Least-Cost Routing
Definition
Least-cost routing automatically selects the lowest-cost network path for debit transactions — typically routing via a domestic network instead of Visa or Mastercard.
Least-Cost Routing (LCR) is the practice of directing a debit card transaction through the cheapest available payment network rather than the most expensive, where multiple network options exist. Dual-network debit cards (common in Australia, the US, and Canada) carry both a card scheme network (Visa, Mastercard) and a domestic debit network (eftpos in Australia, Interac in Canada, US regional networks). LCR routes transactions to the lower-cost network, typically saving merchants 0.1–0.5% per transaction.
Least-Cost Routing exists because dual-network debit cards give the merchant (via their acquirer) a choice about which network processes the transaction — and that choice carries material cost implications.
How Dual-Network Debit Works
Most consumer debit cards in markets like Australia, Canada, and the US carry two network affiliations: a global scheme (Visa Debit or Mastercard Debit) and a domestic network (eftpos, Interac, STAR, NYCE, etc.). When a tap-and-go or chip transaction is initiated, the merchant’s payment terminal and acquirer jointly determine which network to route through.
Without LCR, the terminal defaults to the scheme network — which typically carries higher interchange and scheme fees. With LCR enabled, the acquirer compares the cost of each available network and routes to the cheaper one automatically.
Market Context
Australia: The RBA mandated that acquirers offer LCR to merchants for contactless transactions from 2022. eftpos routing is typically 0.2–0.3% cheaper than Visa Debit per transaction. The mandate addressed years of scheme networks effectively blocking LCR by controlling terminal defaults.
Canada: Interac debit carries significantly lower interchange than Visa Debit or Mastercard Debit for domestic transactions. Merchants with high debit volumes — grocery, fuel — capture meaningful savings by ensuring Interac routing is prioritized.
United States: The Durbin Amendment requires that debit cards be enabled on at least two unaffiliated networks, and that merchants have the right to choose the routing network. Many US merchants under-utilize this right due to POS configuration defaults.
Operator Considerations
LCR is typically configured at the acquirer or payment terminal level, not in the merchant’s application code. Operators evaluating PSPs should ask explicitly about LCR support and whether it is enabled by default or requires activation. For merchants with high debit volume and thin margins — fuel, grocery, convenience — LCR can reduce processing costs by 15–30%.
Related terms
Acquirer
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Card Scheme
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Interchange
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MDR
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