How cascading payments can optimise your company's payments

For those offering goods and services online, cascading payments can provide a great alternative to improve the company's capital flow and optimise payments.

Cascading payments: A basic guide to choosing the best provider in 2022

It seems indisputable that the internet has extended a wealth of tools for those looking to take their business to the next level. One of the most popular areas in recent years has been e-commerce, and the exchange of goods and services in an online format. This means that various resources and technological means are being developed in parallel in order to offer a more seamless experience. This is where cascading rollback or smart-routed payments can play a significant role. Here's what you need to know to select the best provider in the market and learn more about this innovative transaction scheme.

What are cascading payments?

The first thing to understand when talking about smart-routed payments is that when generating online transactions, it is common for the capital used to pay to travel through an indeterminate number of servers. This is even more common in cases where platforms offer an indeterminate number of transaction mechanisms, and where there is a massive flow of transactions. Moreover, it should be noted that, although the internet allows access to a large flow of data, not all money mobilisation is done automatically. In other words, transaction channels often need to be optimised to prevent cascading rollbacks, wherein one transaction fails and causes other dependent transactions to fail as well.

This is precisely what cascading payments are meant to solve. Also known as smart routed payments, they are digital infrastructures that allow for the optimisation and shortening of the electronic routes along which payments must travel in the network. While some ecosystems follow a fixed transaction line, routed payments cut through and seek the shortest and simplest channel so that capital can get from point "A" to point "B" free of any inconvenience.

What types of companies offer these payment methods?

Contrary to what one might think, this optimisation of payment systems is not tied to the channels of the intermediary companies' own digital infrastructures. In otherwords, for those who want to benefit from its advantages, it is necessary to contract the services of a third party.

For those interested, it may be revealing to know that there are many companies that have begun to implement these technologies. The nature of the firms varies widely, and although it is possible to find some that specialise exclusively in payments olutions, most of them are fintech developers whose main business model is the development of digital solutions.

Therefore, it should come as no surprise when a company specialising in cyber security extends the possibility of acquiring intelligent payment routing functions. In the same way, it is possible to see business consultancy corporations integrate these technologies into their orchestra of services.

How to select the appropriate cascade payment provider

There is a wide and heterogeneous range of companies available to those interested in acquiring this transaction scheme, all of which are focused on extending these services to the public to a greater or lesser extent. However, from a merchant's perspective, it may be overwhelming to choose a company that can truly meet all their needs given the growth of these firms.

The most obvious selection criterion is precisely the amount of payment resources that the company can integrate into the cascade system; not all companies work with the same payment tools. In the case of prioritising banking transactions, it is always advisable for the firm to have a legal seat, both within and outside the European Union as this would allow the firm to offer advice and act as a nintermediary in the event of any dispute.

Another element that can be considered beneficial when selecting a company is that it also offers network security services. It should be remembered that cascading payments are a mechanism that optimises the flow of transactions, which lacks the functions of an antivirus. In other words, having a good payment infrastructure in place does not guarantee that the site will be unscathed by any cyber-attack. Thus, the company that manages to combine both services should be considered among the first choices.

Finally, since online payments are not exactly new, it is possible to find firms that offer these optimisations backed by many years of experience. In this way, older firms will be able to offer guarantees that those founded more recently may not have initially. In addition to this, it is always important to maintain a channel of communication with the company, so customer support systems will always be a determining factor when selecting a firm of this type.

How to acquire and adjust a payment response in a cascade scheme

Companies should optimise their payment scheme not only to avoid any possibility of chargebacks but also to perceive the broad spectrum of benefit in financial terms for their companies and enterprises. The procedure, although it has certain nuances depending on the company, is relatively homogeneous. Here are the steps to follow:

Contactingthe financial solutions firm of your choice

The first thing to do is to contact a company that has the capacity to provide your business with intelligent routing payment channels. At this stage, you should discuss the possibilities of optimising your business model. It is also worth looking into automated alternatives that can be used in cases of chargebacks or situations where the customer is mistakenly charged twice.

Note that not all companies are able to optimise all payment methods with this scheme. It may be the case that the firm works, for example, with digital and crypto wallets but does not have the services in case of bank transactions. Based on this, it is always recommended to make a thorough investigation of the firm's range of possibilities and to clarify any questions during the consultation.

Adaptation of the site's servers

Once the decision is made to optimise the payment mechanisms, adjustments must be made within the web servers where the goods and services are delivered, and the information provided to the customers to make the payment must be adapted. Depending on the company's services, this may be done by the optimising company, or it may be done by the client's server programmers.

The technical team of the company installing the cascade scheme should perform tests on the server to verify that the mechanisms are working properly. From the customer's perspective, the payment dynamics should not present major variations when everything flows in the right way. However, if the server detects an unstable internet connection, the site should be able to terminate the transaction before seeking confirmation and provide feedback in case of reversal or cancellation.

How do such payments work?

To understand how cascading payment methods work, it may be desirable to understand how an ordinary online payment works. When a customer purchases a good or service, either via their smartphone or desktop computer, it is through a large number of interconnected networks. The companies that offer these payment networks generate a structure called an "Autonomous System", where data is transferred to different information centres, each of which has its own IP address.

What cascaded payments do is to act through a Border Gateway Protocol (BGP). This technology accesses the information centres of each instance of the payment to study its speed and efficiency. Once this is done, the BGP selects the best performing IP addresses and creates the fastest possible transport route. It can be said that the Border Gateway Protocol works in a similar way to a vehicle’s GPS location but focused on the route of the capital provided when paying online.

