What is Payment Routing?

"Payment routing is apart of the Payment process for merchants working with multiple PSPs.

The idea is that, based on a set of rules decided by the merchant, transactions will take the most efficient path to the right PSP.

There are 2 types of routing, static & dynamic.

1️⃣ Static Routing: Static routing is when a merchant delivers transactions to a PSP through a route they manually configured. The path of the transaction is set in stone & can't ""intelligently"" make the right decision.

2️⃣ Dynamic Routing: Dynamic payment routing is able to adjust the path of the transaction in real-time, based on current conditions. It's sometimes called ""smart"" or ""intelligent"" routing since it can make decisions based on logical rules, rather than a set path.

What are the benefits of dynamic routing?

► Resilience - Transactions can be rerouted if a path or node in the network goes down.

► Scalability - As payments become more complex, dynamic routing allows merchants to remove the burden of taking on more transactions than normal. Companies that are growing internationally (like Dollar Shave Club) benefit.

► Cost Effectiveness - Dynamic routing ensures that the lowest costly route is picked, meaning transaction fees are always lower on average.

► Load Balancing - To prevent congestion, or simply to fulfill volume metrics, dynamic routing can more evenly distribute transaction traffic across its existing network. Some high-risk merchant providers (like PaymentCloud) benefit here.

► User Experience - Faster transaction times, lower fees on average, & reduced likelihood of failed transactions mean that consumers don't experience friction, while merchants optimize revenue.

Should merchants build a dynamic payment routing system in-house, or use a provider? This question comes up a lot.

Long-term, an in-house dynamic routing system makes it hard to remain efficient & scalable.

Each new alternative payment method can take 2-4 weeks to integrate, each payment method or rail can have different fees, & issue handling takes longer.

By using a provider, like ACI Worldwide for example, adding new payment methods to routing is like turning on a light switch, there's only one fee for all payment methods & provider rails, and issue handling can be taken care of in minutes."

Author

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