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Least Cost Routing: Framework needed for implementation

Updated: Feb 14, 2022

Last week, the Treasurer announced that he had written to the RBA’s Payment Systems Board to strongly encourage it to mandate least cost routing and multinetwork debit cards.

However, this is only the start of the process.

COSBOA is calling for the creation of a framework for the implementation of LCR. The framework should establish a clear timeline for when LCR will be implemented for all payment methods including in-person with a debit card, online, and in-person with a digital wallet. We’ve outlined our recommendations in a paper, which you can read here.

A summary in simple language is below.

If you don’t know what least cost routing is, here is a brief explanation:

Debit card payments are processed (or ‘routed’) through one of multiple networks. The domestic network, eftpos, charges lower merchant fees to small businesses, while the international Visa and Mastercard networks charge more. When consumers insert their debit card into a point of sale (POS) machine, they can choose which network their payment goes through by pressing the corresponding number on the keypad. However, when a consumer taps their debit card, waves their smartphone, or enters their card details online, they don’t get a choice. The default setting is usually the more expensive Visa or Mastercard network, and these extra fees to small businesses add up.

Least cost routing is when the lowest cost network – usually eftpos – is the default for these kinds of payments. Debit card fees are rising, and so is the use of card and digital payments. It should be treated as an urgent issue.

Now that the Treasurer has written to the RBA, this is what COSBOA is asking for regarding implementation:

  • The timeline should be realistically aggressive

  • LCR for in-person card payments should be mandated no later than 31 March 2022

  • Merchant service providers should be required to review the lowest cost route every three months

  • LCR for online payments should be mandated no later than 1 September 2022

  • LCR for mobile payments should be mandated by 1 January 2023, following the European Union approach

  • The proposed merger of the payments systems (eftpos, BPay and NPP) should be delayed until LCR is implemented in all payment forms, or go ahead under the condition that LCR is introduced in all payment forms according to the timeline above.

More detail is in the paper, linked again here.


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