Payment routing 101: definition, process, rules, and workflow
January 15, 2024
12 min
As a business owner, working with a single payment service provider can be risky as every decline, glitch, or downtime on their side can result in your losses. That's why it's reasonable to work with multiple providers and route your payments in the wisest way possible.
This 101 guide will explain the concept of payment routing, the reasons and best practices for routing, and how to take the pain out of it.
What is payment routing?
Payment routing is a core smart payment processing function that determines the best path for each transaction in real time. Instead of sending payments to a single gateway, it evaluates multiple acquiring banks, payment processors, and service providers, then routes the payment to the one most likely to succeed.
This 'behind-the-scenes' logic uses predefined rules and dynamic data points such as card type, issuing bank, currency, transaction value, location, or historical provider performance. The goal is to increase the chances of approval while balancing cost, speed, and reliability.
For the customer, payment routing is invisible — they simply complete their purchase. For the business, however, it’s a powerful optimisation lever. By implementing smart routing, companies can:
- Boost acceptance rates by directing payments to providers with the highest approval probability.
- Lower transaction costs by choosing the most cost-efficient path without sacrificing success rates.
- Ensure business continuity by automatically rerouting transactions during downtime or provider outages.
- Distribute payment load strategically across multiple providers to avoid bottlenecks and maintain stability.
In short, payment routing transforms payments from a back-office necessity into a revenue driver. It helps businesses working with multiple providers achieve higher conversion rates, protect against failures, and scale across markets with confidence.
Get our free payment routing guide📚
This guide will explain the concepts of payment routing and cascading, the reasons and best practices for routing, and how to take the pain out of it.
The history and evolution of payment routing
In the early days of online payments, most merchants depended on a single acquiring bank or gateway. This setup left them exposed: when the acquirer had downtime, enforced strict risk rules, or lacked regional coverage, transactions failed. Cross-border payments were especially unreliable, and merchants had almost no ability to optimise outcomes.
As e-commerce grew, businesses started connecting to multiple PSPs and acquirers to build redundancy. But routing logic was still static and often hard-coded by developers, such as sending all Visa traffic to one provider and Mastercard to another. This added resilience but lacked agility. Updating rules required engineering time, and failures still meant lost revenue.
The breakthrough came with dynamic or intelligent payment routing. Instead of relying on fixed paths, routing engines began evaluating each transaction in real time, taking into account factors like issuer country, card brand, currency, transaction amount, risk score, and historical approval rates. This data-driven approach made it possible to send every transaction to the provider with the highest chance of success, improving acceptance rates and lowering costs.
Today, with AI and machine learning, routing engines can learn from billions of transactions. They can adapt to issuer behaviour, reroute instantly when a provider goes down, and balance between conversion uplift and cost efficiency. For industries with high payment volumes, like iGaming & betting, routing has evolved from a back-office function into a direct driver of profitability.
In short, payment routing has progressed from rigid single-bank setups to a sophisticated optimisation layer. What once ensured basic continuity is now a cornerstone of payment orchestration, helping merchants maximise approval rates, reduce processing costs, and maintain resilience in an increasingly complex payments landscape.
Interested in intelligent payment routing?💡
Discover how Corefy's smart routing engine maximises payment performance and enables the highest success rates by optimising all incoming and outgoing transactions in real time.
Types of payment routing
There are two main ways to route transactions: static and dynamic routing. Let's take a closer look at each option.
A business can route its transactions in a desirable way by creating static routing schemes. Static payment routing involves manually configuring fixed routes to payment providers. It is also sometimes referred to as direct card routing. While it provides a straightforward approach, it's unresponsive to any occurrences and can result in lost sales if the pre-defined route becomes unavailable.
Dynamic routing, also known as smart or intelligent routing, on the other hand, enables businesses to adapt to changes and select the most efficient payment route to ensure each transaction's successful completion. Setting up various dynamic routing rules paves the way for the continuity of operations, leading to increased approval rates for routed transactions. For example, a smart processing engine can select the best route based on multiple parameters, such as card issuer/type/brand, auth mode (CVV/3DS), geolocation, store, currency, amount, date & time, metadata, and other payment routing data.
How does payment routing work?
As we already know, payment routing is the process of selecting the best payment provider to handle a transaction. The selection is based on several factors, such as transaction volume, payment method, transaction amount, currency, and risk level. Smart routing takes this process further by dynamically routing transactions based on real-time data and predetermined rules.
The payment router analyses transaction data in real time and determines the best payment provider to handle the transaction. This decision is made based on a set of predetermined rules, such as the provider's success rate for that particular payment method, transaction amount, or currency. The business creates and adjusts these rules based on their unique needs and priorities.
Once the best payment provider is determined, the transaction is routed to them and processed. If the transaction fails for any reason, such as an expired card or insufficient funds, the system will automatically try to route the payment to another provider until the transaction is successful.
