Intelligent payment routing: How it works and top use cases

Oct 13 2022
Business Payments Insights

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For merchants, “going global” will usually mean working with multiple payment service providers (PSPs) to meet local needs, payment cultures, and systems.

Yet, managing those relationships and a torrent of different payment flows can be overwhelming and expensive for product managers, IT teams, and finance departments, taking away resources that could be better spent on user experience and business development.

Intelligent payment routing and payment orchestration help alleviate those burdens.
We wanted to write this post to help you understand this payment system innovation better. In it, we’ll cover:

That way, you can see exactly how intelligent payment routing can help your growing company conquer new markets, make reconciliation much easier, and deliver a better user experience that improves conversion rates.

How intelligent payment routing works and the difference between payment orchestration, dynamic and intelligent payment routing

The terms “payment orchestration”, “dynamic payment routing”, and “intelligent payments” often get used interchangeably, yet there are some important differences you should know.

Intelligent payment routing helps you work with multiple PSPs based on their strengths

In short, intelligent payment routing helps your system select the best payment service provider in your network based on your local customer’s needs. For example, an e-learning platform will use a different PSP in Germany, the US, and France.

When the customer goes to check out on the website’s front end, the intelligent payment router will automatically connect with the PSP in their country. That way, the payment gets processed faster, which improves UX and reduces abandonment.

Likewise, platforms can use this tool to redirect payments to PSPs based on the payment method of the end user. For example, the tool could route a credit card payment to the PSP with the lowest acceptance and processing fees for that card payment network.

Intelligent payment routing

Dynamic payments help manage transaction loads better

Similar to intelligent payments, dynamic payment routing helps platforms better utilise their PSPs based on transaction volumes.

For example, say, an e-commerce website selling in different countries runs a sale for a national holiday. To ensure that payments get processed as expected by customers, the platform can dynamically route excess payment volumes to other PSPs. Platforms can also scale this service daily, enabling it to pick up the slack in hours of the day where users transact more.

Additionally, dynamic payments can also help reduce risk since, if one PSP goes down, the system will use automation to reroute declined transactions to the other providers.

Payment orchestration enables merchants with multiple PSP providers to aggregate and manage these payment flows

Dynamic and intelligent payments are but one section of a business’ payment ensemble.

Getting them to work together harmoniously is the key purpose of payment orchestration. That could mean a more smart routing structure based on need or geography or an even more intelligent one based on more complex rules.

Whatever the purpose is, orchestration makes managing these relationships more efficient and hands-off. That way, product managers can focus on UX and other business-driven projects rather than having to act as both the relationship manager and the plumber with multiple PSPs.

More importantly, though, is that with payment orchestration, IT teams don’t need to put precious resources into managing the back end of different payment channels. Instead, they can run sprints to improve the front end and improve the overall UX for users across all geographies and with different payment needs.

When should merchants implement intelligent payment routing?

As attractive as intelligent payment routing sounds, it isn’t for everyone. These are our general guidelines for when it makes sense to incorporate this powerful tool.

When you have multiple PSPs and payment methods on your platform

If your business requires multiple payment service providers, payment gateways, or your customers have broad payment needs, intelligent routing would be a good fit for your business.

If you’re selling in just one market, use a single PSP, or are in a niche where your customers use only one payment medium, dynamic payment routing might not be for you.

When you’re a multinational company or scaling internationally and have complex payment requirements

Companies offering services in different jurisdictions know that payment cultures and infrastructure can vary from one country to the next. Intelligent payment routing is ideal if you need to maintain a unified user interface and experience while working with multiple PSPs.

Generally, these are established or scaling companies like airlines, hotel chains, large e-commerce firms and global gig economy platforms. These firms are looking to lower costs by making their PSP networks function more efficiently, which touches on three main business aspects.

Cost management

PSPs come with two main costs: transactions and the human resources needed to implement and maintain them. Intelligent payment routing helps with both as it sends transactions to the most cost-effective provider while consolidating the workload for IT departments.

User experience and reducing shopping cart checkout abandonment

Reducing shopping cart abandonment is one of the biggest challenges for any online seller. The payment experience is one of the key improvement points platforms can enhance to build trust and improve conversion. To do so, designers create a unified payment front-end that connects to the payment services in the back-end.

