The role of smart routing in global payments

Thanks to smart payment routing, navigating through the complexities of global payments can now be a thing of the past.

From fluctuating exchange rates to varying regulatory requirements and payment failures, companies often face inefficiencies that drive up costs and frustrate customers.

Smart routing acts as a real-time decision engine, dynamically selecting the most efficient payment pathway by analyzing transaction characteristics. By intelligently directing cross-border payments through the best possible channels, businesses can reduce costs, boost approval rates, and increase customer satisfaction.

Companies that leverage smart routing gain a competitive edge. But, how does it work, and why is it becoming indispensable? Let's explore the role of smart routing in modern global payments.

What is smart routing?

Think of smart routing as a global GPS for money, ensuring international payments take the fastest, most reliable, and most cost-effective path.

Unlike traditional payment systems that follow static, predetermined routes, smart payment routing is an AI-powered technology that selects the best payment pathway in real time.

Just as a GPS recalculates your route based on traffic, tolls, and road closures, smart routing continuously evaluates factors like processing fees, payment authorization rates, fraud risks, and local regulations. If one payment channel experiences delays or high fees, the smart routing system instantly redirects the transaction through a better option, maximizing efficiency and reducing operational costs.

Legacy payment systems rely on static payment routing, meaning transactions follow fixed paths regardless of performance or obstacles. This rigidity often leads to unnecessary declined transactions, higher costs, and inefficiencies. In contrast, smart dynamic routing adapts instantly to optimize each payment, ensuring businesses can scale globally without friction.

What is the payment routing system?

The payment routing system is the backbone of global transactions, ensuring that payments move seamlessly across networks, gateways, and financial institutions. It determines how transaction routes are processed, selecting the path that money takes from the payer to the recipient.

By replacing static rules with AI-driven adaptability, modern payment routing systems are revolutionizing global payments, ensuring businesses can process transactions faster, cheaper, and more reliably than ever before.

How smart routing technology works

Smart routing technology continuously evaluates multiple factors to ensure speed, cost efficiency, and approval rates. Here's how the process works:

1. Transaction Initiation: A customer or business initiates a payment in their local currency and country.
2. Intelligent Analysis: The system instantly assesses key factors, including transaction costs, foreign exchange rates, regional payment gateways, and fraud detection rules.
3. Optimized Routing: Based on this analysis, the transaction is directed through the most efficient local payment rail, such as SEPA in Europe or PIX in Brazil, to minimize costs and maximize success rates.
4. Seamless Completion: The payment is processed in the recipient's preferred payment method, ensuring a frictionless experience.

Machine learning is a key factor in the process, allowing for the analysis of vast amounts of transaction data. The system identifies patterns and adapts to regional trends, continuously improving routing decisions. For example, if approval rates for a particular payment rail drop in a specific market, the intelligent payment routing shifts transactions to a more reliable alternative.

Use study: A US merchant reducing fees on EUR transactions

Consider a US-based eCommerce company selling to European customers.

Traditionally, its EUR transactions might be processed through a US acquirer, leading to higher cross-border fees and potential currency conversion charges.

With smart routing, the system detects that routing these transactions through a German acquirer would lower costs, maximize approval rates, and eliminate any unnecessary FX conversions.

By automatically selecting the best regional acquirer, the merchant reduces costs and, in turn higher transaction success rates.

What are the benefits of smart routing

Businesses need efficient, cost-effective, and reliable payment solutions. Smart routing technology delivers these advantages by optimizing transaction paths.

Cost efficiency

Cross-border transactions often come with higher processing fees, but smart routing minimizes these costs by prioritizing local payment methods.

Instead of routing an international transaction through expensive intermediary banks, the system identifies domestic alternatives to keep fees low and improve profitability.

Lower failed payment rates

Payment failures can lead to lost revenue and frustrated customers due to declined payments.

Smart routing detects overloaded or failing networks and automatically reroutes transactions through alternative providers. For example, if a Visa transaction is declined due to network congestion, the system can retry via Mastercard or a local payment processor, increasing the likelihood of approval.

Fraud mitigation

Certain markets pose higher fraud risks. Smart routing dynamically assesses risk levels and directs transactions through more secure gateways in high-risk regions. This proactive approach reduces exposure to fraud while maintaining smooth payment flows.

FX optimization

Foreign exchange rates fluctuate constantly, impacting the final cost of international transactions.

Smart routing evaluates real-time FX rates and conversion fees, selecting the most cost-efficient pathway to reduce unnecessary currency exchange costs - benefiting both businesses and consumers.

Customer satisfaction

Long settlement times can frustrate international shoppers and slow down business operations.

By choosing the fastest, most efficient payment rails, smart routing ensures quicker fund transfers and seamless checkout experiences. This means decreased delays, improved customer satisfaction, and the potential to increase profit margins.

Optimizing global payment processing

Global payment processing comes with a unique set of challenges. Businesses handling cross-border transactions must navigate currency volatility, fragmented regulations, and diverse regional payment differences - all while ensuring smooth and cost-effective channels.

