With debit cards now accounting for more than 75 per cent of all card payments in Australia, according to the Reserve Bank of Australia’s (RBA) Retail Payments statistics, even marginal differences in transaction processing costs are becoming increasingly valuable for retailers.
As debit card use grows, Merchant Choice Routing (MCR) – also known as Least-cost Routing (LCR) – is becoming an increasingly important tool for cost optimisation, allowing businesses to choose which network processes a debit card payment, and typically prioritising the lower-cost option.
However, while widely available, Colin Sultana, GM of retail payments at Australian Payments Plus has noted that common misconceptions around the complexity or customer impact of MCR means many retailers are missing out on potential cost savings.
“Small differences in per-transaction costs can add up quickly when debit volumes are high. Merchant Choice Routing gives businesses a simple way to take more control of those costs without disrupting the customer experience,” Sultana told Inside Retail.
Data from the RBA’s April 2024 Bulletin, The Effect of Least-cost Routing on Merchant Payment Costs, highlights these savings, estimating that the cost of accepting debit card transactions is nearly 20 per cent lower for businesses with MCR switched on.
How MCR works
Most debit cards issued in Australia are dual-network, meaning transactions can be processed through either an international card scheme or the domestic network, eftpos. When a customer taps their card, the payment can typically be routed through either network.
MCR allows businesses to determine which network is used for eligible debit transactions, often based on the lower-cost option. The process occurs in the background, with no visible change for customers at checkout or online.
“From a shopper’s perspective, nothing changes – they still tap and go as usual,” Sultana said. “But behind the scenes, the business can benefit from more efficient routing.”
Controlling costs without disrupting operations
More than 50 million debit cards in Australia are eligible for MCR, according to eftpos’ statistics from April, equating to more than two cards per person. As transaction volumes increase, the cumulative impact of routing decisions becomes more pronounced.
According to Sultana, enabling MCR can deliver several benefits:
- Reduced transaction costs by prioritising lower-cost networks.
- Greater transparency over payment processing.
- Increased competition within the payments ecosystem.
- Support for domestic payment infrastructure.
“It’s one of the simplest changes a retailer can make to improve cost efficiency,” he said. “In many cases, the capability is already built into existing terminals.”
Misconceptions are still limiting uptake
Despite its accessibility, MCR adoption is not universal. Sultana says several persistent myths are holding some merchants back.
One common concern is that enabling MCR could confuse customers. However, the routing decision is invisible to the end user, and the payment experience remains unchanged.
Another misconception is that MCR is only relevant for large retailers. In practice, businesses of all sizes that accept debit cards can benefit, particularly as transaction volume grows.
There is also a perception that implementation is complex. However, most modern payment terminals support MCR, and activation is often a configuration change handled by a bank or payment service provider.
MCR is already widely available for in-store point-of-sale transactions and is increasingly being extended to e-commerce environments. However, availability can vary depending on the provider and platform.
For omnichannel retailers, this creates an opportunity to review routing strategies across both physical and digital channels.
“Retailers should be asking their payment service provider whether MCR is switched on across all touchpoints,” Sultana said. “If it’s not switched on, it’s worth understanding why.”
As operating costs remain under pressure, retailers are seeking efficiencies that require neither significant investment nor operational change. MCR fits within this category, offering a relatively low-effort adjustment with an easily calculable financial impact.
“Managing payment costs doesn’t always require new technology,” Sultana said. “Sometimes it’s about using existing infrastructure more effectively.”
With debit continuing to dominate the payments mix and upcoming changes to surcharging, in Sultana’s opinion, MCR could play a more prominent role in how Australian businesses manage transaction costs while supporting a competitive and resilient payments ecosystem.
