Why Dynamic Payment Routing Is Crucial for Successful Payment Processing

The world has become a digital environment. Just about everything you do can be done online, from communicating with friends and family to shopping. Even a number of retail transactions can be conducted using your personal device. The blurring of transaction boundaries is forcing business to adapt. One area in which they’ve had to do so is the digitization of payments.

Today, most payment processing methods can be used across multiple devices. Payment processors give you the ability to accept various payment methods but using a single processor ties you to their philosophy and services. Accepting new or additional payment methods is separate from the routing of those payments. Not all forms of payment routing are the same. One significant advancement in payment routing is known as dynamic routing. But what is payment routing? And how does dynamic routing make the difference?

What Is Dynamic Routing?

To perform online transactions, you need a merchant account with a payment processor that routes your customers’ payment data from where they submit it through payment networks like Visa and Mastercard.

Traditionally, this data followed a defined path from where it was submitted to where it was going. However, that defined path may not be the best route to take. Think of it like a highway. Although the highway may typically be the fastest way for you to get to a neighboring town, depending on your mode of transportation, traffic, and objective, you may want to consider alternative routes. It doesn’t make any sense to ride your bicycle on a freeway.  

Dynamic routing is a form of intelligent payment routing that uses artificial intelligence to route payment data in the best way to improve the likelihood of approvals.

How Dynamic Payment Routing Works

As mentioned above, payment routers would traditionally use a single defined path for all transactions. These paths don’t consider things like the merchant type, product, issuing bank, or your customer’s card or payment method type — although all of these factors play a role in approvals.

Dynamic payment routing solves this problem by using technology to send data through payment channel networks in the most efficient way possible. Consider the highway example: the least costly way to travel from point A to point B may not be on the traditional highways. The fastest way to travel may not be the cheapest or the most environmentally friendly. In addition, there are specific restrictions; large buses and trucks can’t travel on side roads, and bicycles can’t travel on freeways. 

Now consider that payment processors are your vehicle and everyone wants to successfully reach the neighboring city. Just like there are hundreds of different modes of transportations and pathways when done correctly, hundreds of factors are considered when dynamically routing payments.

Static Payment Routing vs Dynamic Payment Routing

Payment service providers either use static payment routing (the traditional option) or dynamic payment routing to process payments. Here are the core differences between the two:

• Finding the path: Static payment routing follows a predefined path for data regardless of what’s going on along that path. Dynamic payment routing actively looks for the fastest and most efficient way to process payments.
• Declines: Static payment routing leads to increased decline rates because there are no second options when a figurative road is closed. Unfortunately, this increases your customer churn rate and cuts into your revenue. Dynamic payment routing avoids unnecessary declines by evaluating all the data that is part of the transaction then packaging that transaction the best way possible to the bank that will be most likely to approve it.
• Customer experience: Consumers who are incorrectly declined in a merchant’s order funnel can either try another card, or abandon the checkout flow and go to a competitor.  For recurring memberships it’s likely a false decline will lead to the member involuntarily churning out of the subscription. Not only is it important to retain customers from a revenue standpoint, but from a cost standpoint as well.  The cost to acquire a new customer is 5x higher than to retain them.  

5 Benefits of Dynamic Payment Routing

Dynamic routing solutions are the payment processing solutions of the future. That’s because they come with several benefits. Most importantly, dynamic routing reduces transaction declines, leads to faster approvals, optimizes route efficiency, cuts costs, and improves the overall experience for your customers. Read on to learn how each of these benefits of dynamic routing can help your business.

1. Reduced Transaction Failures

Transaction failures are the last thing a merchant wants to see. You’ve done everything right. Your marketing efforts brought a customer through the doors, your products enticed them to make a purchase, and the purchase fails right before the transaction reaches the finish line.

Dynamic payment routing significantly reduces transaction declines because it looks for the most efficient route for the transaction data to follow. That leads to fewer failures due to time outs or legs in the path being down for one reason or another.

2. Faster Transaction Approval

Time is of the essence when processing payments for two reasons:

1. Approvals: The faster payment data makes it through the payment ecosystem, the better your chances are of approvals. More approvals result in more sales and a lower customer churn rate and reduces any disruption to your customer’s experience.
2. Customer experience: If the payment process takes too long (high latency), your customer may decide to cancel the order out of frustration. The same is true if their card incorrectly declines. When the payment process is fast, the customer experience is better, the false declines drop, and revenue, conversion, and retention increase. Because dynamic routing actively looks for the most efficient path for payment data to follow, it is significantly more efficient, lower cost, and yields more revenue than static routing.

3. Optimized Route Efficiency

Traditional static routing sends data on a predefined path that provides absolutely no room for adjustments. Consider a debit card being passed through the same process as all other credit cards. The merchant will likely pay higher interchange fees even if their provider leverages Network Tokens.

Dynamic payment routing essentially sets two points; transaction initiation and transaction completion. It identifies the transaction being processed and uses the least-cost, highest approval route to achieve an approval. The key difference is that dynamic routing allows for adjustments. So, when the predefined route results in a decline, the AI uses the transactional data and available options to retry across processors (if enabled) in real-time before the response is ever sent back to the merchant.

4. Reduced Operational Costs

Many payment processors, billing platforms, and gateway providers charge you a fee every time you attempt to process a payment, regardless of whether it’s approved or declined. Dynamic routing reduces decline rates, ultimately reducing your operational costs.  

5. Improved Customer Experience and Payment Performance

In the end, the customer is the most important part of your business. It’s important to provide your customers with the best experience possible. That’s why you’ve thoughtfully created a product that provides a solution, you’ve built an experience that excites your audience, and you’ve taught your employees how to make your customer the center of their attention.

Dynamic routing adds to these efforts by providing your customers with the best payment experience possible.

Streamline Your Transactions With Revolv3’s Payment Platform

One of the most important tools for your business is a quality payment solution. The Revolv3 payment platform is dedicated to processor agnostic payment routing in the best interest of our merchants. And Revolv3 backs up their platform by charging you only when the payment is approved. Not only does the platform take advantage of dynamic payment routing, but it also comes with several other benefits. For example, Revolv3 can scale with your business as it grows and never charges customers fees for declined transactions.

Schedule a meeting with our payment experts to take some aspirin for your payment headaches.