On 1 January 2022, the Reserve Bank of Australia's requirement for acquirers to offer least-cost routing (LCR) for contactless debit card transactions took full effect. The mandate required that all acquirers provide merchants with the ability to route dual-network debit card transactions via the network of their choice - typically the domestic eftpos network rather than Visa or Mastercard.
The Problem LCR Addressed
In Australia, most debit cards carry two networks: the domestic eftpos scheme and either Visa Debit or Debit Mastercard. When a cardholder taps a contactless card at a terminal, the transaction is routed to a network - but historically, the default was often the international scheme rather than eftpos. This meant merchants were paying international scheme interchange rates even when a lower-cost domestic alternative existed on the same card.
The issue became more acute as contactless payments grew. While chip-and-PIN (inserted) transactions had allowed merchants to select the eftpos network, contactless taps defaulted to the international scheme in many terminal configurations. As contactless adoption surged, eftpos volumes declined and international scheme volumes grew - not because of merchant or consumer choice, but because of technical defaults.
What the RBA Required
The RBA mandated that acquirers must provide merchants the ability to send contactless debit transactions via the lowest-cost network. In practice, this meant terminals had to be configured to route dual-network debit taps to eftpos where the merchant preferred it, rather than defaulting to Visa or Mastercard.
Impact
LCR adoption grew steadily after the mandate. The RBA reported that by 2023, a significant proportion of eligible contactless debit transactions were being routed via eftpos, saving merchants hundreds of millions of dollars annually in interchange fees. The mandate effectively reversed the decline in domestic scheme volumes that had resulted from the contactless default problem.
Global Relevance
Australia's LCR mandate became a reference point for regulators in other markets where domestic debit schemes compete with international networks for dual-network card routing. The European Commission and several Asian regulators studied the Australian approach when considering similar measures.
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