How Smart Routing Enhances Intelligent Payment Systems
Have you ever wondered how payment systems keep up with the ever-growing complexity of financial transactions? Intelligent routing, also known as Smart Routing, is revolutionizing the way payments are processed, offering a game-changing solution for businesses and consumers alike.
This innovative technology leverages advanced network topology and software-defined networking (SDN) to optimize payment flows, ensuring faster, more reliable transactions.
⚡ Key Takeaways
What Is Intelligent Routing Payments
Intelligent routing is a cutting-edge technology that’s revolutionizing the way fintech businesses manage their networking infrastructure. It’s the secret sauce that enables companies to optimize the flow of financial transactions at scale while keeping costs as low as possible [1].
How Intelligent Routing Works
At its core, smart routing is a dynamic process that intelligently directs payment transactions through the most efficient and cost-effective channels [2]. A payment platform can decide which path is best to route a payment down to maximize the number of successful transactions for the lowest possible cost [3].
Smart routing leverages advanced algorithms and real-time data analysis to determine the optimal route for each transaction [2]. Here’s how it works:
- Data analysis: The system considers factors such as network latency, transaction fees, and the historical performance of different routes.
- Dynamic decision-making: Smart routing algorithms make split-second decisions to direct transactions through the most optimal channels.
- Border Gateway Protocols (BGP): These protocols manage how data packets are sent across the internet to exchange information between autonomous systems.
- Payment orchestration solutions: These platforms provide businesses with the tools and infrastructure needed to implement smart routing effectively [1].
Unlike traditional static routing, which relies on predetermined pathways, smart routing adapts on the fly for improved efficiency and enhanced customer satisfaction [2]. Here’s what sets it apart:
- Flexibility: Smart routing can route payments through different payment service providers or networks, depending on the merchant’s objectives.
- Real-time optimization: It assesses the performance of different routes in real time, considering factors like region, currency, transaction amount, and card type.
- Customizable rules: Merchants can define criteria for automated intelligent payment routing based on their specific needs 3.
- Failover mechanism: Some smart routing solutions implement a fallback system that automatically activates if the initial payment attempt is unsuccessful[4].
By leveraging these advanced features, smart routing helps businesses increase authorization rates, reduce transaction costs, and ultimately provide a smoother customer experience [5].
Benefits of Intelligent Routing for Payment Processors
Smart routing offers numerous advantages for payment processors, revolutionizing the way they handle transactions. Let’s explore some of the key benefits that make this technology a game-changer in the payments industry.
1. Cost optimization
Intelligent routing helps payment processors optimize their transaction costs, which directly impacts their bottom line. By dynamically selecting the most cost-effective payment gateways and processors for each transaction, businesses can minimize processing fees and transaction costs [6]. This optimization contributes to improved profit margins and overall financial performance.
Additionally, Intelligent routing facilitates intelligent gateway selection based on factors such as fees, currency conversion, and overall performance. This approach helps businesses save on transaction costs by choosing the most suitable gateway for each specific transaction.
Furthermore, some smart routing systems offer dynamic currency conversion, allowing customers to pay in their local currency while businesses receive payments in their preferred currency. This feature minimizes foreign exchange fees, further contributing to cost savings [7].
2. Improved transaction success rates
One of the most significant benefits of smart routing is its ability to boost transaction success rates. By leveraging data analytics and machine learning, intelligent routing algorithms identify the most reliable and efficient payment routes [6]. This leads to higher transaction success rates, reducing instances of declined payments and cart abandonment.
Smart routing helps businesses achieve higher approval rates by selecting the most suitable gateway for each transaction based on historical data and real-time performance metrics.
By effectively routing payments across different players in the payments ecosystem, merchants can increase their overall payment performance [8]. This improvement in transaction success rates directly translates to increased revenue for businesses [7].
3. Enhanced fraud prevention
Intelligent routing systems incorporate advanced fraud detection mechanisms to identify and mitigate fraudulent transactions in real time [6]. By dynamically routing transactions through secure and trusted payment channels, businesses can minimize the risk of payment fraud and chargebacks, safeguarding their financial assets and reputation.
