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💲 What Is Least Cost Routing (LCR)? Global Overview of Lowering MerchantMerchant merchant An individual or business that accepts payments in exchange for goods or services. Payment Costs

Least Cost Routing (LCR) is an increasingly important tool in the payments ecosystem—especially for merchants seeking to reduce card acceptance fees. While invisible to the consumer, LCR is a merchant-side mechanism that can significantly impact the cost of payment acceptance, especially in countries where dual-network debit cards are common.

Let’s explore what LCR is, how it works, where it’s implemented, and who benefits.

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🧠 What Is Least Cost Routing (LCR)?

Least Cost Routing (also known as Merchant Routing or Smart Routing) gives merchants the ability to choose the lower-cost network when a dual-network debit cardDebit Card debit-card A payment card that deducts money directly from a consumer’s checking account. May also support ATM withdrawals. is used for a transaction.

For example, in Australia, most debit cards are co-badged with VisaVisa visa A leading global payment technology company connecting consumers, businesses, and banks. or MastercardMasterCard mastercard A global payments network enabling electronic transactions between banks, merchants, and cardholders., along with a domestic debit network (like EFTPOS). With LCR enabled, a merchant can choose to route the transaction through the cheaper network, typically the local one, reducing merchant service fees (MSF).

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⚙️ How LCR Works

Step	Description
1. Customer taps their dual-network card	Card has both international and domestic payment network logos (e.g., Visa + EFTPOS)
2. POS/gatewayGateway gateway A service that authorizes and processes card payments for online merchants. Examples include Stripe, Adyen, and PayPal. detects card networks	Terminal or payment processorProcessor processor A company authorized to process credit and debit card transactions between acquirers and issuers. reads all available routing options
3. Merchant routing logic kicks in	Based on preset rules (lowest cost), the system routes the payment accordingly
4. SettlementSettlement settlement The process of transferring funds from the issuer to the acquirer. occurs	Transaction is processed via the selected network, typically the least expensive one

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🧑‍💼 Who Benefits from LCR?

Stakeholder	Benefit
Merchants	Lower transaction costs, reduced dependency on high-fee networks
Consumers	Indirectly benefit via stable or lower retail prices
Domestic Networks	Get more transaction volume when favored by routing logic
Payment Processors	Can offer cost-saving features to merchants as a competitive differentiator

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🌍 Countries with Least Cost Routing (LCR)

Country	Local Term / Program	Domestic Network	Status
Australia	Least Cost Routing (LCR)	EFTPOS	✅ Actively supported
New Zealand	Merchant Choice Routing	EFTPOS NZ	✅ Available
India	RuPay Routing / MDR Optimized	RuPay, UPI	✅ Policy encouraged
Singapore	Merchant Routing (under reviewUnder Review under-review Transactions flagged for additional verification before processing.)	NETS	⚠️ Limited pilot
Canada	Interac Debit Routing	Interac	✅ Used widely
United States	Durbin Routing	NYCE, Pulse, STAR	✅ Mandated by Durbin Amendment
Brazil	Domestic Scheme Optimization	Elo, Hipercard	✅ Supported by processors
UK	Not standardized (but discussed)	LINK	⚠️ Not widely adopted
Malaysia	Merchant Routing Pilot	MyDebit	⚠️ Emerging adoption

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🔧 How to Enable LCR as a Merchant

1. Talk to your acquirerAcquirer acquirer A financial institution or payment processor that manages the merchant account, enabling businesses to accept card payments. Acquirers receive all transactions from the merchant and route them to the appropriate issuing bank. or payment processor
   Not all providers enable LCR by default. Request access or policy support.
2. Ensure your POS or gateway supports dual-network detection
   Hardware/software must be compliant to route based on BIN logic.
3. Set routing rules
   Choose from options like cheapest, failover, or volume-based routing.
4. Review interchange and acquiring fees regularly
   LCR makes sense only if the local route is truly cheaper—fees vary by volume and sector.

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🧩 Challenges & Considerations

• Not all cards are dual-network
  LCR only applies when a card has multiple networks (e.g., Visa + domestic).
• CardholderCardholder cardholder The person or business to whom a payment card is issued. experience
  No visible change, but occasional compatibility or acceptance issues may occur.
• IssuerIssuer issuer A bank or financial institution that issues payment cards to consumers. Responsible for authorizations and chargebacks. pushback
  Some global networks may resist LCR as it shifts volume to local rivals.
• Regulatory clarity
  In some countries, LCR is mandated; in others, it’s voluntary or under review.

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🧾 Real-World Example: LCR in Australia

In Australia, a debit card might be co-branded with Visa Debit + EFTPOS. If a merchant has LCR enabled, their terminal can route the transaction via EFTPOS, which usually has lower fees compared to Visa, especially for small-ticket transactionsTransactions transactions Interactions where value is exchanged for goods or services..

LCR can save large retailers thousands per month in transaction fees—and even more for high-volume businesses.

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📌 Conclusion

Least Cost Routing is a powerful yet underutilized strategy for merchants looking to optimize their payment acceptance costs. As regulators push for more competition in payments, LCR adoption is expected to rise—especially in countries with strong domestic payment networks.

If you’re a merchant or payment professional, LCR is worth exploring to improve margins, reduce fees, and increase control over your payments stack.

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