Merchants, eager to come to market, have traditionally joined up with a single payment services provider. Merchants soon discover that having a single point of failure is problematic and that various PSPs provide different services and fees as their company expands.
Merchants need many PSPs to overcome the problem of depending on one. After connecting with various PSPs, merchants must design a decision engine to route transactions to the right processor. This is clever routing.
Several things might affect a merchant’s company while processing online payments.
Initial and possibly most visible is the probability of sales closure. For worldwide businesses, utilizing a PSP local to the buyer’s bank will have a big effect. Various PSPs provide various payment methods (digital wallets, etc.), therefore a store may require relationships with many PSPs to give consumers their chosen payment method.
The cost of conducting business might vary greatly depending on PSP fee schemes. The ‘interchange rate’—the price imposed by the card network of the card type (Visa, Mastercard, etc.) the consumer wants to use—is marked up in most fees. They may combine the costs into a flat price (e.g. 2.9% +$0.30) or mark up individual services differently. To optimize expenses, merchants must engage with many PSPs to arbitrage charge structures.
Before sending the customer’s information for processing, intelligent payment routing uses an algorithm to choose a PSP based on the sale’s attributes. The first stage may be to identify the card issuer’s nation and pick a PSP with a local presence. If there are many PSPs, the second step may be to determine which provider would charge the least for the card being provided. After deciding, the transaction is packed and sent to the best PSP.
Smart routing aims to choose the best processor for a sale, while a cascading payment method automatically re-presents unsuccessful transactions to other processors to try again. While many ‘soft’ credit card declines may be ‘false positives’ and a subsequent attempt with a different PSP may go through, sending too many already-failed transactions to a downstream PSP may give that partner the impression you are running a high-risk business and cause them to end your partnership.
Smart routing’s biggest negative is the additional step between a customer’s purchase request and a payment processor’s submission. Beyond the complexity of building the right algorithm to select an optimal PSP, regulatory compliance while the customer’s PII is in motion can bring the merchant’s entire environment into PCI-DSS scope if it is submitted to and held by it while awaiting dispatch. This may be difficult for a merchant who has avoided PCI-DSS by using a full-service PSP.
Controlling clients’ credit cards and other PII is the largest hurdle to a viable smart routing payments plan. Most businesses choose to sign up with a full-service PSP that stores client data for them or construct and certify a PCI-DSS-compliant infrastructure. The second option is too expensive and resource-intensive for most businesses, therefore their PSP stores customer data. The merchant requires direct access to that information to implement a smart payment routing program, which no PSP would provide.
Modern retailers use tokenization service providers to tackle this problem. The merchant saves client data in a safe vault and gets a token they can comfortably store without having to worry about PCI compliance. With the token in hand, the merchant may run its decision engine, and choose a PSP for a transaction – all the power without the danger of lock-in.