The intelligent routing algorithms analyze various data points to determine which payment gateways have the highest transaction rates by payment method, location, or other factors. This comprehensive approach to data analysis helps in identifying potentially fraudulent activities and routing transactions through the most secure channels.
Intelligent Routing’s Impact on Customer Experience
Intelligent routing has a significant influence on the customer experience in payment processing. It enhances various aspects of transactions, leading to improved satisfaction and loyalty.
1. Faster transaction processing
Smart routing helps to minimize latency by choosing the fastest processing routes. This is particularly crucial for industries where rapid transaction processing is imperative. By automatically selecting the best route for each transaction, smart routing minimizes delays and reduces the risk of payment failures. This speed is essential in today’s fast-paced digital economy, where customers expect quick and seamless transactions.
In the travel industry, for example, smart routing simplifies payment processing, leading to faster booking confirmations and improved customer satisfaction.
Similarly, in the iGaming industry, where online gaming platforms process a high volume of transactions, smart routing ensures seamless payment experiences for players worldwide, supporting multiple currencies and payment methods while minimizing processing times[9].
2. Reduced declined transactions
One of the most significant benefits of smart routing is its ability to reduce declined transactions. Smart routing improves payment authorization rates by routing each payment to the payment processor with the highest chance of success. This is crucial because 62% of customers, after experiencing a failed online transaction, never return to the website for another try.
To address this issue, merchants who use smart routing solutions can implement a fallback mechanism. This safeguard automatically activates if the initial payment attempt is unsuccessful. By reducing the chances of unnecessary declined transactions, smart routing improves convenience for shoppers and leads to higher customer satisfaction.
3. Seamless cross-border payments
Smart routing enables businesses to accept payments from customers around the world, supporting multiple currencies and payment methods with ease. This is particularly important in e-commerce, where transactions often occur across borders. In fact, it’s expected that 33% of eCommerce spend will be cross-border by 2028 globally.
Smart routing can help businesses minimize conversion costs and optimize payment acceptance rates together with global expansion. For international transactions, smart routing considers various factors, including currency, regulations, and risk mitigation. These distinctions in routing are essential for ensuring the smooth, cost-effective, and secure flow of funds across borders[10].
By facilitating seamless cross-border payments, smart routing helps businesses provide a more inclusive and user-friendly experience for their global customer base.
References
[1] – arXiv.org – An AI-powered smart routing solution for payment systems. https://arxiv.org/abs/2111.00783[2] – IEEE Xplore – An AI-powered smart routing solution for payment systems. https://ieeexplore.ieee.org/document/9671961
[3] – doi – Improving Transaction Success Rate via Smart Gateway Selection in Cryptocurrency Payment Channel Networks. https://doi.org/10.1109/icbc48266.2020.9169458
[4] – doi – Stochastic Multi-path Routing Problem with Non-stationary Rewards. https://doi.org/10.1145/3184558.3191630
[5] – doi – Stochastic Multi-path Routing Problem with Non-stationary Rewards. https://doi.org/10.1145/3184558.3191630
[6] – Computer.org – IEEE Computer Society. https://www.computer.org/csdl/proceedings-article/big-data/2021/09671961/1A8j1blWvf2
[7] – Visa – How AI unlocks intelligent payments at Scale https://navigate.visa.com/cemea/how-ai-unlocks-intelligent-payments-at-scale/
[8] – doi – Maximizing Success Rate of Payment Routing using Non-stationary Bandits. https://doi.org/10.1145/3639856.3639883
[9] – doi – An intelligent opportunistic routing algorithm for wireless sensor networks and its application towards e-Healthcare. https://doi.org/10.3390/s20143887
[10] – economist – The innovation quotient. https://impact.economist.com/new-globalisation/innovation-quotient/articles/financial-inclusion
Matthew Starkey
Matthew Starkey is a Financial Markets professional with over 25 years experience across Institutional markets, Margin Forex, CFDs and Crypto. Located in Sydney, Matt is a well experienced and valued partner in Paymid Limited.