July 20, 2023

Load Balancing

Load balancing is the practice of distributing tasks over multiple systems and thereby spread the load. In the context of payments, load balancing allows merchants to spread financial transactions across multiple payment providers. This can be done for various reasons, including A/B testing, ensuring that contractual volume targets are met and to minimize the risk that comes with having a single payments provider holding all of a merchant’s revenue.

IXOPAY supports load balancing as part of the platform’s dynamic transaction routing.

Load balancing can have several benefits when processing online or card not present payments. One key benefit for merchants is that merchants can spread their risk by not being reliant on a single payments provider or financial institution, with transactions spread across multiple merchant accounts at different PSPs. This means that if there are issues with one of those providers (e.g. the provider is acquired, goes out of business, suffers from technical issues with payouts etc.), the impact on the merchant’s liquidity is reduced and there is no one single point of failure (e.g. Wirecard or Silicon Valley Bank).

A second benefit is that merchants with multiple providers (a multi-acquirer setup) may have minimum transaction volume thresholds in their contract. The merchant can ensure that sufficient transactions are processed by their primary processor to meet these thresholds by prioritizing them, while still routing some transactions to the secondary (back-up) provider. This ensures that the merchant remains in good standing with both providers, while having a fallback option in place in case of issues with the primary provider.

Another advantage is that load balancing allows for A/B testing of two providers, allowing strategic decisions to be made as to how to best route payments. After a period of time, the results of the two providers can be analyzed and decisions can be made on how to route transactions in future to optimize the merchant’s payment flow. For example, one provider may outperform the other with certain credit card BIN ranges.

Load balancing is one aspect of dynamic transaction routing in a multi-acquirer setup, as transactions need to be routed to multiple providers in order to spread the processing load. In practice, load balancing falls into a few categories:

  • Risk management: If all of a merchant’s financial transactions are handled by a single processor, problems with that one processor can lead to liquidity problems. These can occur if the provider goes out of business or suffers from technical issues relating to payouts. By processing transactions via multiple providers, issues affecting one provider will not affect the others, and merchants will receive at least a portion of their revenue in good time. Having a backup provider also protects merchants from the risk of having their contracts terminated at short notice, which can particularly affect merchants in high-risk segments.
  • Contractual obligations: Many contracts specify minimum and/or maximum transaction volumes or other metrics. In a multi-acquirer setup, routing enough transactions to each provider helps ensure that these minimum transaction thresholds are reached. A merchant may choose to prioritize their primary payments provider, but still route enough transactions through their backup providers to remain in good standing.
  • A/B testing: By dynamically distributing transactions across multiple providers for a period of time, merchants can collect data (e.g. overall authorization rates) on the performance of each provider. This data can then be analyzed and used to optimize the merchant’s routing strategy, maximizing the acceptance rate of transactions and thus revenue.

Load balancing in IXOPAY is handled by the Smart Routing engine. There is a dedicated routing rule available that allows a percentage of all transactions to be routed to a specific provider.

A/B testing in this context refers to routing a share of transactions to various different providers (e.g. 50% to provider A, 25% each to providers B and C) in order to gather data on how the transactions are processed. After a certain amount of time, the results are analyzed and strategic routing decisions made based on the results. 

For example, provider A may outperform both B and C with certain credit card BIN ranges, while provider B may outperform A and C for other transactions. The merchant can then choose to switch over to sending certain credit card transactions to provider A, while prioritizing provider B for all other transactions.

A/B testing can be particularly useful when switching to a new payments provider to test its strengths and weaknesses compared to other options at a merchant’s disposal. In combination with a solid risk and fraud management strategy, this helps merchants minimize chargebacks, maximize authorization rates and remain in good standing with their payment providers. This not only benefits merchants, but also their customers who are much less likely to experience issues during checkout.