Transaction Routing: a Piece of the Puzzle

An interview with Adam Vissing, VP Sales & Business Development at IXOPAY
September 23, 2019 | Expertise

Originally published on The Paypers

The routing of payment transactions based on more or less “smart” approaches is a topic of growing interest, especially for larger merchants. What do you see as its key applications? 

Transaction routing is, generally speaking, not a new topic. A number of commercial off-the-shelf solutions focusing on this aspect of payment optimization have been available on the market for years. Also, many larger merchants have been developing this type of functionality in-house, sometimes driven by visionary impulses, but most often by sheer necessity. The main challenges that routing seeks to address can be grouped into three general categories: increasing payment success rates, reducing the cost of payments and maintaining redundancy for what is, in fact, a mission-critical part of any ecommerce operation: the payment process. The routing strategies implemented by merchants always seek to address at least one of these challenges, if not several.


How can routing help with success rates and cost of payments? 

The market for Payment Service Providers – using the term broadly – is highly competitive. While transaction costs seem to be the clearest differentiator between providers, there are many factors affecting not only the price a merchant will pay for any given transaction but also the likelihood that a transaction will be authorized. These factors are not always clearly communicated or understood when a merchant opens a new account with a provider, are often rooted in the provider’s specific regional, competitive and managerial environments and are subject to change on short notice. This remains a “black box” for most merchants.

By leveraging multiple PSPs, individual transactions may be sent to the one that offers the best deal for the specific payment context. An easy example is with credit card payments: oftentimes, card issuers also act as acquirers, and will typically offer both the lowest transaction costs and highest authorization rates for cards they have issued themselves. So, from the merchant’s perspective, why send such a transaction anywhere else?

Transaction routing engines also allow merchants to implement more or less complex retry strategies for “soft declined” transactions. In some cases, we’ve seen our merchants recover more than 15 % of failed transactions – a significant impact on the top line.


Is this only a topic for credit cards as a payment method, then?

No. While it’s great to be able to send a credit card transaction to the “best” provider, the world of payments doesn’t revolve exclusively around credit cards. The use of many Alternative Payment Methods (APMs) can sometimes also be optimized using smart routing strategies. Merchants may also employ a type of “pre-routing” to narrow the set of payment methods that are offered to shoppers, prioritizing highly local and lower-risk solutions. It doesn’t make a lot of sense to offer “Sofort” as a payment method to US consumers for example. Similarly, you may want to ask first-time customers to use a different method than a credit card to make their first payment, as that may help reduce risk. The same is valid for high order values. I’d consider this to be an important aspect of the “transaction routing” topic.

"Merchants need to be able to consolidate and streamline all payment processes regardless of how many different PSPs they are using. This calls for solutions beyond mere routing."
Adam Vissing
VP Sales & Business Development

Are there any pitfalls to transaction routing? What do merchants need to watch out for?

The most common mistake is to believe that transaction routing is a quick win. While the potential benefits are indeed great, it also significantly increases the complexity of all payment-related processes. You are dealing with multiple providers, which in effect means a multitude of different commercial agreements, fee models, risk management approaches, reconciliation, settlement and reporting formats and so on. Payment becomes 3D-Chess on both a technical and organizational level.

So it’s not just the capability to send a transaction to Provider A or B that matters – this is just a single piece of the puzzle. Merchants need to be able to consolidate and streamline all payment processes regardless of how many different PSPs they are using. This calls for solutions beyond mere routing – solutions that help manage the entire payment lifecycle. This emerging concept is called a “Payments Orchestration Layer”.

Another critical component is payment analytics. No matter how “smart” or “dynamic” routing engines strive to be, at the end of the day they are all feeding into rule-based logic. Optimizing these rules via Big Data-driven approaches is a promising way forward, but also begs a number of questions: is the underlying data set used for the analysis, often collated from multiple merchants of varying size, reputation and in different industry segments, really representative of my specific business context? Are insights derived from perceived correlations within these sets enough to make good decisions, or is there some deeper causality hidden beyond my (provider’s) analytical “field of view”? It’s great to have a machine crunch the numbers for you, but trusting it blindly carries its own set of risks. A more prudent approach lets human experts make the final decision, while giving them as much relevant information as possible.

Merchants therefore need a set of real-time KPIs that enable them to monitor and benchmark the performance of PSPs in order to make effective iterative adjustments to their routing rules.


About Adam Vissing

As VP Sales & Business Development for IXOPAY, Adam brings two decades’ experience in the high-tech industry and an educational background in Computer Science and Management to the table. His current focus is on helping clients streamline and scale their payment processes globally. Connect with him on LinkedIn.


IXOPAY is a highly scalable and PCI-certified payment management platform for White Label Clients and Enterprise Merchants. The modern, easily extendable architecture enables the orchestration of payments, provides intelligent routing and cascading functions as well as state-of-the-art risk management, automated reconciliation and settlements along with plugin-based integration of Acquirers and Payment Service Providers. IXOPAY is part of the IXOLIT Group, which was founded in 2001 and maintains national and international ecommerce customers from Vienna, Austria, and Florida, US. The owner-managed and financed company has grown from a two-person team to an IT specialist with over 60 experts developing innovative solutions and products in the heart of Vienna. 

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