Least cost routing: A complete guide for businesses in 2025

The cost of accepting payments has become a growing concern for businesses across every sector. As card usage increases and merchant service fees fluctuate, businesses are actively seeking strategies to reduce overhead without impacting customer experience.

According to data from the Reserve Bank of Australia (RBA), card payment volumes have grown by over 40% in the past five years, with debit cards now accounting for nearly 70% of all card payments. While this shift reflects consumer preference for convenience, it also introduces new cost challenges for merchants—especially when fees vary significantly depending on which network processes the transaction.

Enter least cost routing (LCR)—a way for businesses to take control of their payment costs by automatically directing eligible card payments through the most cost-effective network. It’s particularly relevant for dual-network debit cards, where transactions can be routed through either a global scheme (like Visa or Mastercard) or a domestic network (such as eftpos in Australia).

With regulators pushing for greater transparency and optionality, and payment providers investing in smarter infrastructure, least cost routing is emerging as a critical tool in the modern merchant’s payment strategy.

What is least cost routing?

Least cost routing (LCR) is a payment processing method that allows merchants to automatically route eligible card transactions—especially dual-network debit card payments—through the lowest-cost payment network available.

Traditionally, when a customer taps or inserts a debit card that supports multiple networks (e.g., Visa Debit + eftpos), the transaction is routed by default through the international network—usually the one branded on the front of the card. This may not always be the most cost-effective route for the merchant.

With LCR enabled, the merchant or their payment provider can choose to send the transaction through a lower-cost network, often resulting in reduced merchant service fees (MSFs) without any visible impact on the customer experience.

How does least cost routing work?

Let’s say a customer pays with a dual-network debit card. The card can be processed via:

• Visa Debit, which may come with higher interchange fees, or
• eftpos, a domestic Australian network with lower fees in many cases.

With LCR in place, the transaction is automatically routed to eftpos if it provides the lowest cost to the merchant.

This logic can be built into:

• Payment terminals in-store (for physical POS transactions)
• Online checkout systems via virtual terminals or payment gateways
• Orchestration platforms that manage routing decisions centrally

LCR doesn’t affect the cardholder’s payment experience—they still tap, swipe, or enter their card as usual. The routing decision happens entirely behind the scenes.

What are dual-network debit cards?

Dual-network debit cards are increasingly common. These cards have both an international card scheme (e.g., Visa, Mastercard) and a domestic debit network (e.g., eftpos in Australia) linked to a single card. This dual capability enables least cost routing, giving merchants the flexibility to determine the most efficient way to process payments.

How least cost routing works

At its core, least cost routing is about giving merchants control over which network processes a debit card payment, with the goal of reducing payment acceptance costs. It applies to dual-network debit cards, which can route transactions through either a global card scheme (e.g., Visa, Mastercard) or a domestic debit network (e.g., eftpos in Australia).

Let’s break down exactly how the process works behind the scenes.

Step-by-step breakdown of a card transaction using LCR

1. Customer initiates payment
   The cardholder taps, swipes, or inserts their dual-network debit card at a terminal or online checkout.
   
2. Merchant’s payment terminal or gateway detects dual-network capability
   The system recognizes that the card supports more than one payment network.
   
3. Routing logic is applied
   If LCR is enabled, the transaction is automatically routed to the network offering the lowest cost to the merchant—typically the domestic scheme like eftpos.
   
4. Transaction is authorized
   The issuing bank verifies the cardholder’s identity and account balance before approving the transaction.
   
5. Settlement takes place
   The funds are transferred through the selected network, completing the payment.
   

This entire process happens in seconds and is completely invisible to the customer.

Real-world example: Routing based on cost

Imagine your customer uses a debit card that supports both Mastercard and eftpos. Mastercard might charge a higher interchange fee, while eftpos offers a significantly lower one. With LCR enabled, your payment system detects both options and automatically routes the transaction through eftpos, saving you money on that sale.

Now multiply that saving across hundreds or thousands of daily transactions, and the benefit becomes clear.

Want to reduce transaction failures too? Learn how smart transaction routing improves approval rates.

Who handles the routing decision?

Least cost routing can be implemented in multiple ways, depending on your setup:

• In-store terminals can apply LCR logic at the hardware level.
• Online payment gateways may allow for routing rules via APIs or admin settings.
• Payment orchestration platforms like Gr4vy can centralize and automate routing across multiple PSPs and channels, giving you even more control.