It is worth noting that all of this must be understood as a dynamic system – i.e., these IP servers and pay stations are constantly changing. The intelligent routing system generates a database of the shortest route. When it detects a change in the shortest route, it then proceeds to process the routing information in realtime to create a new one, equal to or more efficient than the first one, andwhich is free of "bottlenecks" that could slow down the payment process even if it’s not the shortest route. This could also prevent system failures like cascading rollbacks.

How does a cascading payment network create the best route?

Depending on the elements and priorities of the developers of the infrastructure of the intelligent BGP units, many variables can be analysed. Among the most common are the digital infrastructure of the banking institution where the information is sent, the country from which the transaction is issued, and the user's account type. The company and account type of the payment card used in the transaction, the conditions of the online shop, the type of currency used (evenmore so in cases where transactions require fiat conversion) are also considered.

At the sametime, the technology also assesses the transaction amounts. This is of great relevance since there are platforms that may have capital losses due to the exact amounts of the transaction not being entered. This is more likely in cases where there are maximum transfer amounts within the platforms. One of the characteristics of these technologies lies not only in their efficiency in analysing and discriminating which processes are the most suitable for the execution of a successful transaction but also in the fact that they are an extremely versatile tool, capable of adjusting to a large number of scenarios.

Other solutions offered by providers based on BGP

Another element that stands out when talking about the providers of these systems is that, given the versatility of their resources, the benefits of the BGP can be used for other business scenarios. In this way, consulting companies and fintech generators have managed to implement these ideas but are now in favour of generating solutions to management dynamics.

It is worthnoting that one of the services offered by these sites is to generate capital response and distribution schemes. They are designed to evaluate the company’s debts and, when receiving funds, automatically making payments to the creditors based on their priority. Priority is established according to data such as: the interest rates of the debt, the age, the amount to be credited, the number of people involved, etc.

Why is a payment reversed or cancelled?

It is notuncommon for online payments to present certain inconveniences, resulting inannoying wait times or even in the freezing of users' capital. The reasons forthese situations can vary. The most common cause may be due to errors in theinformation provided, although it may also occur due to instabilities in theinternet connection at the time of transferring the capital. This could resultin a cascading rollback in the database, causing subsequent transactions tofail.

Similarly,in cases involving banking institutions, transfers may be stopped as suspiciousbased on the presumption that there is some likelihood of fraud. For thesereasons, intelligent routing options offer a fast and effective response schemeagainst these situations.

Themechanisms offered by fintech companies redirect the user to one of thealternatives in cases where the page offers several payment options – ideallyto an alternative that has a greater likelihood of fulfilling the payment. Thisopens up a new possibility for the customer to feel secure when making atransaction and reduces the likelihood that they will go to a competitorbecause of fears related to loss of funds. In this way, it can even createloyalty between the customer and the company.

Advantages of routed payment methods

We canconclude that the use of these technologies is associated with a large numberof benefits. Some of these are explored in depth below.

Efficiency in cross-border operations

From the perspective of the user a digital payment infrastructure, the benefits can be substantial. One of the most important of these benefits, according to experts, is the possibility to conduct commercial transactions in various parts of the world.

As we have seen, transactions often must go through many stages to be completed. This is particularly problematic in cases where business is done in regions other than the European Union and where the efficiency of internet service is often less reliable as may be the case in Latin America.

The use of these payments allows for the elimination of "digital frictions” and balances waiting times, resulting in better handling of payments from a business perspective as well as a much smoother customer experience.

Security guarantees

These routed payments are presented as a guarantee on both sides of the transaction. When a normal transfer has a processing interruption or some erroneous digital information is issued, the transfer may be reversed or payment returned. This is not a minor issue, as estimates reveal that 32% of consumers who make online payments forgo the execution of the transaction if it cannot be completed on the first attempt.

It is worth noting that a transaction with a communication interruption is not reversed but attempts to resume its activity from the last IP point where the successful transfer of information was achieved. At the same time, firms specialising indigital security estimate that the likelihood of fraud is reduced by up to 20% when transfers are executed through these mechanisms.

In this way, these operations serve as an instrument to guarantee the economic well-being of the company, and from a consumer perspective, to ensure that the customer has a satisfactory shopping experience, which at least encourages them to return if they require further goods or services provided by the company.

Lower fees from the company's perspective

Another advantage of using these solutions is precisely the adjustment of costs. Considering the simplification of payment processes and the widespread use of autonomous networks, capital transfers mean that fewer institutions and individuals need to be involved in the process. This translates into up to 30% less fee losses.

It is also noteworthy that beneficiaries of these transfer methods can in turn save up to 40% in conversion costs. These digital infrastructures serve as an instrument of financial health for those who adhere to and extend their services to online platforms.

Our conclusions on smart routed payments - An excellent alternative for corporate health

It seems clear that in today's corporate context, the competition to attract as many customers as possible is increasing. We are of the opinion that nowadays it is not enough to have a wide range of products and services to stand out in the target market. One must also offer certain security guarantees to consumers as well as a harmonious shopping experience. Payment methods are crucial to these objectives.

Cascading payments are an invaluable resource for designing and structuring online business ecosystems. With globalisation, cross-border trade has become part of our daily lives. These payment resources have become a great option to guarantee international payments.

The clearest conclusion is that these alternatives are linked to multiple benefits, with no objective disadvantages to their use or acquisition. Of course, implementing smart routing payments requires the support of the best provider available. As mentioned, the sector of providers that offer these services can be extremely heterogeneous, which is why there are many factors to consider when selecting a particular option. The firm must have a wide range of services to choose from and must be able to meet the payment needs of the business.

How cascading payments can optimise your company's payments
Benjamin Joyeux
Founder & Managing Director of eFlow Processing.

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