How to boost approval rates with smart routing

Why do payments fail, and what can your business do about it? See how intelligent routing helps companies to boost e-commerce revenue by optimizing payment approval rates.

The success of any e-commerce business depends on its ability to offer an optimal customer experience. That’s why merchants must seek technological capabilities to process payments without glitches and prevent customers from abandoning a purchase.


Intelligent payment routing is one such capability. By enhancing payment success rates and reducing costs, intelligent routing helps e-commerce companies overcome common challenges like high decline rates and slow payment processing – delivering a win-win for both merchants and customers.


Why do payments fail, and what can merchants do about it? Read on to learn everything you need to know to make the right decision for your business and make the most of intelligent payment routing.



Table of Contents

Why do payments fail?

What is intelligent payment routing?

How does intelligent payment routing work?

Benefits of intelligent payment routing for merchants

How intelligent payment routing impacts transaction revenue

The value of intelligent payment routing for cross-border e-commerce

Summary: Choosing a global payment solution for smart routing

Intelligent Payment Routing PayU cover image

Why do payments fail?

When setting up new online payment infrastructure, businesses usually want to start accepting payments quickly without worrying about building a complex system. The right payment partner makes this complexity easy to navigate for merchants. 


Why is it worth collaborating with a payment service provider (PSP)? Payments in local and emerging markets are often harder to develop. Specific countries and regions have different regulations, risks, and challenges. Teaming up with a PSP helps to streamline payments and prevent transactions from being declined.


What are some of the common reasons behind a payment decline? A transaction might fail to process for many reasons, but most fall into three main categories: 

  • Technical issues 
  • Financial issues related to the customer’s card or bank account 
  • Risk-assessment issues 


Technical reasons for a transaction failure may be harder to grasp than a problem such as insufficient funds. For example, a network failure from any one of the many entities involved in processing a transaction could cause an error with the entire payment.


Other failed payments may be due to anti-fraud rules rejecting the transaction, or another error related to the authentication process. Some estimates put the number of payment declines at 2.6 of all e-commerce payments. What’s more, the impact of so-called “false declines” – legitimate payments that are nonetheless declined – is estimated to result in $430 billion of lost e-commerce revenue annually. 


Handling an error and identifying what caused it is always challenging. Luckily, merchants can take a few steps to decrease the frequency of payment declines and their impact on business. One of them is intelligent payment routing.

What is intelligent payment routing?

Intelligent payment routing is the capability of a payment platform to route payments through different payment providers in order to ensure the highest possible number of successful transactions at the lowest possible cost. 


A good payment services provider will offer a wide range of platform features and services focused on optimizing payment performance and payment routing.


By deploying flexible payment architecture – as well as connecting to local providers and payment acquirers – an intelligent routing system can help merchants to overcome high rates of payment decline and slower payment processing.


Intelligent payment routing automatically optimizes for criteria set by the merchant, sending payments through the optimal routing configuration to achieve higher approval rates, lower transaction costs, or other objectives.

How does intelligent payment routing work?

Intelligent payment routing is based on efficiency and cost-saving. The goal is to send the transaction to the acquiring bank where it’s most likely to be settled quickly and successfully, while taking into account and balancing the costs for merchants. 


Traditional payment routing systems connect with a single acquiring bank in a geographic region. With intelligent payment routing, the payment platform sends the payment to the bank estimated as the most appropriate one. If the payment fails, it’s sent to another one. By presenting the transaction to the bank that is most likely to accept it rather than only one bank within the network, merchants see a greater share of transactions accepted and completed without delay.


Intelligent payment routing has transformed this aspect of payments by removing geographical barriers associated with traditional payment routing. By allowing for localized routing on a global scale, payment networks can now allow merchants to more easily accept local and alternative payment methods from around the world via one single global connection.

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Benefits of intelligent payment routing for merchants

Higher approval rates

Merchants can increase payment approval rates significantly by routing transactions via the payment provider that offers the highest authorization rates for specific types of transactions. Merchants can also use this capability to “retry” failed payments and cut down on the number of false declines.



Lower transaction costs

By taking advantage of multiple payment service providers, businesses can send each transaction to the provider that offers the best rates. Reducing transaction costs by finding the lowest-cost routing configuration per transaction can lead to significant savings, especially for merchants selling high volumes of goods. 



Payment processing availability

By enabling connections to multiple payment acquirers, a global payment platform also helps businesses to ensure operational continuity. Regardless of what happens within any one link in the payment processing network, smart routing and payment “cascading” strategies increase the likelihood of a payment going through successfully.



Entering new markets

Payment routing mechanisms calculate the optimal route for each transaction based on various parameters including channel accessibility, geography, card type, currency, and more. When a business wants to expand into new markets, payment routing facilitates connections to new acquirers and alternative payment systems, simultaneously enabling both local and global payment coverage with minimal costs.

How intelligent payment routing impacts transaction revenue

While it’s easy to overlook, online merchants can lose out on tens or even hundreds of thousands of dollars in sales and revenue by not paying attention to payment routing.


For merchants who are aware of the problem, false declines are a particularly significant headache. By using intelligent payment routing, merchants can decrease the number of declined transactions, boost revenue, and improve customer satisfaction.


Here are two recent examples of merchants who have used PayU’s intelligent routing capabilities to increase e-commerce sales and online business performance: 

  • A major mobility player has seen an improvement of 5.5% in average approval rates, thanks to our multi-acquiring capabilities.
  • A major clothing merchant saved 20k transactions thanks to our platform’s cascading/retry capabilities within one year.

The value of intelligent payment routing for cross-border e-commerce

Smart routing can benefit any merchant, but it’s especially important for merchants expanding and scaling quickly across international borders – where the risk of false payment declines can be even higher due to localized payment methods, acquiring banks, and payment processing networks.


Intelligent payment routing simplifies cross-border payments by picking the best route to settle a payment in real time.  Such solutions support both local and global payments at a minimal cost by connecting merchants with local service providers and alternative payment systems that analyze the parameters in a payment request to eliminate the risk of fraud and boost the payment success rate. 


While traditional payment routing limits businesses to transacting with the acquiring bank in their payment network alone, intelligent payment routing helps merchants bridge geographical barriers by enabling localized routing on a global scale.

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Summary: Choosing a global payment solution for smart routing

Driven by AI-based routing technology, intelligent payment routing is one of the biggest trends in the payment space today. By optimizing payment routing decisions, merchants can increase approval rates and drive more revenue and conversions.


Smart routing helps merchants retry failed payments, improve customer experiences, and reduce transaction fees by choosing the best acquirer for each transaction.


Intelligent payment routing can benefit any merchant, regardless of company size or the industry in which they operate. However, to make the most out of intelligent routing, merchants must start by choosing the right payment provider. 


By working with a single global payment solution provider with multi-acquirer relationships, merchants can make the most out of the possibilities offered by smart routing, while accepting payments in any global market. Whether working toward a local launch or global expansion, every e-commerce merchant should look for a partner that can manage payment orchestration and routing to deliver a hassle-free experience when it comes to processing online payments – and improved performance when it comes to e-commerce.