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A guide to payment routing: Everything you need to know

Primer Product Team

Using a single payment processor isn't sufficient in today's intricate payments landscape. Businesses must use multiple payment processors to improve payment performance, reduce costs, and manage risk effectively.

However, contracting with multiple acquirers is merely one part of the equation. Merchants must develop effective payment routing strategies to achieve their goals.

Payment routing empowers merchants to determine the path a payment follows. Typically, this decision is based on the route that offers the greatest likelihood of successfully authorizing the payment. Nevertheless, businesses can also implement payment routing strategies considering factors like cost.

Let’s explore payment routing in more detail, looking at

  • What is payment routing?
  • How do merchants route transactions?
  • The growth of payment routing
  • The types of payment routing
  • The advantages of smart payment routing
  • How Primer enables businesses to utilize intelligent payment routing

What is payment routing?

Payment routing is the process of determining the most efficient and secure path for the payment once a customer presses pay. The best and safest path depends on factors like where the transaction happens, the transaction's value, and the items bought.

Until recently, payment routing was a manual and resource-intensive process for payment leaders. They required their development team to build integrations with the different payment processors before developing routing logic on top to determine the payment route.

However, innovation in the payment space, led by Primer, amongst others, has revolutionized the landscape.

It’s now easier than ever for merchants to implement advanced payment routing strategies using payment orchestration. This allows merchants to consolidate various payment integrations on the back end through one API.

It also standardizes how payments are processed across a merchant’s payment stack. Essentially, it creates a single way of viewing a payment no matter who processes it, removing a ton of complexity.

Additionally, these platforms help merchants easily create payment-routing workflows with drag-and-drop functionality and the ability to add conditions in a few clicks. This allows for rapid iteration and easy workflow maintenance.

How does payment routing work?

In principle, the concept behind payment routing is straightforward: merchants select which processor to send an authorization request to when a customer initiates the payment process. However, beneath this simplicity lies a realm of intricate logic, strategic decision-making, and complex data flows.

As previously mentioned, in the past, merchants were burdened with the task of managing this complexity themselves. Fortunately, the landscape has evolved significantly, with solutions like Primer removing the need for merchants to go it alone. This transformation also empowers merchants to implement more complex payment routing strategies. These can bring additional layers, such as authentication and fraud checks, into the payment flow.

The platforms that enable payment routing are getting more advanced as well. For instance, some of these platforms are beginning to harness the power of AI and machine learning. They now route payments based on real-time data rather than static rules. This approach directs each transaction to the processor with the highest success rate. It does this by drawing insights from an extensive dataset compiled from merchant transactions worldwide.

Types of payment routing

Reviewing the types of payment routing is like taking a history lesson in payment innovation more broadly. Let’s look at how payment routing has developed over the years.

First generation: Single acquirer

In this initial phase, merchants relied on a single acquirer for payment processing. Despite having a solitary route to follow, payment routing was still at play.

Second generation: Static payment routing

As merchants began to onboard multiple acquirers, they faced the challenge of hardcoding routing logic into their backend systems. This manual configuration process typically demanded developer expertise, making it difficult for merchants to make quick changes without returning to the development roadmap. Consequently, if a provider experiences downtime or encounters low payment authorization rates for a particular card type, swiftly switching to an alternative provider wasn't possible.

Third generation: Smart routing

Innovative platforms like Primer emerged to help merchants reap the benefits of payment routing without grappling with its complexity. These platforms equipped merchants with the capability to implement payment routing strategies on a global scale without code to optimize payment.

It’s been a game-changing development offering merchants and payment leaders comprehensive control over their global payments. Doing so has enabled them to channel their efforts using payments as a strategic driver within the business.

Terms such as "intelligent routing" and "dynamic routing" are often used interchangeably with "smart routing" to describe this latest generation of payment routing.

Fourth generation: Smart routing enriched by AI

In the most recent evolution of payment routing, the power of AI and machine learning takes center stage, offering merchants an automatic boost in authorization rates.

These solutions harness the network effect, analyzing billions of data points generated from millions of transactions to pinpoint the optimal route for every transaction. And all this can happen with no merchant involvement.

Take UpliftAI from Primer. Our AI-enabled smart routing solution provides merchants with as much as a 5% authorization rate uplift at the flip of a switch.

What are the advantages of smart payment routing?

Lower processing costs

Businesses can reduce processing fees by intelligently directing transactions through the most cost-effective payment channels.

Enhanced approval rate

With the ability to analyze various factors such as payment methods, geographic locations, and risk profiles, smart routing increases the likelihood of successful transaction approvals.

Improved customer experience

Customers benefit from smooth and reliable payment experiences. Smart routing minimizes payment failures and reduces the number of declines, enhancing overall satisfaction.

Lost revenue recovery

By rerouting transactions in real-time, businesses can recover revenue that would otherwise be lost because of failed transaction failures or declines.

Discover more benefits of smart routing.

Does Primer offer smart routing?

As a Unified Payment Infrastructure, smart routing and payments orchestration are core use cases. We have merchants like Beam, Kilo Helth, and Veeps using Primer to consolidate all their payment services and smart routing payments using our drag-and-drop workflows and conditioning rules.

Learn more.

The bottom line

By embracing smart payment routing strategies, businesses can ensure seamless and secure online payments, unlock substantial cost savings, improve customer satisfaction, and enhance efficiencies.

Get our guide to help you find the perfect payment orchestration partner and unlock smart routing for your business.

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Head of Payments