In the dynamic e-commerce environment, flawless payment processing is essential for sustaining customer satisfaction and increasing revenue. One effective strategy to achieve this is cascading payments. In this blog, we will explore the cascading process, its benefits, and how it can help minimise transaction declines. 

What are Cascading payments? 

Cascading payments involve distributing transactions through multiple payment gateways or channels using smart routing. If a transaction is declined through one channel, it is rerouted to another processor, based on the error code that occurred. For instance, the return code “05” signifies that the bank does not provide a specific reason for the failure. This approach gives each transaction multiple opportunities to be approved and processed successfully, significantly reducing the likelihood of failed payments. 

Comparing Cascading payments and Smart Routing: What sets them apart? 

While both cascading payments and smart routing aim to optimise transaction success rates, they operate at different stages of the payment process. Smart routing is a preventative measure that selects the most efficient route for a transaction based on real-time data, aiming to reduce the chances of a decline. On the other hand, cascading payments act as a remedial measure, rerouting transactions that have already been declined to alternative channels for approval. Essentially, smart routing prevents declines, while cascading payments address them after they occur. 

How do Cascading payments work? 

Cascading payments operate by analysing various factors such as transaction type, currency, and customer location. Here’s a step-by-step breakdown of how cascading payments work: 

  • Data encryption: The payment gateway securely encrypts transaction data and sends it to the cascading system. 
  • Dynamic decision making: The system evaluates multiple factors, including the customer’s location, payment currency, transaction amount, and card type. It then selects the initial route with the highest chance of approval, a process enabled by the system’s smart routing feature, which creates and stores a list of candidate routes for each transaction. 
  • Routing execution: If the first route fails, the transaction is rerouted to the next available channel until it is successfully processed. This iterative process continues until the transaction is approved or all options are exhausted. 

Additionally, unusual purchasing behaviour can raise a red flag and result in the transaction being declined. This includes purchases made from a different region or location, transactions with higher-than-normal values, and the rapid purchase of multiple items, such as gift cards. 

Benefits of Cascading payments for merchants 

Cascading payments offer several key benefits for e-commerce merchants: 

  • Higher authorisation rates: By providing multiple opportunities for a transaction to be approved, cascading payments significantly increase authorisation rates. This reduces the risk of false declines and enhances customer satisfaction. 
  • Improved reliability: In cases of gateway outages or network congestion, cascading payments can reroute transactions to alternative paths, ensuring uninterrupted payment processing. 
  • Enhanced security: By analysing transaction patterns and detecting anomalies, cascading payments can help prevent fraud and protect sensitive payment data. 

How to set up Cascading payments 

To fully leverage the benefits of cascading payments, merchants can customise the routing criteria based on their specific needs and objectives. Here are some ways to set up cascading payments for optimal results: 

  • Data-driven decisions: Use machine learning algorithms to analyse transaction patterns and predict outcomes, enabling the cascading system to adapt to changing conditions. 
  • Backup routing: Implement failover mechanisms to avoid failed transactions and ensure continuous payment processing. 

By integrating cascading payments into your payment processing infrastructure, you can significantly improve transaction success rates, reduce costs, and enhance the overall customer experience.