Cascading Payments – How Merchants Can Maximize Conversion Rates
Cascading payments is a method used by merchants to increase conversion rates by automatically retrying failed transactions through multiple payment processors or acquirers. This strategy helps businesses effectively manage false declines, improve customer experience, and maximize revenue by giving each payment multiple opportunities to succeed.
From the customer’s perspective, cascading payments are seamless and invisible; retries happen entirely behind the scenes, ensuring transactions go through without disruption. Merchants can implement cascading in various ways, from basic retries using a single acquirer to advanced multi-acquirer setups managed by a sophisticated Payment Orchestration Platform (POP).
These platforms use Smart Routing logic as a pre-attempt strategy for increasing conversion rates and a cascading payments strategy is implemented as a post-initial decline strategy, creating multiple opportunities for a transaction to succeed. The two strategies should not be conflated, but viewed as complementary strategies to maximize conversion rates. You can learn more about smart routing in our previous post here: Smart Routing in Payments: How It Works and Why It Matters for Businesses
In this article, we'll break down how cascading payments work, outline three distinct merchant setups, discuss the pros and cons, and explain why adopting a cascading payments strategy can significantly boost your conversion rates and overall revenue.
The Key Players in Cascading Payments
To understand cascading payments clearly, merchants should first know the key components involved:
Merchant
The business accepting customer payments for goods or services. Merchants adopt cascading strategies to increase transaction approvals, reduce false declines, and capture otherwise lost revenue.
Payment Gateway
Technology connecting merchants to payment processors to facilitate transactions. In basic setups, gateways can manage simple cascading logic—automatically retrying transactions through alternate acquirers after initial declines.
Payment Processors and Acquirer(s)
Financial institutions or banks responsible for processing card transactions. Integrating multiple payment processors and acquirers provides merchants with additional paths to route transactions, increasing resilience and improving the chances of transaction success.
Payment Orchestration Platform (POP)
Advanced platforms managing multiple payment gateways, payment processors, and acquiring banks. POPs provide merchants with sophisticated, merchant-controlled routing logic, enabling precise control over cascading rules—ideal for merchants requiring maximum transaction approvals, redundancy, and detailed analytics.
The Three Merchant Setups for Cascading Payments
Scenario 1: Single Acquirer (No True Cascading)
The merchant relies on one acquiring bank to process all transactions.
If a transaction fails, the only available option is retrying with the same acquirer.
Suitable for small- and medium-size merchants that want to avoid losing a sale due to soft declines. Soft bank declines are temporary and usually happen when something goes wrong with the connection to the acquirer. The transaction can be immediately retried leading to legitimate transactions being successfully processed.
Scenario 2: Multi-Acquirer via Gateway (Basic Cascading)
The merchant has multiple acquirers connected through a single gateway.
The gateway manages cascading by automatically retrying transactions with another acquirer if the first declines.
While this setup improves conversion rates, merchants have limited control over retry logic. This means they can’t fully optimize transaction routing to their specific needs, potentially leaving conversions and revenue on the table.
Scenario 3: Multi-Acquirer via Payment Orchestration Platform (Advanced Cascading)
The merchant uses a Payment Orchestration Platform (POP), which controls multiple PSPs, gateways, and acquirers.
The merchant has full control over retry logic, deciding when, where, and how transactions are retried.
This is the best option for high-risk, subscription-based, or high-volume merchants who need maximum conversion rates and redundancy.
The Real Payoff – Why the Benefits Outweigh the Costs
Merchants looking to boost approval rates, reduce false declines, and minimize lost sales should seriously consider implementing cascading payments. For smaller merchants, a gateway-based multi-acquirer setup may provide sufficient improvement in transaction approvals without significant complexity. Larger or global merchants, especially those managing high transaction volumes or subscription-based models, will greatly benefit from the advanced control provided by a Payment Orchestration Platform (POP).
While cascading payments may lead to incremental transaction costs, the potential increase in revenue typically outweighs these additional expenses—especially for subscription-based or high-volume merchants, where addressing declines like "Insufficient Funds" is critical. Each failed transaction represents more than just a lost sale; it risks losing valuable customer lifetime revenue, whether it’s a single abandoned purchase or a disrupted ongoing subscription.
By adopting a cascading payments strategy, merchants gain multiple opportunities to recover transactions, boosting cash flow, improving customer retention, and significantly reducing involuntary churn. Yet, cascading isn't a "set it and forget it" solution. Active management is essential. Merchants should regularly monitor key performance metrics, analyze approval rates, and continuously refine their retry logic to maximize results.
In short, a well-executed cascading strategy pays for itself by capturing revenue that would otherwise be lost, making it a must-have component of any successful merchant’s payment toolkit. Our team at StreamPayments can help you execute your cascading payments strategy. Reach out to us and we can answer all of your questions – info@streampayments.com
FAQs
Does cascading payments guarantee higher conversion rates?
No, but it significantly improves conversion rates when implemented properly. Many declines are soft declines, meaning they can succeed on a retry. Cascading helps save these transactions, reducing lost revenue. However, approval rates depend on the retry strategy—which is why ongoing optimization is key.
When and how to retry a failed transaction?
It depends on the decline category and whether it is a soft or a hard decline. When an issuer declines a transaction authorisation request, a reason code is utilised by the card schemes to provide merchants with guidance on how to address the decline. Different category codes require a different approach when implementing a retry strategy. If a soft decline (e.g., insufficient funds, acquirer/ network communication error, technical error), the transaction can be retried after a certain period of time or subject to updated information that the merchant must obtain before reattempting. The maximum number of retries allowed depends on the card scheme. Hard declines (e.g., stolen/ lost card, account closed), are permanent in nature and no retries are allowed by the card schemes. Excessive retries or retries of “do not retry” type of declined authorisations can result in fines.
How to tackle “Do Not Honor” declined authorisations?
The Do Not Honor decline reason code is a generic response code which indicates that the issuing bank has rejected the transaction. Without a specified reason, retrying such transactions is a challenge. There could be various reasons behind the rejection, including insufficient funds, incorrect card details or suspected fraudulent activity. Retries are permitted and may result in a successful authorisation, however, multiple retries are not recommended.
What’s the difference between cascading and smart routing?
Cascading is retrying a failed transaction through a different path to convert the sale. Smart routing is preemptively selecting the best acquirer for the transaction before an attempt is made. They work together, but cascading happens after a decline, while smart routing happens before the first attempt.
