For most founders, getting customers to pay uses up a lot of mental energy. But how many of them consider the process after payment?
Stripe Plug-and-play or another payment service into your infrastructure and forget about it. This is how most online businesses make payments – at least until it starts to show its inefficiency.
The problem arises at some point, when you start processing real transaction volumes, expanding into new markets, or simply becoming more knowledgeable about the data. This is when we understand why there are always fewer successful transactions compared to those that were attempted.
And it has a name: the authorization rate. And that’s too low for most startups.
What no one tells you about declined transactions
When a transaction fails, most entrepreneurs tend to think that the problem lies with the customer’s card. In some cases this may be true. However, there are many other cases where transactions have failed, not due to customers’ inability to pay, but due to issues with payment systems.
Here are some examples of common failures that entrepreneurs usually don’t consider:
Your payment provider does not match your card types or currencies. An acquirer who works well with U.S. Visa cards will not be as effective working with some European or new market card issuers or local payment methods. If all your transactions go through the same provider regardless of their origin, you obtain its average quality for all types of cards/currencies.
No retry logic. Many transactions are soft and temporary. Your card issuer may decline your transaction for no reason except that something went wrong. Without retry logic, your sale is lost forever.
There is a lack of visibility into what is broken and why. If you get all your numbers through a single payment processor dashboard, that means you only see what that payment processor wants you to see. Without any benchmarks, you have no way of knowing which maps/regions are performing poorly.
All of this isn’t visible at first, but becomes clear once you start doing the math around your lost revenue and understand that it wasn’t just a UX issue.
What is payment routing?
Payment routing is a way to determine the appropriate payment processor for each particular transaction. At first glance, everything seems quite simple. However, in reality, payment routing is one of the most powerful levers a growing online business can use.
Typically, routing involves sending a payment to processor A, not processor B. Intelligent payment routing is distinguished by a layer of intelligence behind this operation. Rather than being automatically sent to the same destination each time, a transaction will be analyzed based on certain variables such as the customer’s card type, country, currency, amount, risk rating and the performance of each processor at any given time. Then, based on this analysis, a decision is made on where to send the payment.
If the first fails, the cascade logic automatically redirects to a second provider, after which the transaction is approved and not declined. This whole process happens in a few milliseconds. For you as a customer, nothing has changed; for you as an organization, a lost transaction is recovered.
It is not a theoretical concept. A detailed description of how it works in practice, including real-world use cases, is presented in this document. intelligent payment routing guide if you want to delve deeper into the mechanics.
Why this is more important as you scale
If your monthly transaction volume is 500 and your authorization rate is reduced by two percent, that will mean ten lost sales per month. It’s annoying, but still tolerable.
With a monthly volume of 50,000 transactions, the 2% gap becomes an opportunity worth 1,000 sales per month. At this stage, it is a real lever for growth, rather than a technicality.
The reason this topic is important to mention for startups trying to expand overseas is that approval rates differ between countries. Payment behaviors evolve from one country to another in unpredictable ways. The supplier that is right for your home market might perform poorly in your next destination. Without routing functionality that would allow you to route payments differently across regions, you have no way to account for these differences.
Then there is the cost factor. Different providers charge different fees depending on card types and currencies. Cost-effective routing that takes into account the likelihood of payment authorization could reduce your processing costs in the long run.
The practical question for founders
For most founders, especially those of early-stage startups, routing payments isn’t something that requires a lot of thought. One vendor, one integration, until you achieve product-market fit.
However, there comes a point during the process of starting your business where the payment system you initially set up becomes a limiting factor for you. When is it time to reconsider your payment strategy? Here are some clues:
You’re expanding internationally and seeing higher rejection rates in new markets. You’re growing quickly and want to know what percentage of your volume is converting. You have subscription patterns and involuntary cancellations due to card declines. You have two payment providers but you manage them manually.
If any of these apply to your situation, now is a good time to discuss payment routing rather than later when it is already affecting your bottom line.
What good payment infrastructure looks like at this stage
You don’t need to develop anything. Today’s payment orchestration solutions allow you to leverage routing logic, connect to multiple vendors, manage retries, and receive consolidated reporting through a single integration. The engineering effort required here is much less than most founders think.
In exchange, you will take control. Control over which payments should be routed to where, awareness of causes diminishes, and the ability to adjust routing rules as needed without having to perform new integrations at any time.
As an entrepreneur building your startup, payment infrastructure is something you would like to avoid focusing on because it seems completely invisible until something goes wrong. Treating it as a strategic layer rather than a utility allows you to influence metrics that can never be recouped with marketing alone.
The checkout journey takes your customers to the checkout page. What happens next? It depends on your payment infrastructure.
