What's Least Cost Routing (LCR)?

In Australia, tap-and-go (also known as contactless) dual-network debit card payments are typically processed through one of three networks: Mastercard, Visa or eftpos. Each network charges different rates per transaction, which are then included in your monthly merchant fees. 

By opting into Least Cost Routing², it's possible for you to choose which network(s) (eftpos/Mastercard/Visa) these payments are sent through. You might do this because customising which networks are used may represent cost savings for your business.

Understanding the options

If you opt-in to Least Cost Routing, you'll be asked to select one of three options for processing customers' tap-and-go dual-network payments. Which one you choose will depend on your individual business and determine your potential savings. In order to decide, take the time to look at your transaction volumes, card mix and turnover to make the most cost-effective choice.

Option 1: Mastercard and Visa networks only

  • Process all eligible dual-network debit transactions via Mastercard and Visa networks only
  • Generally charged as a percentage fee per transaction
  • For example, assume that the percentage fee is 1%. If your average sale size is $40, you would pay about 40c per transaction.

Option 2: eftpos network only

  • Process all eligible dual-network debit transactions via eftpos network only
  • Generally charged as a flat fee per transaction
  • For example, assume that the flat fee is 30c. If your average sale size is $40, you would pay about 30c per transaction

Option 3: Set a threshold to route transactions based on value

  • Set a threshold limit and process all transactions up to and including the threshold through one network and above through the other network
  • For example, assume that the percentage fee is 1% and the flat fee is 30c
  • If you were to set a threshold of $30, so that sales up to and including this limit are processed using the Mastercard and Visa networks at a cost of 1% per transaction, sales greater than $30 would be processed using the eftpos network at a cost of 30c per transaction.

How it works

Read our case studies outlining how three businesses might benefit from each of the Least Cost Routing options.

Luke's coffee store – Mastercard and Visa only option

Luke runs a cafe where he sells a lot of coffee. His average sale size is $5. 

As per his pricing schedule, debit transactions processed through the Mastercard or Visa networks incur an average of 1.2% in transaction fees. Debit transactions processed through the eftpos network incur 25c per transaction.

Based on Luke's average sale size of $5, routing customers' dual-network tap-and-go transactions through Mastercard and Visa networks would cost him an average of 6c per transaction. Routing these transactions through eftpos would cost him 25c per transaction. Luke realises it's cheaper for him to enable Least Cost Routing to route these transactions through the Mastercard and Visa networks.

Current fees: Visa and Mastercard only - average $5 x 1.2% = 6c per transaction

Alternative option fees: 25c per transaction

Sam's restaurant – eftpos only option

Sam runs an upscale restaurant where the average meal costs $150. Sam pays an average fee of 2% for each debit payment processed through the Mastercard or Visa networks. She discovers that it would only cost her a flat rate fee of 35c for each payment processed through the eftpos network.

Based on an average sale size of $150, Sam pays $3 in fees to route a debit transaction. She decides to enable Least Cost Routing on her terminal and sets the dual-network tap-and-go transactions to be routed through the eftpos network for the 35c flat rate, and by doing so saves an average of $2.65 per sale.

Current fees: Visa and Mastercard only - average $150 x 2% = $3 per transaction

Alternative option fees: 35c per transaction

Sandra's gift shop  Set a threshold to use both

Sandra runs a gift shop where her average sale size is $25. Sandra pays an average transaction fee of 1.2% for debit payments processed through the Mastercard and Visa networks. Sandra discovers that it would cost her a flat fee of 30c for every debit transaction processed through the eftpos network.

She works out that she’d be best off using Least Cost Routing and setting a transaction threshold limit of $25. This way, debit transactions up to and including the value of $25 will be processed using the Mastercard or Visa networks at a cost of 1.2% per transaction, and debit transactions greater than $25 will be processed using the eftpos network at a cost of 30c per transaction.

With this approach, Sandra will pay a maximum cost of 30c per transaction and for debit transactions less than $25 in value, the fee will always be less than 30c per transaction.

Current fees: $5 x 1.2% = 6c and $25 x 1.2% = 30c and $45 x 1.2% = 54c

Alternative option fees: $5 x 1.2% = 6c and $25 x 1.2% = 30c and $45 will incur the flat fee of 30c

Is Least Cost Routing right for you?

How to decide

  1. Find out what you're currently paying in fees. We'll help you out. Contact the Merchant Support Team on 1800 230 177 at any time to understand your current Interchange Plus costs. Here’s a guide that can help you too: Interchange statement guide (PDF)
  2. Compare what you currently pay to what you would pay with Least Cost Routing. We'll guide you through the different options.
  3. Once you've calculated which option results in the greatest cost savings for your business, you're ready to opt in.

How to opt-in

1. Check your eligibility

  • You must be on an Interchange Plus pricing plan with an Essential Lite or Essential Plus device. Older devices, such as IWL255, IWL252, ICT250 and IPP350, are also eligible if they are on an Interchange Plus pricing plan. Albert devices are incompatible but can be upgraded to a compatible device.
  • Least Cost Routing does not apply to the Simple Merchant plan or Bundled Pricing plans. 

2. Choose your preferred option

Understand the fees you pay now with the fees you would pay with the different LCR options to make an informed decision about whether to opt in. We can help with this over the phone and find out what the most cost-effective choice is for your business. Either:

  • Mastercard and Visa networks only
  • eftpos network only
  • Set a threshold to use both

3. Apply your setting

  • After deciding what works best for you, our Merchant Support Team can help you to enable your choice of Least Cost Routing option.

Call 1800 230 177

FAQs: What transactions and cards are covered?

LCR only applies to tap-and-go dual-network debit card transactions. This means that the card must have a Mastercard or Visa logo on one side and the eftpos logo on the other. Most debit cards in Australia are dual-network cards. Tap-and-go credit card transactions are not covered because they will default to their issuer’s network.

Shop staff at work

Which transactions are ineligible for Least Cost Routing?

Least Cost Routing isn't applicable to credit card transactions, Mobile Wallet transactions or any transactions being made by inserting or swiping a debit card on the device.

How does it impact surcharging?

You'll still need to make sure you're only surcharging the amount it costs you to process the payment, known as the Cost of Acceptance. 

More about surcharging

How does it impact chargebacks?

Chargebacks are still available for customers that opt in to Least Cost Routing. 

More about chargebacks

Does it impact settlements? 

No, your settlements will not be affected and will take place as usual.

Contact the Merchant Support Team or your relationship manager for more information

Things you should know

¹ You must be on an Interchange Plus pricing plan with an Essential Lite or Essential Plus device. Older devices such as IWL255, IWL252, ICT250 and IPP350 are also eligible if they are on an Interchange Plus pricing plan.

² Least Cost Routing is also known as Merchant Choice Routing. A reference in the Merchant Agreement dated 1 April 2020 to Merchant Choice Routing is also a reference to Least Cost Routing.

View Terms and Conditions for Business Transaction and Savings Accounts  and our Financial Services Guide and consider them before making any decision about these products. This advice has been prepared without considering your objectives, financial situation or needs. Before acting on the advice, please consider if it’s right for you. Bank fees and charges may apply. Download the Merchant Agreement Terms and Conditions for more information. 

MasterCard and the MasterCard brand mark are registered trademarks of MasterCard International Incorporated. Visa is registered Trademark of Visa in the United States. Eftpos is a registered trademark of eftpos Payments Australia Ltd.