Dynamic Payment Routing - Retry Logic Routes

Dynamic payment routing is an essential part of any comprehensive payment optimization strategy: getting the highest close rate at the lowest processing cost demands working with multiple payment service providers (PSPs). Deciding on your logic tree, however, may represent the difference between success and failure - and, indeed, landing on a range of strategies that may be able to work hand in hand with one another may be the path to the highest ROI possible.

Why Commit to Dynamic Payment Routing

Dynamic payment routing empowers a merchant to pursue higher transaction close rates, and lower processing fees, by opting to direct deals to a range of different PSP partners. By contrast, early in their development, many merchants will have an exclusive arrangement with a single, full-service PSP, such as Stripe: such an arrangement involves less complexity, but also represents a single point of failure, and gives the merchant limited leverage to negotiate terms and conditions.

Given the potential savings on processing fees - simply being able to direct debit cards to a lower-cost partner can have a meaningful impact on overall costs - as well as the ability to protect against PSP downtime, merchants who need to maintain 24/7 availability and maximize margins inevitably find themselves needing to expand their PSP relationships. However, having once decided to work with multiple partners, merchants will decide on how they will choose to manage their routing.

The Key Logic Routes for Dynamic Payment Routing

As each transaction comes in, the merchant’s routing decisioning engine must opt for one of its set of partners. The core seven logical decision trees are:

• Availability: the first logical step is to have a backup PSP to the primary. As merchants become accustomed to working with multiple payment partners, they often open an account with a second PSP and have it operate as a failsafe: when the primary PSP is unavailable, transactions are redirected to the secondary.
• Location: Cross-border fees (generally charged when the customer and PSP are located in different countries) can be expensive, so ensuring that a transaction can be executed locally can deliver great savings. Geolocation can be determined either by the user's IP address or, more simply, from the home or shipping address provided.
• Currency: Much like cross-border fees, currency conversion can be expensive - although it can also be a source of excellent revenue for the savvy merchant, as many full-service PSPs have discovered in building their rate cards. Either way, ensuring that customers who want to pay in a given currency are doing so by way of a PSP that can transact in that currency helps to keep processing fees down.
• Payment method: It should come as no surprise that different payment methods incur different fees: a direct debit or bank transfer, for instance, is way less costly than a credit card, as, indeed, a Visa payment incurs substantially lower card network fees than one through American Express. Merchants looking to reduce their processing fee burden should offer - and promote - the lowest cost payment methods, then direct the transactions to whichever of their PSPs can handle that method.
• Transaction amount: When a merchant opts to construct a network of PSP partners, they have the leverage to negotiate rates, often agreeing to concessions by committing to certain business volumes. In such situations, it may be advantageous to send larger deals to partners who are expecting high volume and reserve smaller ones for partners who aren’t offering volume discounts.
• Close rate: Some PSPs will deliver a higher deal close rate than others based on other factors (for instance, the type of product or service being purchased). Based on a historical scan of similar transactions, the decisioning engine can redirect each deal to the PSP most likely to successfully complete the process.
• Risk profile: Higher-risk merchants, or at least transactions containing higher-risk items, can fail at mainstream PSPs but go through perfectly normally through PSPs that specialize in high-risk transactions. The decisioning engine can evaluate risk based on the product or service or the customer themselves and redirect to the PSP that is most likely to close the deal.

Combining Logic Routes for Sophisticated Dynamic Routing

This may very well involve using multiple routing logics sequentially to achieve the best result. For instance, a classic dynamic routing logic tree might operate as follows:

• Which PSPs are currently available for use
  • If only one, use that
• Of the available PSPs, which will not incur a cross-border fee
  • If only one, use that
• Of the available PSPs, which has a close rate above a given ratio
  • If only one, use that
• If none chosen, select the one that will charge the lowest fee

The logic routes, of course, may steer their way through all the possible elements above, in any order - and potentially in a nonlinear or dependent path to arrive at the optimal outcome. As with all business decisions, the more sophisticated the logic, the higher the potential savings - but also the higher the maintenance burden.

The First Step in Dynamic Payment Routing: PSP Flexibility

Many merchants will start their operation committed to a single PSP, which gives them a relatively simple setup and a predictable cost structure. As volume grows, merchants have the opportunity to tune their operation by adding additional PSPs, which is also when many discover the relative inflexibility of their initial PSP partner. In order to have full control of customer payment data, merchants need to ensure it is not held by the PSP, which may subsequently decline to share it for use with other PSPs.

Using a programmable payment vault, such as the one offered by Basis Theory, allows the merchant to collect and store customer data in a secure location without bringing their payment system into PCI-DSS scope. It also enables the merchant to submit those details to their preferred PSP in support of their dynamic payment routing strategy.