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Payment Routing Meaning

Payment routing is the logic-driven process of selecting the most efficient path for a financial transaction to travel from the sender to the receiver. In traditional finance, this involves navigating a web of intermediary correspondent banks. If you send money from a small bank in Italy to a small bank in Japan, the funds might hop through major hubs in London or New York.

Each hop adds latency and fees, making the routing path a major factor in the final cost of the transfer.In the world of decentralized finance (DeFi) and decentralized exchanges (DEXs), payment routing is handled by aggregators. If a user wants to swap a rare altcoin for a stablecoin, there might not be a direct liquidity pool for that pair.

The router will automatically find the cheapest multi-step path across different protocols to minimize slippage and gas fees, often executing the entire sequence in a single atomic transaction.For Layer 2 solutions like the Lightning Network, routing is a peer-to-peer challenge. Because Lightning relies on interconnected payment channels, a payment must find a continuous path of liquid channels to reach its destination.

Nodes use a gossip protocol to share information about the network's topology. The routing logic must balance finding a path with enough capacity while minimizing the routing fees charged by the nodes in the middle.The next generation of payment routing is payment orchestration.

This allows global merchants to dynamically route credit card transactions to different acquiring banks based on the customer’s country. By routing a UK customer's payment to a UK bank rather than a US one, the merchant can avoid cross-border fees and significantly increase the authorization rate, ensuring that fewer legitimate transactions are flagged as fraud by the issuing bank.

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Important Disclaimer:

Finery Markets BVI Limited (“Finery Markets”) provides software, technology infrastructure, and related Information and Communication Technology (ICT) services on a Software-as-a-Service (“SaaS”) basis. Finery Markets acts solely as a software vendor and does not operate a trading platform, does not intermediate, match, execute, clear, or settle transactions, and does not engage in any activities that would require regulatory authorisation under applicable laws.

Finery Markets’ software is non-custodial and is provided exclusively to licensed institutional entities that act as independent operators of their own environments. All counterparties are solely responsible for establishing and maintaining their own bilateral trading and settlement relationships. Finery Markets is not a party to any such arrangements and assumes no responsibility for the conduct, verification, or compliance obligations of any users of the software.

Nothing on this website shall be construed as a financial promotion, investment advice, or an offer to engage in regulated activities. Access to and use of the software is strictly limited to clients who have entered into a software licensing agreement with Finery Markets. Persons located in jurisdictions where such access is restricted should not rely on this website or any of its contents.

Additional notice to UK visitors: This website and associated communications are not intended to constitute a financial promotion under The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) and related guidance. Access to services provided by Finery Markets is limited to regulated entities, professional clients and eligible counterparties as set out by the Financial Conduct Authority. UK users are not permitted to use this website for the services of Finery Markets if they don't fall within these categories.