Yet, design is only half of the UX battle. Cardholders want their online payments to be processed within seconds, which, even with the best front-end design, is wholly dependent on the underlying payment infrastructure. Intelligent payment routing ensures that transactions go to the best PSP for each transaction, which speeds up the payment process, improves payment success rates and customer satisfaction, while reducing abandonment.

Personnel resource allocation

Maintaining payment infrastructure has a multiplier effect in that each new PSP requires even more tech staff to manage it. If firms aren’t careful, they can wind up with a large swath of talented IT employees dedicated solely to building and maintaining payments infrastructure.

Intelligent payment routing drastically reduces this workload as developers only need to work with a single provider and its API. That way, IT teams can focus on more productive activities such as improving UX and building out new products.

If you have a business vertical that conflicts with an existing PSP and need to route those transactions elsewhere

Due to business reasons, some PSPs aren’t accepting payments from certain sectors, like gambling. For firms that operate multiple business lines and enter into a higher-risk industry, intelligent payment routing can send failed transactions from these activities to a PSP that accepts them.

When your business model has regular activity peaks that require you to balance your payment loads

Online retailers face two problems regarding managing payment volumes:

  • Users tend to shop at specific hours (say, in the evening after dinner).

  • Successful sales campaigns lead to increased sales in a short time frame.

Both of these dynamic activities put significant pressure on payment infrastructure. If not managed properly, an overload can crash the network or even lead to increased abandonment, denying the company of valuable sales. Intelligent payment routing handles load balancing during peak traffic so that sellers can take and process payments as they normally do.

You have contracts with PSPs and must ensure you maintain a good relationship with them

It’s also important to maintain good relationships with your providers. PSPs are no exception and generally expect a regular minimum payment volume from their clients. Intelligent payment routing can ensure that you meet these obligations and stay on good terms with your partners.

The top use cases of intelligent payment routing

Intelligent payment routing can transform a wide range of industries and business models. Here are some of the top ones we’ve seen:

Travel companies that sell products across borders and want to keep a unified UX

Airlines, hotel groups, and tour operators operate and sell across multiple geographies. It makes sense to keep a common website to ensure that the branding and customer experience remain the same regardless of where customers book their travel arrangements. Yet, each jurisdiction will have different payment customs and service providers.

Intelligent payment routing enables them to seamlessly offer the same front-end payment experience to customers around the world.

Merchants selling across multiple geographies that need to provide abandonment-reducing UX under the same brand assets

Online international retailers are one of the best use cases for intelligent payment routing. Like travel companies, these platforms also need to collect payments in different countries but with the same payment experience across the board.

However, these firms also face significant abandonment risk due to the nature of their business. Intelligent payment routing enables them to increase conversion rates by ensuring payments go to the most efficient PSP for the transaction.

E-learning and gig economy companies that operate in multiple jurisdictions and need to send and receive payments

Like e-commerce businesses, e-learning and gig economy platforms have high transaction volumes and operate in multiple jurisdictions. In addition to taking payments from customers, though, they also need to pay gig workers and instructors. Intelligent payment routing can ensure that workers and educators get their payouts – whether to an external bank account or digital wallet – on time.

International investment platforms with unique local payment infrastructure

Crypto exchanges and online investment platforms operating in different countries need to ensure that not only can users fund their trading accounts quickly, but also stay compliant with local regulations.

Intelligent payment routing can send users pay-ins to PSPs able to accept their payments for investing while meeting KYC/AML obligations. These platforms can also incorporate more complex payment flows to help users move money out of a holding account on the platform to an external one for immediate use.

Why intelligent payment routing will play an important role in how successful international companies will route their payments

As growing companies continue to compete across borders, payment orchestration will play an increasingly important part in their success. Intelligent payment routing is the future of global payments, and firms that harness it properly will reap the benefits. Yet, trying to do it all in-house will put undue pressure on precious internal resources as your payment ecosystem becomes too complex to manage yourself.

For over a decade, we’ve helped many growing companies orchestrate their payments so that they can focus on what matters: growth and market-winning UX. We’re ready to help your company reach those goals too.

Contact us now to see how we can work together to improve your payment infrastructure stack.

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