Tackling currency volatility with smart FX routing

Foreign exchange rates are constantly changing, impacting both businesses and customers.

Without global intelligent payment routing, payments may be processed through costly conversion pathways, leading to unfavourable exchange rates and hidden fees.

Smart routing selects the best FX rates in real-time, ensuring transactions are processed through the most cost-effective currency conversion options.

Navigating fragmented regulations with local compliance

Different countries enforce their payment regulations, and failing to comply can lead to failed transactions, higher fees, or legal risks.

Smart routing guarantees transaction security by ensuring payments flow through locally compliant payment networks, automatically selecting the acquiring bank and payment processor that meets regulatory requirements in each region. This eliminates the guesswork for businesses expanding into new markets.

Adapting to regional payment preferences

Customers worldwide prefer different payment methods. A credit card might be the default in the US, but in China, Alipay and WeChat Pay dominate, while Sofort is widely used in Germany.

Smart routing detects the preferred local payment methods and directs transactions accordingly, improving conversion rates and customer satisfaction.

When should you use smart routing payments?

For businesses expanding globally, smart routing is no longer optional - it's a necessity.

A traditional payment orchestration platform struggles with cross-border inefficiencies, high decline rates, and fraud risks, making transactions costly and unreliable. Whereas smart routing optimizes transaction details in real time, no matter where your customers are.

Here is when it becomes essential:

Selling in multiple countries with diverse payment preferences

If your business operates in three or more countries, you'll quickly encounter different payment habits. While US customers may prefer credit cards, customers around the world have other payment preferences.

Smart routing automatically selects the preferred local payment method, reducing cart abandonment and increasing conversions.

High-cross-border declines due to static routing

A legacy global payment orchestration platform typically follows fixed routes, leading to unnecessary declines when a payment gateway is congested or inefficient.

Intelligent payment routing redirects failed transactions - retrying a declined Visa payment via Mastercard or another local provider - to boost payment success and increase revenue gains.

Operating in high-fraud regions

The risk of fraudulent transactions varies by region, with Latin America and Southeast Asia experiencing higher instances of payment fraud.

Smart routing identifies high-risk transactions and routes them through secure, fraud-resistant gateways, adding an extra layer of protection without disrupting legitimate payment types.

Scaling businesses needing optimization

As businesses grow, manual payment management becomes unsustainable.

Smart routing automates cost optimization by selecting low-fee local rails, bypassing international networks, and choosing the most cost-effective currency conversions, saving money at scale.

Setting up smart routing payments

Setting up intelligent payment routing is a strategic process. Businesses must undertake a strategic set-up process to implement intelligent payment routing. To unlock its full potential, businesses must:

1. Choose a Provider with Global Coverage: Partner with a payment provider that supports multiple networks, currencies, and payment options. Providers like Nuvei offer global acquiring networks and intelligent payment routing capabilities, ensuring seamless transactions across borders.
2. Integrate APIs for Real-Time Routing: A robust API-driven integration allows smart routing technology to work in real time. These APIs analyze factors like cost, approval rates, and fraud risks, ensuring each transaction is processed via the most efficient pathway without manual intervention.
3. Prioritize Routing Rules: Define the key objectives of your smart routing strategy. Businesses with high-value transactions may prioritise speed, while cost-sensitive companies may optimize for lower fees by selecting local payment rails. Setting clear rules ensures that payments align nicely with business goals.
4. Test with Regional Transaction Simulations: Before going live, simulate transactions across different regions with multiple currencies. This allows businesses to fine-tune routing logic and boost authorization rates in diverse markets.
5. Monitor Performance with Dashboards: Continuous optimization is key. Use live dashboards to track cross-border KPIs - including approval rates, transaction costs, and fraud trends. By analyzing this data, businesses can refine their routing strategies and stay ahead of shifting market conditions.

With the right set-up, smart routing can enhance global payment efficiency, empowering businesses to scale seamlessly across international markets.

Nuvei's advanced smart routing payments

Nuvei's advanced smart routing capabilities leverage artificial intelligence and sophisticated algorithms to enhance transaction success rates by analyzing vast amounts of transaction data to optimize the fastest processing routes.

Key features include:

• Dynamic Acquirer Selection: Nuvei's smart routing technology dynamically selects the best-performing acquirer in real-time, boosting approval rates by up to 5%.
• AI-Powered Analytics: Nuvei's smart routing engine employs advanced AI predictions and historical data analysis to improve acceptance rates.

Conclusion

Businesses need intelligent, efficient, and cost-effective payment solutions to maintain a competitive edge.

Smart routing is transforming global payments by optimizing transactions in real-time, reducing costs, increasing approved transactions, and ensuring seamless customer experiences.

With Nuvei's advanced smart routing technology, businesses can leverage AI-driven insights and dynamic routing to maximize payment success and scale effortlessly across borders.

Ready to streamline your global transactions? Discover how Nuvei can enhance your payment process.