If you’re selling across borders or using multiple providers, here’s how Gr4vy supports global and local acquiring.

Key benefits of least cost routing for businesses

For businesses dealing with high volumes of debit card transactions, even small reductions in per-transaction costs can lead to significant savings. Least cost routing (LCR) empowers merchants to take control of how payments are processed—without changing the customer experience.

Here’s a breakdown of the top benefits:

1. Lower merchant service fees

This is the most obvious and immediate advantage. By automatically selecting the lowest-cost network (often a domestic debit scheme), merchants can significantly reduce the merchant service fee (MSF) they pay per transaction.

Depending on your acquirer and transaction mix, these savings could amount to thousands of dollars annually—especially in sectors with tight margins.

According to the Reserve Bank of Australia’s Least Cost Routing Review, many businesses pay more than necessary on debit transactions due to default routing through international schemes.

2. Increased control and transparency

LCR allows merchants to decide how their payments are processed, rather than leaving it up to card schemes or banks. This level of transparency is especially useful for businesses that want to monitor payment flows and optimize for cost efficiency.

3. Better margin protection

In industries with razor-thin margins—such as fuel, groceries, hospitality, and quick-service retail—small shifts in processing costs can have a large impact on profitability. LCR helps these businesses defend their margins without relying on customer-facing strategies like surcharges.

4. No impact on customer experience

From the customer’s point of view, nothing changes. They tap their card, the payment is processed, and the transaction is completed. LCR happens entirely behind the scenes and doesn’t require customer intervention or affect loyalty points or rewards.

5. Scalable savings

The more transactions you process, the more valuable LCR becomes. For businesses with omnichannel operations, implementing LCR across both in-store and online environments can create consistent, scalable cost reductions.

Want to reduce costs across multiple PSPs? Learn how payment orchestration helps streamline routing.

Challenges and limitations of least cost routing

While least cost routing offers significant benefits, it’s not without its complexities. For businesses considering LCR, understanding the potential limitations is just as important as recognizing the upside.

1. Inconsistent bank support

Not all issuing banks support least cost routing in the same way. Some banks may default transactions through international schemes, even when a lower-cost route exists. This inconsistency can create unpredictability in savings and limit the effectiveness of your LCR strategy.

2. Technology limitations

In some cases, point-of-sale terminals, online gateways, or legacy payment systems may not be equipped to handle LCR. Without compatible technology or infrastructure, businesses might face integration delays or the need for costly upgrades.

3. Lack of transparency on fees

Although LCR is designed to lower costs, merchants often struggle with a lack of visibility into fee structures across different networks. Without detailed reporting or cost analysis tools, it’s difficult to verify that transactions are being routed optimally.

4. Consumer network preferences

Some consumers prefer certain networks for their rewards programs or bank-specific incentives. While LCR doesn’t typically affect the cardholder’s experience, a small subset of customers may express concerns if they believe their preferred scheme isn’t being used.

5. Implementation complexity

Activating LCR often requires close collaboration with acquirers, technology vendors, and sometimes regulators. It may involve configuration at the terminal level, system updates, and ongoing monitoring—making it more complex than a simple switch.

Least cost routing vs. surcharging

When it comes to reducing the cost of accepting card payments, least cost routing and surcharging are two strategies businesses frequently consider. While they aim to solve the same problem—minimizing payment costs—they take very different approaches.

LCR: Behind-the-scenes optimization

Least cost routing works discreetly in the background. It does not involve the customer in the process and preserves the checkout experience. This makes it especially appealing in customer-centric industries where trust and frictionless service are essential.

• Pros: No customer disruption, ongoing cost savings, scalable across locations
• Cons: Requires technical setup, may offer less immediate visibility into savings

Surcharging: Direct cost recovery

Surcharging adds a fee to the customer’s bill to offset processing costs—usually applied to credit cards. While legal in many regions, it can be controversial and impact customer satisfaction or loyalty if not handled carefully.

• Pros: Immediate and direct recovery of transaction fees
• Cons: Potential to damage customer experience, limitations depending on regulations

Which one is right for your business?

