Smart Routing in Payments: What It Is and Why Banks Need It

Customers want payments to be quick and reliable, knowing their money will reach its destination without issues. For banks and payments providers, this means ensuring payments are processed fast and offering backup options if one method fails, all while keeping customers safe from fraud.

While this sounds straightforward, it can be a lot more complicated in practice. Banks need to figure out the best way to process payments based on factors such as whether the customer has signed up for real-time payments (especially outside of SEPA), whether the recipient can accept real-time payments, or even what payment methods are available at a specific time of day. Many banks have separate systems for different payments methods, which makes it hard to route transactions efficiently.

Decoupling Smart Routing and Payment Execution

At Icon, we are value chain thinkers. To address the problems that banks are facing with siloed and fragmented payments estates, we believe that ‘smart routing’ (or payments pre-processing) should be decoupled from the actual payment execution.

In doing so, banks can sustainably and progressively move towards a single, consolidated payments infrastructure. Importantly, an infrastructure that enables the agility to safely respond to change, integrate smarter routing capabilities, and support any payment, anytime, anywhere.

What is Smart Routing?

Smart routing acts as a strategic layer between the customer-facing channels and the backend payments engines. It decides how to handle each transaction and chooses the best payments method for successful processing.

Smart routing involves:

• Payment qualification/validation – determining the requested service level for the payment instruction, and any associated risks from a compliance and fraud perspective
• Customer qualification – checking the validity of the account and, importantly, the customer agreements, preferences and rules associated with it
• Payment warehousing – storing and processing the payment later, if the payment instruction has been received before the execution date
• Routing – identifying and delegating the payment, once the above checks have been passed, using the most optimal path.

With a decoupled approach, it becomes easier and safer from an implementation perspective to optimise payments workflows and integrate smart routing based on dynamic rules and customer profiles.

Dynamic rules and customer profiles are two key components of smart routing. They are used to determine the optimal route for a transaction, taking into consideration specific customer preferences and payment characteristics (for example, the service level requested for the payment instruction).

Given the pace of change in payments, the ability to dynamically route payments is a strategic advantage, enabling banks to respond faster to changing market and customer requirements, and improve resilience by mitigating failures.

The Icon Payments Framework (IPF) for Smart Routing

IPF is a cloud and ISO-native payments development framework. While IPF is much more than an orchestration engine, orchestration is one of the key areas where IPF sets itself apart.

IPF gives banks a head-start on the development of their own payments processing solutions, offering pre-designed and pre-configured components.

IPF can be used for smart routing by enabling:

• Ease of development and maintenance of payments processing flows using domain specific language (DSL) leveraging JetBrains MPS
• High availability, resilience, performance and scalability. Akka, one of the key technologies used in IPF, enables performant, concurrent, distributed and resilient micro-services-based application. This ensures the orchestration service is not a single point of failure and enables the handling of large throughputs
• Loosely coupled services: IPF supports different mechanisms like REST APIs, Kafka, MQ and JMS for communication between orchestration services and business function microservices
• Payments type and scheme agnostic: IPF can be used for processing real-time, RTGS, SWIFT cross-border or ACH transactions
• Dynamic processing settings: These refer to the master data and processing settings (configurations) that are used during the processing of payments in IPF and that can be updated via API/UI and directly applied with or without approvals
• Business Rules Framework: The IPF Business Rules Framework is developed on JetBrains MPS using domain specific language (DSL) allowing business analysts/functional payments experts to define rules for payments validation, make decisions during payments processing etc. Using the framework decision table template, it is possible for a bank to determine payment type and service level for a particular payment instruction. This allows a bank to define 'payment type' as broad as it wants to (high value payment, for example) or as narrowly (cross-border USD payment through an intermediary using direct and cover payments, for example) as it wants to.

Want to learn more about how to implement smarter payments routing? Download our new whitepaper - Smart Routing in Payments

Meet us at NACHA’s Smarter Faster Payments Conference in New Orleans to discuss how we can support your payments modernisation journey. Stop by our stand 1133 or book a meeting with the team.