For e-commerce businesses, failed payments create a risk of lost sales and revenue. Remaining dependent on a single bank or a single payment service provider (PSP) puts your entire payment traffic at risk when a technical glitch or temporary outage occurs. Smart Routing helps improve payment performance by directing transactions to an appropriate virtual POS based on predefined rules. In this guide, we will examine what Smart Routing is, how it works, and how it provides a tangible benefit to your business.
What Is Smart Routing?
Smart Routing is a technology that directs payment transactions to an appropriate virtual POS among multiple banks and payment service providers based on success performance, commission costs, and predefined rules. This allows payment traffic to be centrally managed without depending on a single channel.
Unlike the traditional “single PSP” approach, this system enables your business to be connected to multiple payment channels in the background, with traffic dynamically distributed among these channels. This can help reduce the impact of issues affecting one channel on the overall payment flow.
How Does Smart Routing Work in Payment Transactions?
When a payment request is received, Smart Routing evaluates the predefined routing rules and determines an appropriate route for the transaction. Criteria such as card type, transaction amount, currency, installment option, commission cost, and channel performance may be considered during this evaluation.
Routing rules can be updated based on historical transaction performance and the business’s priorities. Smart Routing determines the virtual POS to which a transaction is initially directed, while routing eligible failed transactions to an alternative virtual POS is managed through a separate failover mechanism.
Why Is Smart Routing Used?
The fundamental purpose of using Smart Routing is to minimize the revenue loss caused by payment failures and to make the customer experience seamless. For businesses dependent on a single provider, issues affecting that provider may significantly disrupt the payment flow.
Beyond this, Smart Routing also allows you to optimize transaction costs. Since different banks and payment service providers may have different commission rates and performance levels, effective routing can help improve payment performance and support more efficient cost management.
What Are the Advantages of Working with Multiple PSPs?
Working with multiple payment providers simultaneously is a strategic approach that gives your payment infrastructure flexibility and resilience. It can reduce the risks associated with relying on a single provider and contribute to improved payment performance.
The main advantages of a multi-PSP structure are as follows:
- If one provider experiences an outage, payment traffic may be directed to appropriate alternative channels based on predefined rules.
- Channel performance across different card types can be considered when defining routing rules.
- Commission rates can be included in routing rules to support cost optimization.
- Providers with higher approval rates on a geographic or sectoral basis are prioritized.
According to Which Criteria Are Payment Transactions Routed?
The routing of payment transactions is a multi-layered decision process that occurs through the simultaneous evaluation of multiple technical and financial criteria. When these criteria are correctly defined, the system automatically makes the most accurate choice for each transaction.
The main criteria that stand out in the routing decision:
- Card type, card family, and whether the card is domestic or international
- The performance and response time of the relevant bank’s or payment service provider’s virtual POS
- The transaction amount and currency
- The availability and performance status of the relevant channel
- The commission rate and cost efficiency
How Is Routing to an Alternative PSP Performed for Failed Payments?
Routing failed payments to an alternative virtual POS involves sending a transaction that could not be completed through the initial channel to another channel based on the error type and predefined rules. This approach may be used for eligible failures such as temporary technical issues and service outages.
For example, if a temporary issue occurs on a virtual POS provided by a bank or payment service provider, the transaction may be directed to an alternative virtual POS under suitable conditions. Paywall’s PayJump solution helps route eligible failed transactions to alternative virtual POS channels in line with predefined rules.
How Is the Payment Success Rate Optimized with Smart Routing?
To optimize the payment success rate, routing rules should be regularly reviewed based on current transaction data and channel performance. Data-driven and adjustable rules can contribute to improved payment performance.
Points to pay attention to in the optimization process:
- Real-time monitoring of channel performance
- Correctly classifying the causes of failed transactions (soft/hard decline)
- Analyzing the performance of virtual POS channels provided by banks and payment service providers across different periods
- Regularly updating the system with new data
How Are Payment Costs Managed with Smart Routing?
Managing payment costs with smart routing is an economic approach that optimizes not only the success rate but also the commission paid per transaction. Since different providers have different commission structures, correct routing directly affects your profit margin.
When routing a transaction, the system takes into account not only the probability of success but also the cost of that channel. This allows businesses to create a balanced routing strategy between payment performance and transaction costs according to their priorities. This approach may provide cost advantages, particularly for businesses with high transaction volumes.
How Is Smart Routing Performance Measured?
To measure Smart Routing performance, metrics such as payment success rate, channel-level performance, average response time, and transaction cost should be tracked regularly. This data is concrete evidence showing whether the system is truly adding value.
Fundamental metrics that need to be tracked:
- Overall Approval Rate
- Comparison of success rate by channel
- Average transaction response time
- Transaction volume and success rate by routing rule
What Should Be Considered When Creating a Smart Routing Strategy?
When creating a Smart Routing strategy, your business’s customer profile, transaction volume, and the characteristics of the banks you work with should be taken into account. Since the “best” route can differ for each business, a data-driven, customized approach should be adopted instead of a standard formula.
Points to consider when building the strategy:
- Analyzing which banks are more successful with which card types
- Defining flexible rules according to seasonal or hourly congestion
- Technically testing a new bank or payment service provider integration and regularly monitoring its performance in the live environment
- Regularly reviewing and updating the system at intervals
Checklist for Smart Routing
A checklist that you need to regularly review to ensure your Smart Routing system is running healthily makes your job easier:
- Do you have active connections with multiple PSPs?
- Are you regularly monitoring success rates by channel?
- Have appropriate alternative virtual POS routing rules been defined for eligible failed transactions?
- Is commission and cost data included in the routing decision?
- Are you regularly reviewing reports showing system performance?
Frequently Asked Questions
Is Smart Routing necessary for small businesses too?
The need for Smart Routing should be evaluated based on transaction volume, the number of banks and payment service providers used, and the complexity of payment operations rather than business size alone. Small businesses using multiple virtual POS channels may also benefit from smart routing.
Does Smart Routing bring an additional cost?
The cost of a Smart Routing solution may vary depending on the platform, integration scope, and transaction volume. Its potential cost and performance benefits should be evaluated using the business’s payment data.
In which sectors is Smart Routing more effective?
Smart Routing can benefit businesses that use virtual POS channels from multiple banks or payment service providers, process high transaction volumes, or want to centrally manage payment performance and costs. It can be used across industries such as e-commerce, subscription services, insurance, retail, travel, and marketplaces.
