Payment Switch Architecture
Static payment gateways have proved to be poorly equipped to handle a complex payment ecosystem. Those who aim to expand their market and grow must be ready to switch from the static routing to a smarter and more dynamic routing that helps efficiently manage and optimize payments end-to-end. In this post, we bring you the best alternative to static routing, a payment switch architecture that will meet the hyper-growth needs of any merchant.
What is the payment switch?
The payment switch is transaction-based software that can be built or bought. Using rules merchants devised, it dynamically routes payment transactions between a multitude of acquirers and Payment Service Providers (PSPs) end-points. It enables retries of declined transactions, routing by the time of day, routing by lower cost, routing by amount, and routing by BIN. The ability to dynamically route transactions makes payment switches more efficient than traditional gateways.
This dynamic routing of transactions, designed by a merchant’s rules to meet business needs, adjusts to the real-time environment provides better customer experience and optimizes all transactions from multiple providers to avoid high costs.
What are the benefits of the payment switch?
The payment switch enables merchants to easily route transactions to the backup acquirer in the case of an outage or acquirer slow-down and retry the transaction through the second acquirer and obtain approval when it’s declined, which helps save rates on declined retries, maintain constant response times to avoid possible time-outs and recover lost sales.
A large number of Payment Service Providers (PSPs) built token vaults that negatively impact merchants’ needs as they need to rely on only that one PSP and cannot maintain PCI compliance which will not affect daily operations. The payment switch doesn’t cause these problems as it translates various data formats, normalizes the data for export to analytics tools or into consolidated dashboards, and offers strong reconciliation engines so merchants can quickly examine payments across the entire enterprise.
Payment switch: build or buy?
As mentioned above, a payment switch can be built or bought. When making a decision, there are several things to keep in mind. Merchants’ needs, goals and other requirements must be well-defined. Those with strong payments product management, IT skills, and good PSP relationships could consider building their own switch. But those who need to connect to a multitude of new end-points are better off buying one. Some payment switches run on-premises while others are Cloud-based (“Software as a Service”); some have extensive connectivity, but others have stronger services and tools.
Merchants who sell globally with multiple end-point connections should consider the following:
- The payment switch must support multiple connections to multiple PSPs, global acquirers, and message formats
- It must use dynamic routing rules defined by a merchant
- It can dynamically control transaction volumes between vendors, based on automated parameters defined by a merchant
- It has accounting and logging features for supporting reconciliation across a multitude of end-points
- It offers tokenization tools and encryption and to establish PCI/DSS compliance
- It consolidates PSP reports and dashboards for simplified payments reports
Unlike the standard payment gateways, which are static, fixed and leave no room for a change, the payment switch provides better options and has more advantages than gateways. The payment switch optimizes payments, dynamically routes payments, new payment providers can be easily added, merchants can test their payment flows, conduct granular analysis, protect customers and provide better customer experience, and finally, it enables a hyper-growth.