LCR, surcharging, and interchange
The questions finance teams ask most before a payment cost review.
Q1: What is Least Cost Routing (LCR)?
Least Cost Routing is the practice of directing debit card transactions through the cheapest available payment network. In Australia, most debit cards carry two networks: a card scheme network (Visa or Mastercard debit) and the domestic eftposnetwork. LCR routes eligible transactions through eftpos, which typically costs merchants less. The RBA has mandated that AU acquirers must offer LCR to merchants who request it.
Q2: Is LCR available to all Australian businesses?
Yes — any Australian business that accepts debit card payments can request LCR from their acquirer. The key word is request. LCR isn't always turned on by default, particularly with global providers. If you haven't specifically asked, you probably aren't benefiting from it.
Q3: Why don't global providers automatically optimise LCR for Australia?
Global providers like Stripe and Adyen build routing logic for a global market. Their default routing favours international card scheme networks (Visa and Mastercard) because that's where their infrastructure is deepest. In Australia, this means they often route debit transactions through higher-cost global networks even when eftpos would be cheaper. There's also an incentive issue: global providers earn interchange revenue on card scheme transactions, so the motivation to proactively push LCR isn't symmetrical.
Q4: What's the difference between LCR and surcharging?
Surcharging passes the cost of a transaction to the customer, so they pay more. LCR reduces the cost to the merchant, so you pay less. They're not mutually exclusive, but they solve different problems. LCR is typically the first lever to pull because it has zero impact on the customer experience.
Q5: How much could LCR save us?
It depends on your payment mix; specifically, how many transactions are on dual-network debit cards. For a business processing $10M annually with a typical AU debit mix, active LCR management can reduce transaction costs by 15–30% on eligible transactions. For mid-market businesses, that commonly runs to tens of thousands of dollars annually.
Q6: What is an authorisation rate and why does it matter for Finance?
Your authorisation rate is the percentage of payment attempts that are approved. Every declined payment that could have been approved is lost or delayed revenue. For subscription businesses, failed rebills that aren't retried become involuntary churn, customers who didn't intend to cancel but couldn't be charged. A 1% improvement in auth rates across $10M in payment volume represents approximately $100k in additional collected revenue per year.
Q7: What's the relationship between LCR and PCI compliance?
They're separate concerns: LCR affects cost, PCI affects risk and compliance scope. However, a provider switch that includes better tokenisation architecture can reduce your PCI scope significantly. Moving to a provider with proper tokenisation can take a business from a full PCI DSS Level 1 or 2 assessment to a much simpler SAQ. The compliance cost reduction alone often justifies a provider review.
Q8: How do we know if we're currently using LCR?
Ask your provider for a transaction routing report showing what percentage of your AU debit transactions are routed through eftpos versus Visa/Mastercard debit. If your provider can't produce this report, or the eftpos percentage is very low, LCR is likely not being applied to your eligible transactions. This is the single most valuable question to ask.
Q9: How disruptive is switching payment providers?
Less disruptive than most Finance teams expect, but it's not trivial. A well-managed migration for a mid-market business typically takes 6–10 weeks from decision to go-live. The key is having a payments partner who helps with onshore support who's hands-on through the migration — so if something needs troubleshooting along the way, you're talking to an engineer who can fix it, not a ticket queue.
Q10: How do I get a cost review done?
A payment cost review with Fat Zebra takes 15 minutes. We review your current payment mix, provider configuration, and applicable rates, and give you a clear picture of what your payments cost today and what they could cost with LCR optimisation and improved authorisation rates. No obligation, no pitch deck.
