Card Not Present: Your guide to least-cost routing changes in Australia

Around the world, the payments landscape is changing at rapid rates. Accelerated by the pandemic, consumers are continuing to shift away from cash payments towards more convenient methods like contactless, card not present, and ecommerce transactions. As consumer preferences evolve, new digital products, services, and regulations are evolving to help businesses meet user demand, optimise their operations, and cut costs. 

Over the years, such innovations have even reached the trusty debit card. While they’ve been around since the 60s, developments in debit payments are now giving businesses around the world greater choice and flexibility in how contactless debit transactions are processed, some with cost-saving implications for merchants. Enter least-cost-routing (LCR), also known as merchant-choice routing (MCR). Apologies for all the acronyms. So how does LCR work?

Whenever a customer goes to make a debit payment to your business, multiple options are typically available to route that payment over. While these routing options may appear to lead to the same destination, there are a number of crucial variables along the way. Least-cost routing allows you to:

• Route a payment via the debit network that costs the least in transaction processing fees charged by the network (scheme fees), as well as the issuer (interchange).

• Automatically retry certain refused transactions thereby boosting authorisation rates and improving customer experience.

• Dynamically switch between networks, following continuous analysis on BIN level and risk checks. 

• Re-route eligible transactions if a certain card network is down, maximising up-time. 

From Cartes Bancaires in France to US Debit, least-cost routing looks a little different depending on what region and local debit scheme you’re transacting via. In Australia, where debit cards account for 51% of all local payments, transactions can be processed through one of three debit card scheme networks: eftpos, Debit Mastercard, or Visa Debit. The majority of debit cards are dual-network cards, co-branded as either Visa with eftpos, or MasterCard with eftpos. More than 35 million debit cards are contactless-enabled dual network cards, allowing a payment to be processed via either eftpos or one of the international networks.

Until recently, least-cost routing in Australia was limited to in-person debit payments made with a physical debit card, and online debit card transactions could only be processed via the international networks. Now LCR is available for online transactions following eftpos' new online payments functionality, Card Not Present (CNP). 

With CNP, businesses can route online transactions through eftpos, bringing all the LCR benefits we know and love to Australian ecommerce. Adyen is one of the first acquirers in the market certified to offer eftpos routing through CNP, and has now moved from a closed pilot to production, making this functionality available to all merchants on an opt-in basis. We support merchant choice giving businesses the control to decide whether merchant choice routing works for their business. This will allow businesses to:

• Route transactions to the most cost-effective scheme network

• Combat fraud and stay compliant with 3DS 2.1 

• Improve operational efficiency with dispute handling through Adyen’s Disputes API

In light of the developments in the local ecommerce landscape, the Reserve Bank of Australia (RBA) and industry self-regulatory body AusPaynet released a set of best-practice principles for least-cost routing in the online environment, which all LCR industry participants, including businesses, are recommended to follow. In short, the best-practice recommendations are: 

1. Merchants can decide whether or not to give customers the ability to choose which debit network will process their transaction. Where this is the case, the merchant should not override the customer’s choice of network. 

2. If the customer has not made an explicit choice, there should be a reasonable notification to the customer indicating that routing could occur. 

3. If customers are not given a choice of network, merchants must not mislead customers about which networks their transaction may be processed through, with logos of all network options displayed.

Merchant-choice routing online notification guidelines 

Out of all the guidelines, one of the most important things for businesses to pay attention to is the requirements around online notifications. Where notification of LCR is expected, the RBA guidelines recommend that:

• Online Notification Text is displayed to the customer

• A statement is added to a merchant’s Terms and Conditions

• An explanation is added to a merchant’s Frequently Asked Questions

Supporting LCR in Australia fits Adyen's global strategy to provide businesses with more choice to enhance shopper experiences, while staying in control of costs. Our global LCR solution is enhanced to meet rules and nuances of local markets with dual-branded cards, such as France, the United States, and now Australia as well. 

All major Australian debit card issuers are now ready for eftpos routing, and standard interchange ++ fees will apply – meaning potential cost savings are directly passed on to merchants.