card data to enable and optimize over $45 billion of annual transaction volumes with any payment service.
    www.spreedly.com

    Ingo

    PYMNTS Intelligence is a leading global data and analytics platform that uses proprietary data and methods to provide actionable insights on what’s now and what’s next in payments, commerce and the digital economy. Its team of data scientists include leading economists, econometricians, survey experts, financial analysts and marketing scientists with deep experience in the application of data to the issues that define the future of the digital transformation of the global economy. This multi-lingual team has conducted original data collection and analysis in more than three dozen global markets for some of the world’s leading publicly traded and privately held firms.

    The PYMNTS Intelligence team that produced this Tracker:
    Managing Director: Aitor Ortiz
    Senior Writer: Alexandra Redmond


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