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What Are Smart Routing 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

What happens when a customer clicks on the ‘buy now’ button? Payment processing depends on accurate communication between issuing and acquiring banks. Normally, card transactions are authorised and approved in seconds. Yet it’s not uncommon for something to go wrong, whether it’s incorrect card details or red flags for fraud – leading to declined payments. These can take a serious toll on your business’s bottom line. Smart routing payments offer a solution, but what is smart routing and how does it work? Keep reading to find out more.

What is a smart routing payment?

A smart routing payment is moved through the system using the most beneficial route to optimise its chances of success. The system determines which bank, card issuer, or payment gateway is most likely to approve and authorise the transaction. With intelligent logic and rules, the smart routing system assesses each transaction to optimise results. The system uses an automated transaction approvals process to cut down on declined payments.

What is smart routing and how does it work?

A smart routing system provides access to multiple payment gateways, smoothly routing the payment to the most suitable option. It’s beneficial for businesses with wide geographical reach as well as those undergoing rapid expansion. Smart routing systems analyse geographical location, payment methods, and currencies to find the most appropriate gateway. They also look at card issuers, payment types, and payment amounts to reduce the chances of a false decline.

During periods of high sales volumes, a business’s usual payment gateway might be bogged down and more prone to technical failure. Smart routing steps in to choose an alternative with less traffic.

What are cascading payments in a smart routing system?

Another component of smart routing systems are cascading payments. While smart routing payments look for the most suitable gateway for approval, cascading payments automatically reroute failed transactions. The system performs this function by rapidly analysing the transaction’s data. It can then come up with alternative payment options to swiftly retry the payment for greater chances of approval.

This increases a merchant’s percentage of approved transactions, with lower associated fees. It also helps your business retain customers who might otherwise be turned off by failed payments. Essentially, cascading payments, when used as part of smart routing, serve as insurance against failed transactions.

What are the benefits of smart routing?

Smart routing ensures that each transaction processed on your website is automatically routed to the most appropriate endpoint. Whether it’s a payment gateway or bank, the payment details are sent to the authority that is best placed to approve the transaction.

With the use of cascading payments, declined transactions are automatically rerouted to the second-best option to prevent the card from being declined. As result of these actions, here are the benefits of smart routing for your business:

It lowers per-transaction costs by getting it right the first time.
It lowers currency exchange fees by choosing the best regional gateway for foreign transactions.
It improves customer satisfaction and retention rates by streamlining the payment experience.
It makes the checkout process more reliable for customers and merchants.

Should you use a smart routing payment gateway?

The benefits of smart routing are clear, so it’s worth using a payment gateway that employs this technology. This is key for international businesses as well as those processing large volumes of transactions.

It’s also good practice for businesses to offer multiple payment options at the first instance. Let your customers choose their preferred method, before letting the smart routing system take over. For example, you can combine card payments with Direct Debit, BNPL, and digital wallets. GoCardless enables both one-off and recurring payments using open banking-powered Instant Bank Pay and Direct Debit, respectively. This gives your customers plenty of options to optimise revenue.

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.