In the infancy of electronic funds management, merchants could put all of their eggs in one basket by using a single online payment processor to facilitate the transfer of shoppers’ money into their business account. 

However, the payments and security landscapes have become exponentially more complex over the years, making it necessary for solutions to get both more multi-pronged and smarter. 

Bringing these augmented methods into your business is essential because doing so will help you to affordably manage risk and simultaneously improve performance.

Payment routing defined

As the name implies, payment routing is a process that merchants use to determine the smoothest and safest journey that a transaction should take once the customer presses the “buy now” button. 

Variables affecting the process include the value of the transaction, the type of items bought and where the payment occurred. 

Due to the advancements that have recently taken place with innovative payment orchestration strategies, sellers no longer need to work with payment processors in order to build unique integrations for each.

Once payment orchestration has been implemented, a number of payment integrations can be combined on the back end through a single payment gateway API. 

As a result, it is possible to obtain a comprehensive snapshot of all of your payment sources, enabling you to efficiently find a specific payment regardless of which entity is escorting it along its journey.

How payment routing works

On the surface, payment routing appears simple. The customer’s purchase is entered into the payment gateway, at which time the merchant chooses which processor will receive the authorization request. 

However, today’s multi-faceted payments arena requires massive behind-the-scenes data flows, highly technical logic and complex decision-making to determine the best path for the funds transfer. To complicate matters further, modern security challenges require extra layers of authentication and fraud protection.

The journey has several steps. Before anything else happens, the merchant must integrate their website with a dynamic routing platform using APIs. This allows them to obtain a single connection point that links them to multiple payment routes.

Once the customer’s transaction details are sent to the routing platform, they are run through a rules-based algorithm to analyze various data points. Based on this information, the best payment processor is selected, with security protocols like tokenization employed to send the information. 

The payment processing provider then uses its gateway structure to process the payment. Finally, the processor transmits the result back to the merchant via the routing platform.

The evolution of payment routing techniques

In order to assist merchants in navigating today’s multi-tiered payments landscape, innovators have come up with intelligent payment routing techniques that reduce the burden on sellers while enhancing efficiency. 

As a result, merchants no longer need to have advanced coding knowledge in order to maintain control over the receipt of funds from their customers.

Most recently, intelligent payment routing, also known as dynamic or smart routing, is becoming further enhanced via the power of AI and machine learning. These technologies analyze millions of data points to determine the optimal route for each unique transaction. 

This happens almost instantaneously and, best of all, does not require any human intervention. But just how can smart payment routing revolutionize the way you do business?

1. Help you to save money

In today’s difficult economic times, business owners must watch every penny and take steps to tighten their budgets wherever possible. 

While processing costs are in some respects an unavoidable part of doing business, implementing intelligent payment routing can help to lower them. This is the case because it can be used to find the most cost-effective channels and direct transactions accordingly.

2. Assist in reducing payment declinations

As is the case with processing fees, payment declinations are inevitable. However, their numbers can be reduced with smart payment routing. 

This is true because these technologies are capable of analyzing factors such as geographical location, risk profile and payment types. When these are figured into the equation, transactions can be sent to the destinations that are most likely to confirm them and securely complete the process.

3. Enhanced customer experience

When customers receive a frictionless payment experience with minimal delays and declines, satisfaction and retention rates rise. 

Smart payment routing keeps security issues and declinations to a minimum, enabling buyers to experience a seamless buying journey and helping to create and enrich their relationship with your brand.

4. Flexibility

A smart payment routing platform allows sellers to connect with a number of financial institutions, banks and payment service processing routes in real time. 

As a result, paths can be modified instantly according to real-time conditions and opportunities such as promotions.

5. Reliability

Any system can fail or experience temporary delays, and payment processors are no exception. With old-school single-acquirer routing, this would lead to downtime for sellers and result in financial losses, customer dissatisfaction and potential damage to the brand. 

Today’s smart routing solutions adjust to these issues, redirecting the payment to a provider who is not experiencing any problems so that service is uninterrupted.

Processing online payments is an involved set of procedures that, until recently, required merchants to possess a great deal of expertise in coding and API management. 

Fortunately for everyone concerned, the market has adapted to the growing complexities of the e-commerce ecosystem by enhancing and refining the way payments are routed. No longer do you need a PhD in computer science in order to ensure that customer payments are processed effectively.

With the help of AI and machine learning, the future looks bright for intelligent payment routing. If you have not already implemented it in your company, talk to your merchant services provider today so that they can configure your systems for intelligent, efficient payment processing. 

Before you know it, you will be benefiting from the affordability, efficiency, enhanced customer satisfaction and security that comes built into these technologies.