Least Cost Routing

Least Cost Routing applies specifically to debit card transactions on cards that carry multiple network marks, for example, a debit card that is co-badged with both Mastercard (international) and a domestic scheme such as eftpos in Australia, Girocard in Germany, or Interac in Canada. When such a card is presented for a contactless or CNP transaction, the merchant or acquirer can choose which network to route the transaction through. LCR directs this routing decision toward the network with the lower interchange and scheme fee.

The cost differential between routing through an international scheme versus a domestic scheme can be significant. Domestic debit scheme interchange rates are often regulated or structurally lower than international scheme rates; in Australia, eftpos interchange is close to zero while Mastercard/Visa debit interchange is regulated at a higher level. In Germany, Girocard contactless transactions carry lower merchant fees than Mastercard contactless. The LCR saving per transaction may be modest in isolation (5-20 basis points) but at high debit card volume the cumulative saving is material.

LCR is enabled at two levels: at the terminal or POS system (which network mark to prioritise for contactless tap), and at the payment platform or gateway level (which network to route for CNP and e-commerce transactions). Card scheme rules require that the cardholder's preferred network is not overridden in a way that degrades service, and some schemes have rules about which party (merchant or cardholder) controls network selection on co-badged cards. Regulatory requirements on LCR vary by market: Australia has mandated LCR functionality on terminals; the EU has merchant-of-record provisions on co-badged card routing.

LCR is most impactful for merchants with high Australian, German, Canadian, and Nordic debit card volumes, and for any merchant with significant domestic debit card mix in markets with lower-cost domestic schemes.

Routing debit transactions through lower-cost domestic networks reduces interchange per transaction; at high debit volume this generates meaningful total cost of acceptance savings. LCR is most valuable in Australia (eftpos), Germany (Girocard), Canada (Interac), and similar markets with well-established domestic debit schemes with lower merchant fees than international networks. Australian regulations mandate that merchants can exercise LCR on co-badged cards; EU payment services regulation supports merchant network selection rights; merchants in these markets have regulatory backing to implement LCR. CNP LCR requires payment platform support for routing domestic debit network credentials online; not all gateways support CNP routing through domestic schemes, limiting LCR to card-present transactions in some implementations. LCR routing decisions should be monitored for authorisation rate impact; some domestic scheme rails have lower authorisation rates than international schemes in specific transaction contexts, and the cost saving may be partially offset by increased declines.