In many cases, least cost routing is a preferred first step—it offers long-term savings without affecting the customer journey. Surcharging may be better suited for industries with low price sensitivity or where cost recovery is critical.

Ultimately, both strategies can coexist. Some businesses implement LCR for debit cards and surcharge credit card transactions to optimize their entire payment stack.

LCR adoption across industries

Least cost routing isn’t a one-size-fits-all strategy—it finds the most traction in industries where debit card usage is high and margins are tight. Here’s how LCR is being adopted across different sectors:

Retail

Large retailers processing thousands of daily transactions stand to save the most. Many supermarkets and department stores in Australia have already embraced LCR, using it to quietly shave costs without affecting the checkout experience.

Hospitality and quick service

In fast-paced environments like cafes, restaurants, and takeaway outlets, LCR provides cost savings with no additional steps for staff or customers. It integrates directly into existing POS terminals and can scale across franchises or chains.

E-commerce

While traditionally associated with in-person payments, LCR is increasingly being implemented in online environments too. Payment gateways that support debit routing logic can now apply LCR to virtual terminals and web-based checkouts.

Healthcare and professional services

Businesses in sectors like healthcare, accounting, and legal services are turning to LCR to manage processing costs on high-ticket debit transactions—particularly when surcharging is not viable or permitted.

The regulatory landscape and LCR mandates

Regulators play a crucial role in shaping the adoption and standardization of least cost routing. In Australia, the Reserve Bank of Australia (RBA) has been a major advocate for LCR, pushing banks and acquirers to make it more accessible to merchants.

Key developments include:

• RBA guidance encouraging LCR support on all terminals
• Mandates for dual-network debit card issuance
• Monitoring by the ACCC to ensure fair practices

Outside Australia, similar conversations are emerging in New Zealand, parts of Europe, and the U.S., where merchant advocates are calling for more transparency and competitive payment routing options.

Merchants should stay informed of evolving regulations to ensure they remain compliant while maximizing cost-saving opportunities.

How to implement least cost routing in your business

Implementing LCR successfully requires both planning and the right technical partners. Here’s how to get started:

1. Talk to your payment service provider (PSP) or acquiring bank: Ask whether your current setup supports LCR and which card networks are eligible.
   
2. Audit your payment infrastructure: Make sure your terminals, POS software, or online gateways can support dynamic routing.
   
3. Monitor transaction-level data: Analyze costs before and after LCR implementation to measure savings accurately.
   
4. Consider using payment orchestration: Platforms like Gr4vy offer centralized tools to manage routing logic, network preferences, and failover across multiple providers.
   

Learn more about smart routing and how orchestration platforms improve payment performance.

The role of payment orchestration in optimizing routing

Payment orchestration platforms sit above your PSPs and acquiring banks, giving you a single interface to manage routing logic and policies.

With orchestration, businesses can:

• Enable LCR across multiple PSPs, both online and offline
• Set rules based on cost, geography, or transaction type
• Automatically retry failed transactions through alternate routes
• Visualize routing performance and identify savings opportunities in real time

Orchestration doesn’t just help with cost—it helps with uptime, security, and scale. Discover how Gr4vy simplifies multi-provider payments.

Frequently asked questions about least cost routing

What is least cost routing in payments?

It’s a method that routes eligible debit card transactions through the lowest-cost payment network available, reducing processing fees for merchants.

Is least cost routing mandatory in Australia?

No, but the RBA strongly encourages it and continues to push for broader adoption and accessibility across payment terminals.

Which cards are eligible for LCR?

Dual-network debit cards—typically Visa Debit or Mastercard Debit with eftpos—are eligible for routing decisions.

Can LCR be used online?

Yes, many payment gateways and orchestration platforms now support online least cost routing for debit transactions.

Does LCR affect customer experience?

No. Routing decisions are invisible to the customer and do not affect loyalty programs or card functionality.

Why LCR matters in 2025 and beyond

For merchants processing high volumes of debit transactions, the savings can be substantial—especially when paired with a robust payment infrastructure.

LCR isn’t just a cost-cutting feature—it’s a strategic tool that puts merchants back in control of their payment stack.Ready to implement least cost routing with the flexibility to scale across platforms and providers? Contact Gr4vy to learn how our orchestration platform can optimize your routing and streamline your payments strategy.