Are all least-cost routing for payments the same in each bank?


Tyro eftpos

This is something you need to investigate whether all least-cost routing for payments are the same in each bank? 

In our market space, we were the first to push 'Least-Cost Routing', saving our clients a lot of money. The idea was that as your customers electronically paid you with Visa and Mastercard, there were many paths through the bank system where the payment could go, so Least-Cost Routing selected the cheapest path that reduced interchange fees and card payment fees. As such, the merchant saved money.

That is all good.

However, recently, some banks have introduced a Merchant Choice Routing service and stated that it is the same as Least-Cost Routing. Allow me to have my doubts. Merchant Choice Routing allows you to select the path of the funds manually, either through EFTPOS or credit, which you put in advance, which has been purely a customer choice up to now. The problem here is that different card transactions have extra costs depending on the amount and the card.  

A big problem is here. 

Let us make a simple example. Say you pay a 1.5% transaction fee for Visa and 10 cents if it goes in as an EFTPOS. I know it's more complex than this, but please let us keep it simple for now. 

So a contactless purchase on a Visa debit card would cost $0.15 (1.5% of $10). If Merchant Choice Routing is activated, the same transaction would cost $0.10 via EFTPOS. The transaction is processed through EFTPOS, and it attracts a fixed debt service fee. So you have lost. If your card payment amounts vary greatly, and everyone's amounts vary, these losses could mount up. You may find that with Merchant Choice Routing, your bank fees increase. 

Another problem

Also what happens to a payment going through a VISA or Mastercard? Is it being least-cost routed? I am looking at one bank statement for one of my clients; I do not see it.

Have a chew on this, please, and see what the score is with you.

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