What Is Intelligent Payment Routing?
How does money leave one account and enter another? The answer is one of the most complicated subjects in the realm of banking.
Bank transactions occur through a process called payment routing, which works via a payment network used by both the cardholder and the acquiring bank. The payment network is the intermediary in every banking transaction: it works between the cardholder’s issuing bank and the acquiring bank to create and fund a transaction.
The payment network routes the transaction according to the banks’ rules and regulations. The ability of the payment network to link the issuing and acquiring bank is the difference between a successful purchase and a declined transaction.
The same rules that protect banks and merchants from issues like fraud make international transactions slower and riskier.
Enter Intelligent Payment Routing - the solution to all those failed transactions, frustrated merchants, and disappointed customers.
Traditional payment routing connects to banks to request and accept payment requests on behalf of customers and merchants. The route follows your routing number (the 9-digit number associated with your bank - not your unique account with the bank).
What Is a Routing Number?
A routing number identifies the bank only; it is not unique to the customer’s account. As a result, most banks publish their routing numbers online and make them easily accessible through customer online banking portals.
You need your routing number for payment routing and intelligentment payment routing because it first identifies the acquiring bank to then look up the account number.
Is using the routing number secure? Yes. A routing number works like a postal zip code; it provides a distinct destination to make sorting mail easier, but you still need your house and street number (i.e. your account number) to receive your post.
How Does Intelligent Payment Routing Work?
Intelligent Payment Routing employs the principle of efficiency; it wants to send the transaction to the acquiring bank where it is most likely to be settled quickly and successfully.
In traditional payment routing, payment providers connect to a single acquiring bank in a geographic region. In some cases, they require merchants to find their own merchant account. Working with one regional acquiring bank slows transactions and leads to declined transactions.
Intelligent Payment Routing takes the traditional routing system a step further. Rather than connecting with one acquiring bank, it identifies the most efficient route between all the available banks and their rules to optimize all your transactions. By presenting the transaction to the bank most likely to accept the transaction rather than only one bank within the network, you are more likely to see the transaction accepted and completed without delay.
When you use Intelligent Payment Routing, you have access to all the acquiring banks through a global network. Not only do transactions move faster, but they go to a bank that is most likely to approve them.
Even when the first bank declined the transaction, the intelligent solution submits the transaction to another bank that is also likely approve it right away.
Intelligent Payment Routing transformed payment routing by removing the geographical barriers associated with traditional payment routing. By allowing for localized routing on a global scale, payment networks can now allow merchants to accept payment methods from around the world.
How Can Payment Routing Affect My Business?
Payment routing is a fact of life when you accept non-cash payments (e.g., credit and debit cards) or if you run an e-commerce business.
The technology can be both a boon or a bear to payment processing.
On one hand, payment routing is both more efficient and less risky than cash. It is also the underlying financial technology that makes e-commerce possible at all.
However, traditional payment routing also limits your transactions to the acquiring bank within your payment network. If you limit your core market to one country, then payment routing is still suitable. But when the world beckons, you can’t meet their demands. Attempts to accept other payment networks are met with declined transactions, disappointed customers, and a loss of potential growth.
Like its predecessor, Intelligent Payment Routing is also transformative for e-commerce merchants.
Intelligent Payment Routing enables your business to confidently step onto the global stage. It allows you to:
Attract an international audience including in valuable emerging markets
Seamlessly accept payments to encourage shoppers
Stand out amongst your competition
Lower the cost of your marketing and sales efforts
How Intelligent Payment Routing Impacts Transaction Revenue
Even today, digital merchants hemorrhage international sales and potential growth. Even worse, those losses are both unnecessary and preventable.
According to a study produced by PaymentsSource, foreign shoppers watch in horror as their payments are declined on 18 percent of their international purchases.
That means you could miss out on up to 18 percent of your potential foreign revenue. And these aren’t potential customers: they entered their payment details and clicked “Buy.” They are - or were - committed buyers.
E-commerce is a fickle business. Generating revenue relies on your ability to remove or navigate all the potential roadblocks that appear from the time the customer arrives on your site until they receive the confirmation of their purchase.
The problem with these roadblocks isn’t just the immediate revenue that each failed transaction creates.
Declined transactions also increase the cost and the energy required to run your sales and marketing department. The funds that go towards attracting international business - from bringing them to your site, guiding them to checkout, and incentivizing repeat business - are lost when such a high percentage of transactions are declined by your payment network.
Card Not Present provides a helpful tool for calculating the full cost of a declined transaction. To understand how much it costs, you need to consider factors like your Customer Acquisition Cost (CAC) and Lifetime Value (LTV). Then there’s the impact of falsely blocked or declined orders.
By using Intelligent Payment Routing, you dramatically decrease the number of declined transactions (both payment network-related and fraud-related) and improve the overall value of your business both through increased revenue and ROI.