Routing And Cascading Payments Explained: Techniques, Benefits, And What’s New

Making payments seems easy - enter details and hit send. Yet behind the scenes, complex processes work to deliver funds successfully. However, a major challenge with payments is experiencing declines. Declines can occur for various reasons, like insufficient funds or risk factors. Declined payments mean lost revenue and poor customer experience.

Routing and cascading payments by distributing payments across multiple payment channels provide advanced solutions to minimize declines and optimize other factors that impact the revenue of the payment service provider and, even more importantly, its client’s revenue.

At Spell, we offer multiple pre-built intelligent routing and cascading scenarios and are always ready to implement new custom-tailored solutions.

What Are Routing and Cascading Payments?

Routing payments definition

Payment routing directs payments through the optimal pathway between the payer and payee. It evaluates possible bank routes and payment rails to choose the best option based on speed, cost, risk factors, and more.

Cascading payments definition

Cascading payments establish backup plans if the initial route fails. Declined payments automatically flow to alternate providers in a predetermined cascade order. This adds contingencies to route around roadblocks until success.

Together, intelligent routing picks the ideal initial payment path while cascading bounces declined payments to new routes. This maximizes flexibility and minimizes failures.

For example, a payment from Bank A to Bank D might first be routed through Bank B for the fastest processing. But if declined, it cascades to Bank C as a backup. The payment keeps trying new paths in the cascade sequence until no more declines occur.

Routing navigates the best trail while the cascading processor handles detours if needed. This dynamic duo circumvents congestion and bottlenecks to keep payments moving. Understanding how they smooth payments provides valuable insight into the intricacies of payment processing.

The Benefits Of Routing And Cascading Payments

So why should payment processors care about routing and cascading? What’s in it for them and their clients? Let’s look at some benefits:

Reduce declines

Intelligent payment routing boosts success rates, and recaptures lost revenue. It acts like a GPS navigator, analyzing options and picking the best pathways to route payments to their destination and cascading declines for similar payment methods to reduce lost revenues. And that keeps customers happy because declined payments are super frustrating, while when payments flow smoothly, you deliver great user experiences.

Choose profit

At the same time, intelligent routing can save money by picking efficient routes that optimize for lower costs or higher margins. And with cascading, there’s less need for expensive manual intervention whenever payments fail initially.

In short, routing and cascading make payments faster, more reliable, and more profitable. It’s easy to see why businesses are now adopting these techniques.

How Does Payment Routing Work?

The routing process begins when a customer initiates a payment, whether online, at a store, or through a mobile payment app. The payment information is transmitted to the payment service provider's payment gateway, which serves the merchant.

After the gateway receives the payment request, the routing system helps pick the best payment channel for the payment.

Key payment factors considered when routing rules may include:

• Amount
• Currency
• Processing fees
• Required processing speed
• Foreign exchange rates
• Payer and payee locations
• Payment risk levels
• Compliance requirements, etc.

More advanced gateways like Spell also support more specific factors like country where the card was issued, its type, cardholder, and even the defining rules depending on the specific issuer. Also, personal details like buyer’s IP, number, and volume of successful or NOT successful payments over a period of time.

This entire payment routing process typically takes just seconds to complete and enables money to seamlessly change hands digitally between customers, merchants, and banks worldwide.

How Do Cascading Payments Work?

A cascading processor enables the automatic rerouting of declined payments through alternate payment channels.

When a shopper's initial payment is declined, often with a soft decline, the payment gateway triggers the cascade process. Soft declines are often temporary authorization failures that may trigger cardholder authentication.

For hard declines, cascading is not triggered because they are permanent. They may include insufficient funds or reported stolen, lost, or expired cards.

When a cascading process is triggered, it follows predefined criteria to determine the order and priority for routing to the shopper's available payment options.

Typically, cascading will reattempt the original payment method. If it fails or isn't available, the payment cascades to alternate channels.

Each available route is attempted until the shopper successfully makes the payment or all routes are exhausted, resulting in a final hard decline.

Cascading provides a smooth automated flow to maximize declined payment conversion by seamlessly reattempting or redirecting to the next available payment option. The customizable criteria ensure cascading follows merchant-defined rules and optimal step-by-step processes for their customers.

Spell’s Solution: Optimizing Payments With Routing And Cascading

When it comes to processing payments quickly, reliably, and intelligently, Spell has all merchants covered. As a top-tier white-label payment gateway, Spell powers payments behind the scenes for all types of businesses.

Setting up routing and cascading with a payment gateway is relatively easy but does require some strategic planning. First, you'll want to launch a gateway from Spell that integrates with all the key payment channels needed for your project.

A gateway gives you tools and options to build the ideal cascade flow for your customers. You'll work with your gateway to set up rules determining when a payment is declined and which payment methods to try first, second, third, etc. The goal is to keep users happy by letting them seamlessly fall back to another payment without losing the sale.

In Spell, routing and cascading rules are configured hierarchically across global, client, brand, and terminal levels. This allows preset rules to be applied as needed. If necessary, we implement tailored algorithms, creating optimal routing logic for every payment according to our partner’s requirements.

The rules can determine terminal order, including for cascading, and distribute payments uniformly.

For example:

With the Decline Optimizer, you can automatically track conversion rates by client or channel and block those exceeding set refusal percentages.

The Refund Blocker can help you control refund percentages and blocks exceeding set limits.

Also, our Partners can create custom value lists with millions of entries and use them in rules and multiple other tricks for greater optimization control.

Partner with Spell, a payment technology provider equipped with robust routing and cascading engines, ready to be tailored to your needs. Reimagine your payment flows. That’s how payment success rates of over 90% are achievable - by leveraging optimized routing and cascading capabilities.

With Spell, you can jumpstart or upgrade your payment business in 1 week, sometimes as quickly as 1 day, to get you winning in the hyper-competitive payments industry.

Spell platform is built on a robust AWS infrastructure, with an outstanding 99.999% uptime, and is PCI DSS Level 1 compliant, as Visa confirms.

Handle a Demo Tour, download the Spell Deck and accelerate your business with the best white label payment platform on the market! Let’s get Spelling!

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