But first, businesses need to establish relationships with multiple payment providers across different regions and payment methods. They must also develop sophisticated algorithms to process large amounts of data in real-time mode and make quick decisions. Alternatively, they can opt for a ready-made solution like Corefy, allowing them to benefit from payment routing without development efforts.
Check out this video if you want a more hands-on demonstration of how payment routing works. It shows how our clients configure routing schemes for their business needs.
In summary, smart payment routing is a complex and dynamic process that involves analysing real-time transaction data, establishing relationships with multiple payment providers, and using sophisticated algorithms to route payments to the best provider based on predetermined rules. By implementing it, businesses can improve their success rates, reduce transaction failures, and ultimately enhance the customer experience.
Benefits of payment routing
Global intelligent payment routing system helps merchants working in a multi-provider setup address four main challenges:
- Increase success rates. You can significantly increase your acceptance rates by routing each transaction to the gateway offering the highest authorisation rates for such types of transactions. Routing engines also allow merchants to implement retry strategies for 'soft declined' transactions, restoring otherwise lost sales and minimising payment failures.
- Reduce transaction costs. By leveraging multiple PSPs, you can send each transaction to the provider that offers the best price. The ability to find the lowest-cost way for each transaction can save you up to 30% in payment fees.
- Improve customer experience. Intelligent payment routing allows customers to enjoy a seamless checkout experience without any hassles or friction. This convenience factor helps to reduce cart abandonment rates and increase the likelihood of repeat purchases, leading to higher customer satisfaction levels and increased loyalty.
- Maintain payment process redundancy. Integrating a few different payment gateways would help you improve customer experience and ensure operational continuity, no matter what, with the help of routing and cascading.
Payment routing allows you to process all your transactions in the most optimal way based on various parameters and conditions. Actually, some of our clients have carefully crafted payment routing schemes with hundreds of rules. And it’s not just nerding out. It’s how you achieve the most striking business results.
Denys Kyrychenko
Corefy Co-founder & CEO
Drawbacks of intelligent payment routing
While the potential benefits of international intelligent payment routing are great, there are also some severe drawbacks worth considering.
Routing increases the complexity of all payment-related processes. You have to deal with multiple PSPs and their specificities, from the fees they charge to their data settling and reporting format. Instead of a quick win, you may find yourself in a payment management and reconciliation nightmare, requiring significantly more effort to handle your transactions than you initially expected.
With this in mind, try looking for a payment orchestration platform that will help you handle not just routing but the whole process of working with multiple payment providers. For example, Corefy helps businesses conveniently manage the entire payment and payout lifecycle in one place.
Think orchestration is just another expense?🤔
If you work with multiple providers, chances are high that an orchestrator could reduce your costs and boost revenue. Try our ROI calculator to see how much your business could gain.
Case from our practice
If you are a high-risk business and your conversion rates are suspiciously low, check out this case our team solved recently.
Our gambling client initially connected multiple PSPs across different regions and had the freedom to set up routing as they saw fit. However, this approach led to a conversion rate of only 20%.
To address the issue, we thoroughly examined the client's routing scheme and analysed the reasons behind transaction declines. We discovered that a significant portion of declines was attributed to fraud and restrictions imposed by acquirers on transactions from certain countries. It became evident that there was a lack of effective communication between the client and their providers regarding the specificities of high-risk acquiring and anti-fraud systems.
On behalf of the client, we took the initiative to contact their providers and gather detailed information about the restrictions applicable to high-risk merchant accounts. It turned out that transactions originating from certain regions using specific cards were prohibited.
With this knowledge in hand, we assisted our client in creating a new routing scheme that focused on parameters such as user IP and issuer country. This allowed us to minimise failures by directing each payment to the most suitable provider that accepted such transactions. Additionally, we implemented a cascading feature, providing each transaction with an extra opportunity for successful processing.
Thanks to these strategic improvements, our client experienced a remarkable turnaround, with the conversion rate exceeding 60%.
Route your transactions hassle-freely with Corefy
Corefy's smart routing engine maximises payment performance and enables the highest success rates by optimising all incoming and outgoing transactions in real time. This powerful tool enables you to implement and modify various flow strategies quickly.
To make intelligent routing a piece of cake for you, we offer the following:
- An intuitive graphical interface, that allows you to edit routing schemes easily without any coding.
- A single-window system for processing payments and payouts, regardless of methods, flows, and currencies.
- The ability to create as many various routing schemes as you wish for greater flexibility. You can revise them to define the most efficient ones based on payment analytics.
- A powerful toolkit of accompanying features designed to boost your revenue.
To sum up
In conclusion, payment routing is an essential payment processing feature for businesses working with multiple payment providers. It helps companies to increase success rates, reduce transaction costs, and maintain payment process redundancy. While payment routing can be complex, platforms like Corefy can help businesses handle the whole process of working with multiple payment providers and make intelligent routing a piece of cake.
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