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What Are Cascading Payments?

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedNov 20222 min read

While fraud protection tools are vital for both merchant and customer, they’re not always 100% accurate. According to the Merchant Risk Council, the average ecommerce business declines 2.6% of transactions due to suspected fraud. Yet many of these are false positives, leading to lost sales and resulting revenue. With the use of cascade payments, businesses can prevent this loss. So, what are cascading payments, and how do they work? We’ll cover the basics in this guide.

What is a cascade payment?

Cascading payments involves distributing transactions through multiple payment gateways or channels using smart routing. If a transaction is declined through one channel, it’s moved on to the next for approval. This gives each transaction a higher chance of approval.

Traditional payment processing follows a specific, fixed flow. With smart routing and cascading payments, the transaction follows a set of AI-determined rules to reach its endpoint. It follows a dynamic flow based on factors like region to improve the chances of approval.

Another use of the term cascade payment relates to the use of prepaid cards. In this case, buyers can pay for the total purchase amount using a series of payment methods. For example, if they have a prepaid card with a lower value than the full transaction amount, cascading payments combine this with another payment method within the same transactional sequence.

How do cascading payments work?

What causes false declines? In many cases, card payments are rejected due to manual entry errors. For example, a customer might input the wrong CVV code or credit card number due to a simple typo. These can be corrected by re-entering the information. At the same time, banks and credit card issuers follow a complex system of fraud detection. Any buyer behaviour outside of the ordinary can trigger a red flag, whether it’s purchases made from a different region or a higher-value transaction amount.

Cascading systems search for a channel that lets these transactions through for completion. They automatically search for the gateway or flow with the highest success rate for the currency, region, or business type involved in the transaction.

What are the benefits of cascading payments?

There are several reasons to consider using cascading payments. The first, of course, is to improve your transactional success rates. Failed transactions cost a business time and money. You not only lose the sale if the customer doesn’t want to repeat the transaction with a different payment method, but also the time spent on sales and marketing. Even worse, you could lose the customer’s future business. According to a Business Insider report, nearly a third of cardholders cease doing business with a merchant after the first decline.

Cascading payments are particularly useful if you process a high volume of cross-border transactions. Differences in currencies and geographical regions can slow down or prevent transactions. You can cascade payments so that the most likely route to approval is used first.

What is the difference between a cascade payment and smart routing?

The terms ‘cascading payments’ and ‘smart routing’ often go hand in hand, but they’re not entirely interchangeable. Smart routing sends transactions through to the channel where they’re most likely to be approved. By contrast, cascading focuses on transactions that have already been rejected.

Smart routing: Used as a preventative measure before authorisation
Cascading: Used after transaction is flagged

While both route the payment to the most effective channel, the path they take might be slightly different. Overall, cascading payments are part of smart routing technology.

Cascade payment: the bottom line

Fortunately for most businesses, there’s no need to worry about the technical details of payment processing. Using a payments provider like GoCardless ensures reliable processing with less stress and lower fees. Let us handle all the behind-the-scenes technicalities with features like our Success+ solution for automatic, intelligent retries of failed payments. This leaves your business free to do what it does best – provide great services to your customers.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.