The Benefits of Using Dynamic Routing for Payments

Payment Routing sends transactions through payment gateways based on parameters set to optimize their speed and efficiency. Payment routing can be facilitated through either static routing rules or dynamic routing algorithms. Finding the right payment routing solution can help businesses optimize their transaction costs, increase their acceptance rates, and evenly distribute payment loads. 

Routing is a crucial payment processing element, especially when your business utilizes multiple payment service providers (PSPs). While both static and dynamic routing can route transactions, they differ significantly. Here’s how static and dynamic routing differs, and what that means for optimizing your payment systems. 

 

What is Static Routing? How does it Work?  

Static payment routing sends transactions to payment providers through preconfigured routes. These routes are simple to set up but cannot be optimized to reduce costs or increase authorization rates. Additionally, if a pre-defined route is broken or becomes unavailable, the transaction will fail. Since static routes cannot take more complex considerations into account, it limits their flexibility and utility.   

Although their simplicity can be limiting, static routing takes less computation since it requires no complex routing algorithms. By relying on preconfigured routes, and requiring all reconfiguration to happen manually, static routing can be an energy-efficient and secure payment routing option. This type of routing can be ideal for businesses that operate on a smaller scale. 

However, static routing can put businesses at a disadvantage, especially when more complex payment systems come into play. If predefined routes are not kept up to date and monitored, static routing could lead to transaction failures. Static routing has no way to reroute traffic when a certain pre-configured route fails. This can lead to lost transactions if PSPs (payment service providers) are not carefully monitored for issues. This, on top of the limiting options static routing offers, is the main reason many businesses look to enable dynamic routing for their payments.  

  

What is Dynamic Routing? How does it work?  

Dynamic routing uses algorithms to find the best path for payment data to be sent to its destination. Dynamic routers allow data to use multiple different routes based on when and where the data is being sent to maximize speed and efficiency.    

Dynamic routing will not only find the best path for payment information, but it can also reroute if a certain pathway fails. For example, if a PSP (payment service provider) goes down, dynamic routing can re-route the data through another payment gateway to ensure the transaction doesn’t fail. Dynamic routing will also communicate the status of different networks among the system at large, giving them the ability to change paths in real-time based on network traffic. 

  

Static Routing vs Dynamic Routing for Payments  

Static routing has many disadvantages, especially for larger businesses. Static routing cannot redirect failed transactions, which can lead to a significant loss of revenue if a PSP fails. It also cannot adapt to specific transactions, offer flexibility for different countries or regions, or consider real-time issues. The lack of flexibility with static routing can lead to slower, more costly transactions.   

Dynamic routing, however, provides routing options to ensure payments are sent through the quickest, most cost-effective route. Dynamic routing allows networks to benefit from increased performance as algorithms find the best routes to send information. It is also easily scalable, as it doesn’t rely on manual input from administrators. This independence from manual configurations also saves the time and effort required to manage a system that can compete with the efficiency of dynamic routing protocols.   

  

How Does Dynamic Routing Improve Digital Transactions?  

Payment conversion and success rates are directly related to how you route transactions. Dynamic routing enables multiple PSPs (payment service providers) for processing, which in turn allows payments to be routed through the provider that offers the best probability for success. Pairing dynamic routing protocols with multiple PSPs will both provide flexibility and reduce losses from PSP failures.   

Dynamic routing eliminates many issues or limitations from payment providers, while still providing your customers with a seamless experience. Here are the top ways dynamic routing can improve digital transactions:  

  

  • Less Failed Transactions  

While dynamic routing cannot solve failed transactions that come from customer or merchant issues, it can reduce transactions that fail because of technical issues on the processor’s end. These technical issues can include costly system failures when backup servers or alternative routing destinations are not established. Enabling multiple PSPs with dynamic routing will route payments to the right platform and solve most failed transactions.  

  

  • Faster Transaction Approval   

Dynamic routing finds the best route for payment data, while taking into account network traffic and failures. This speeds up the entire payment routing process, which means transactions are approved more quickly.  

 

  • Customizable Solutions   

Businesses can suffer from a lack of options with specific PSPs (payment service providers). Because dynamic routing enables multiple PSPs, it enables businesses to utilize tools from many different providers to create a customized solution for their needs.  

 

  • Real-Time Insights   

Dynamic routing considers the performance of every route in real time to calculate successful routes. This not only optimizes conversion rates but also provides up-to-date analytics and statistics for your business. 

  

  • Optimized International Sales  

Dynamic routing allows businesses to sell internationally with local payment methods. It can also improve international sales by routing transactions through the best provider for the specific transaction in that country or region.  

  

  • Increased Authorization Rates  

Dynamic routing takes authorization and approval rates into consideration when choosing which payment provider to route a payment through. Dynamic routing will send payments through the route with the highest authorization rates, improving authorization rates overall. Dynamic routing can also work alongside fraud prevention services to increase authorization rates. 

  

  • Cost-Effective Routing  

Dynamic routing can determine the most cost-effective route by taking fees and even currency conversion rates into account when routing payments.   

  

How to Enable Dynamic Routing  

Dynamic routing enables businesses to utilize multiple payment gateways and processors. This creates quick and efficient payments that reduce failed transactions, improve authorization rates, and save money.  

If you’re interested in utilizing dynamic routing for your payments, reach out to a TokenEx representative today. TokenEx enables dynamic routing and ensure payments remain secure and continue to run smoothly.  

If you want to learn more about how TokenEx can help with payment orchestration, contact our team and learn how we can enable dynamic routing for your organization. 

 

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Topic(s): payments