Least-cost routing definition.
Least-cost routing in regards to payments processing is defined as the ability of merchants to choose which payment network (EFTPOS, Visa or MasterCard) processes debit transactions. Processing debit transactions via the EFTPOS network is less than via the credit card processing network which is why least-cost routing is attractive to merchants.
In Australia, least-cost routing is gaining attention as the Reserve Bank of Australia has mandated that merchants must now have a say on how debit transactions are processed and directed the “Big 4” banks to implement least-cost routing as a priority.
By enabling merchants to choose how debit transactions are processed, costs can be reduced leading to significant savings for merchants who are processing millions of dollars of sales.
This is particularly important to Australian retailers who are facing challenging market conditions and high customer use of tap-and-go technology which is traditionally processing via the credit card network.