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.


How to get started with LCR debit transactions?

Generally, it helps to have a payment provider. And that's something we offer (among other payment solutions).

Paystand's least-cost-routing technology is designed to steer customers to the payment rail, resulting in the lowest cost to the merchant. Paystand's platform lets you control which payment options appear in your payment portal, helping you reduce fees and processing costs. You can even add a convenience fee to discourage customers from costly payment options while offsetting associated expenses.


What Are the Benefits of Least-Cost-Processing?

Paystand's least-cost routing solution is one of the most powerful tools to reduce transaction fees. And it is effortless. After all, the scenario is simply automating the cheapest payment rail.

This is especially useful for accepting debit and credit cards because not all cards cost the same. For example, accepting credit cards is more expensive than debit cards, in part because the balance of the debit card is backed by actual cash in a cardholder's account. Some credit card networks charge over 4% plus additional fees, whereas your average debit card processor charges less than 1%.

Some key benefits of using least-cost-routing include:

  • Lower transaction fees
  • Wholesale processing rates
  • Available for multiple payment methods


Next Steps

By combining our payment network with over 18,000 partner banks with additional payment options, you can automatically route payment processing to the most affordable option. It reduces costs and lets you get paid faster than ever without sacrificing the customer experience.

See how it works in action through a free, customized demo. But if you need more convincing and want more tips on reducing transaction fees, check out our deep dive into eliminating credit card fees.