Intelligent Payment Routing: The GPS of electronic payments
Internet shopping and e-commerce have given rise to a payment system that facilitates electronic payment acceptance for online transactions. There are various payment methods like Credit/Debit cards, Prepaid cards, Bank transfers, E-Wallets, and more that customers can choose from.
The proof of the payment pudding is in the ease of successfully doing it. But that’s easier said than done as it requires many backend operations in sending payments up the right alley. Intelligent payment routing acts as the GPS of electronic payments.
The Essential elements of Payments
The Payment Infrastructure
Usually, the infrastructure includes a Card Acquirer, Payments Processor, and Payment Service Provider. Most often, merchants begin with this kind of infrastructure to start accepting payments – a single payment service provider and a card acquirer. The complex infrastructure needs multiple elements to make it work.
Let’s get an idea about what each one does and its place in the scheme of things.
The Card Acquirer
The card acquirer such as Visa or Masterсard enables merchants to accept payments through credit, debit, or prepaid cards. The payment card acquirer is a card organization member and acts as an interface between the merchant and the international payment systems.
The Payment Processor
The payment processor facilitates and executes a transaction. It has backend technical access to payment systems and carries out the technical processing of online payments. Since the authorization rates vary considerably, international Payment Processors partner with local providers to increase the acceptance rate.
The Payment Service Provider
PSP or Payment service provider allows merchants to accept various types of payments based on an agreement with the acquirer. A PSP may also provide access to alternative payment methods to process other types of transactions.
The difference between a card acquirer, a PSP, and a payment processor is that they perform different tasks. Concerning a merchant, the card acquirer maintains the merchant’s account while the payment processor carries out the payment process with no merchant’s direct involvement. On the other hand, a PSP handles the entire payment process that includes the functions of a card acquirer and the payment processor. This way, merchants can accept both card and alternative payment methods from customers.
In the presence of a plethora of, Acquirers, Processors, and PSPs, constituting a complex infrastructure, success can be defined as navigating through many options to bring about a positive transaction. In intelligent payment routing, variables of a transaction can be adjusted. The choice of PSP and what aspects work best in a specific PSP. For a specific transaction, one can set which PSP should be used in conjunction with what parameters.
A significant benefit is the ability to substitute a PSP with another with a better transaction completion rate. Another advantage is the opportunity to do cascading. It also allows merchants to split transactions based on currency or other parameters. Overall, a dynamic and flexible routing technology means maximum acceptance rates and successful payments and payouts.
Limits of Routing
Even with the use of high technology and robust systems, payments fail due to various reasons. These can be categorized as:
- Technical reasons
- Financial reasons
- Risk assessment reasons
Financial reasons for transaction failure are easy to understand, such as ‘Card limit reached’ or ‘not enough balance.’ But the technical and risk assessment are much more complicated to understand. Fraudulent transactions, as we know, thrive on gaps in processes or loopholes in technology.
Even with possibilities of failure, the benefits to customers worldwide far outweigh the lapses. With intelligent payment routing, merchants can improve their chances of authorization globally by adopting AI and algorithms for smart retries and cascading. They can reduce payment fees by opting for a PSP to handle specific transactions. This will lead to a better user experience as payment failures are decreased and manual retries are minimized.