What is Least-Cost-Routing?
Jul 24, 2023 by Kelsey Banerjee
Least-cost-routing (LCR), sometimes called merchant-choice-routing, enables merchants to save money on every debit card transaction. This process ensures that when a customer makes a contactless debit card transaction, it will be routed through the most affordable option for the merchant. This type of transaction is often linked to Australia, where over 90% population has preferred contactless payments since 2017. In addition, most consumers use a dual network debit card. This enables merchants to process debit card transactions in two ways. For example, they can route the debit transactions through Visa or the EFTPOS network, the Australian electronic payment system. Or they can use Mastercard or EFTPOS. With lead-cost-routing, merchants don't have to decide which to use. Instead, the debit transaction is automatically processed using the cheapest option. Some merchants are wary of LCR, believing this system will increase the merchant fees associated with debit card interchange processing rates. However, the Reserve Bank of Australia found that an LCR contactless transaction may incur a reduced fee and that non-LCR processing tends to generate higher costs.
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