The intricacies of payment routing – executive interview with Spreedly

Monday 4 September 2023 10:11 CET | Editor: Irina Ionescu | Interview

Andy McHale, Senior Director of Product and Market Strategy at Spreedly, presents a subject-focused take on the topics of payment orchestration and payment routing.

Orchestration has been a hot topic as of late. Let's start with a bit of an overview and definition – what exactly is payment orchestration?

Orchestration has been such a buzzword for a few years now, and I think a lot of people get confused about what it means.

At Spreedly, we tend to think of orchestration as the basic building blocks that expand your reach and ability to connect. This includes things like the PCI secure vault, multiple connections to not just PSP providers, but additional service providers as well, like fraud prevention vendors, or billing or subscription platforms. All these things connect and ensure that transactions are being completed in that space.

Building on that, how does the routing of payments fit into that definition?

Routing often appears as a sort of black box for many of the customers I speak with. Once you have the basic building blocks of orchestration put together, you have your vaults, you have all of the gateways or PSPs, or other connections that you can send your payment methods through for transactions, it turns into a policy or business decision for the merchant. The questions that arise are what they are trying to optimise for or how they want to send traffic.

At times, the routing decision is based on a contractual arrangement between the merchant and a gateway or PSP, while in other instances, it aims to enhance authorisation success rates. Other times, it is about optimising for cost – whether it is interchange or a specific rate that a merchant has through a particular gateway.

There are different drivers behind why merchants choose to route transactions, but at the end of the day, it is about designing the right logic to get a transaction to the lowest cost endpoint with the highest success rate.

What types of payment routing exist? Can you give us some examples?

One of the payment routing types frequently mentioned in our discussions with our customers is something that people usually don't consider right away: payment retries.

We generally tend to talk about payment retries in terms of failover. For instance, if your primary or your preferred partner is down, in such a scenario, even if this happens for 30 seconds, there are transactions that are flowing through, and you need to be able to automatically reroute them to a gateway that is up and running. It is all about ensuring that the customer experience continues seamlessly, even if your primary service provider is unavailable.

Another example that we hear a lot about and that we also discuss with our customers is soft declines. Consider, for example, a scenario where the gateway has a rule that rejects the transaction – or some ambiguous decline code comes back. In this case, you can retry that transaction with a different gateway by routing it to a secondary one, to see if you can reclaim it. This is what we call a decline salvage. This is aimed at guaranteeing a positive customer experience. By ensuring that you are not getting a false positive or false decline, you're able to capture that transaction.

As we move forward, we delve into more complex routing use cases. When it comes to pricing, for instance, if you have a particular gateway or provider where you are optimising for cross-border fees, or certain interchange rates based on the transaction type, you may want to route that transaction to a particular gateway.

Some merchants may favour certain currency types or specific credit card types. For example, if you have a local card brand like Elo in Brazil, you might want to route that transaction through your Brazilian processor instead of your European processor. These are various actions you can take to route transactions, all with the goal of optimising cost and authorisation rate performance.

In what use cases does payment routing make the most sense for merchants? Are there specific industries or types of merchants where this approach is most valuable?

Some of these scenarios lend themselves a little bit better to larger enterprise merchants – and, in particular, global merchants that are operating in multiple countries. Not to say that there are no opportunities for smaller merchants. Specifically, in the use cases I talked about regarding decline salvage and outage retry, smaller merchants also have the chance to recover lost transactions. But when a merchant is trying to optimise for basis points in their interchange rate or authorisation rate performance, they can choose to run those transactions through different local processors in order to optimise those things.

This is the case for some industries in particular. Let's consider online travel agencies (OTAs) as an example, as they are some of our customers at Spreedly. OTAs use multiple gateways in different regions because they have consumers from all over the world bringing different credit card types, currencies, and other things that the OTAs want to optimise for to cater to the user experience while customers are making purchases, as well as optimising for authorisation success rates and the lower costs.

Now that you mentioned Elo and the particularities of payment routing when it comes to merchant types, we were wondering if there are also specificities when it comes to certain geographies. Is this aspect important?

It is important, and we certainly see this tendency for some of our customers. I’ll use Latin America as an example, once more expanding upon Brazil as a use case.

Generally, we tend to associate routing with Visa and Mastercard, but that is not really the case, as there are a lot of local card brands that play a role as well. I previously mentioned the Elo card, there is Hipercard, and there are a couple of other cards in Latin America that you could point to as examples. Similarly, this is the case for Europe, where we also see instances of co-branded cards. So, you have the option to route based on factors such as whether it is a credit or debit card, or you can choose to route based on a specific card's currency, as I previously mentioned.

In addition to those local card brands, you also have alternative payment methods, and another example from Brazil is Pix. You may choose to send your Pix transactions to a given PSP, depending on aspects such as success rates. Various wallet types also exist, Nequi is a case in point for Latin America, and these various wallets are operated differently across the board.

If you have PSPs in your orchestration stack that support those payment methods, you can make decisions on where to send those transactions. You may send them to a more advantageous rate – or, in some cases, a more favourable authorisation uplift.


About Andy McHale

Andy McHale is Senior Director, Product and Market Strategy at Spreedly. Andy has been in payments and risk for over 20 years. Prior to Spreedly, Andy was with RetailMeNot. He was also a member of the teams at PayPal and eBay, where he contributed to various aspects of consumer and merchant payment solutions and fraud prevention. 

About Spreedly 

Spreedly's Payments Orchestration platform enables and optimises digital transactions with the world’s most complete payment services marketplace. Hundreds of customers worldwide secure card data in Spreedly’s PCI-compliant vault and use tokenized card data to enable and optimise over USD 45 billion of annual transaction volumes with any payment service.

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Keywords: payments orchestration, payment processing, online payments, PIX, PCI DSS, PSP, fraud prevention, transactions , payment gateway, payment gate, false declines, cross-border payments, authorisation rate
Categories: Payments & Commerce
Companies: Spreedly
Countries: World
This article is part of category

Payments & Commerce


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