Payment Routing Software Optimizes Processing Costs
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Solution Overview
Problem
Financial institutions face challenges in efficiently routing electronic payments due to varying pricing structures among third-party processors, leading to increased costs and inefficiencies in processing payments.
Innovation Solution
Implementing payment routing software that analyzes and optimizes payment processing by selecting the most cost-effective processor based on pricing structures, volume discounts, and timing considerations, potentially routing payments through third-party processors or processing them directly to minimize costs.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Loss of energy
If payments are routed to multiple different processors based on lowest per-payment cost, then per-payment processing cost is reduced, but transaction volume through individual processors decreases, causing loss of volume pricing benefits
Solution Approach 1:
The patent replaces manual payment routing decisions with an automated routing system that uses software algorithms to analyze multiple processors' pricing structures, transaction volumes, and cost factors. The system automatically routes payments to optimize total costs while maintaining volume thresholds, substituting human decision-making with a computational system that can process and compare multiple variables simultaneously.
2Productivity
If all payments are routed through a single processor to maintain volume pricing, then volume pricing benefits are achieved, but per-payment processing cost increases
Solution Approach 1:
The patent segments the payment routing decision into multiple categories or buckets based on processor characteristics, pricing structures, and volume thresholds. Instead of treating all payments uniformly, the system divides payments into different routing categories, allowing some processors to handle high-volume transactions for volume pricing while others handle specific transaction types or destinations at lower per-payment costs.
3Device complexity
If payment routing is manually managed, then simple decision-making is used, but routing efficiency and cost optimization are reduced
Solution Approach 1:
The patent implements a feedback mechanism where the routing system continuously monitors payment outcomes, actual costs incurred, transaction volumes by processor, and pricing structure changes. This feedback information is fed back into the routing algorithm to dynamically adjust routing decisions, optimize cost factors, and adapt to changing processor pricing and performance, enabling continuous improvement of routing efficiency.
Data Source
AI summary
Electronic payments are typically initiated on a bank's web site, and then routed to a third-party processor for payment. There may be different processors having different pricing structures. Routing software may be provided that routes payments to the various processors (or causes payments to be processed without a third-party processor) based on considerations of cost-effectiveness. For example, the routing software may choose the payment processor that has the lowest price for a certain type of payment, or may route a certain number of payments to a processor in order to fulfill volume pricing minimums, or may aggregate payments for several days in order to handle the payments in one transaction and reduce transaction fees.