Smart Routing
Smart routing is the selection, for each transaction, of the path most likely to produce an approval at an acceptable cost — which acquirer, which network, which message format, which authentication route — using observed approval rates by issuer, card type, country, amount and time, plus cost and risk. It is the core function of a payment orchestration platform and a feature of the larger PSPs, and its value is measured in points of approval rate on the same transactions.
- Also known as
- Intelligent routing, Dynamic routing, Transaction routing
- Used at
- merchants and platforms with more than one acquirer or route; PSPs with several acquiring connections routing on the merchant's behalf; cross-border merchants above all
- Binding
- no rule; but the routing must respect scheme rules on reattempts, the SCA rules on authentication, and the debit routing regulations where they apply
- Typical signals
- historical approval rates by route × issuer BIN × transaction type; latency and error rates; cost by route; the transaction's risk score; the availability of network tokens on each route; currency and country of the card and the acquirer
- Typical results
- 1–5 points of approval-rate uplift for merchants with meaningful route differences; lower cost through least-cost routing; resilience through failover and cascading, which are smart routing's reactive forms
- Parties
- the merchant, the orchestrator or PSP (whose model does the routing), the acquirers (which are ranked and, sometimes, bypassed), the issuers (whose behaviour the model learns), and the schemes
How smart routing works in practice
A transaction arrives: a Brazilian-issued Visa credit card paying €120 to a Spanish merchant with three acquirers — Spanish, Brazilian and a global one. The routing model has seen this issuer's cards on all three: the Brazilian acquirer approves 94% of them (domestic acquiring), the Spanish 79% (cross-border), the global 85%. Cost is higher on the Brazilian route because of FX. The model weighs the expected value — approval probability × margin, less cost — and routes to the Brazilian acquirer; if it times out, cascading sends the retry to the global one. The customer sees an approval; the merchant's finance team sees, over a month, a 6-point uplift on Brazilian cards.
The model learns continuously: every authorisation's outcome updates the estimates by route and segment, and rules the merchant sets — never route above €500 to acquirer C, always use network tokens where available, respect the debit routing regulation — bound it. Its inputs are the merchant's own data and, at a PSP or orchestrator, the pooled data of many merchants, which is the platform's edge: a single merchant cannot learn an issuer's behaviour from a hundred transactions a month, and a platform seeing a million can.
For payments M&A, smart routing is the differentiator PSPs and orchestrators are bought for, and the claim a buyer measures against a baseline before paying for it.
Example
A travel platform processes €600m a year across 40 countries on one PSP: 82% approval. It moves to an orchestrator with five acquirers and a routing model. First quarter: local acquiring in its four largest markets lifts approval on those cards by 5–8 points; the model discovers two issuers that approve far more on one route than another and shifts them; network tokens are used wherever the route supports them. Approval reaches 88.5% — €39m of additional annual sales at the platform's conversion — and cost falls 0.15% through least-cost routing on EU debit. The orchestrator's fee is €0.06 per transaction, €720,000 a year. The platform's payments lead, asked what the model does, says "it remembers who said yes".
Common mistakes
- Routing on rules written once — "US cards to the US acquirer" — and never on outcomes. - A model that optimises approval and ignores cost, or the reverse. - Believing a vendor's uplift claim without the merchant's own baseline and a holdout. - Routing away from an acquirer for a week because of one bad day, and losing the relationship. - Confusing smart routing with cascading; one chooses the first route, the other the second.