Least cost routing: how debit network choice cuts your fees

Least cost routing is the practice of sending each debit card sale over whichever of the card's networks costs you the least. It works because US debit cards don't run on just one network. Federal rules require every debit card to be enabled on at least two unaffiliated networks, and they bar card issuers and networks from stopping a merchant from choosing between them (Federal Reserve). Since July 1, 2023, the same applies to online and other card-not-present debit.

Your processor usually makes the choice for you, sale by sale. Whether it picks the cheapest route, and whether you see the saving, are the two questions this guide helps you answer.

What is least cost routing?

It's a decision your payment system makes on every debit sale: of the networks this card can use right now, which one is cheapest to send it over? Each network sets its own interchange and its own network fees, so the same $60 purchase can cost different amounts depending on the path.

The Fed's debit data lists Visa and Mastercard alongside networks such as Interlink, Maestro and STAR, and it groups them into single-message and dual-message networks (Federal Reserve). A debit card enabled on two unaffiliated networks gives you two prices for the same sale. Least cost routing picks the lower one.

Three things to keep straight:

• It's a debit concept. Credit cards run over their own brand's network, so there's no routing choice to make.
• It's a merchant right that your processor usually exercises. You rarely set routing yourself; you choose a processor whose routing works in your favor.
• It's a US rule. In Canada, Interac Debit works on different terms, and our guide to what Interac is explains how.

What do the federal debit routing rules require?

The rules come from the same law as the debit fee cap, but they reach further. Regulation II's routing provisions apply to any issuer, not only the large banks covered by the cap (Federal Reserve). A credit union with $2 billion in assets has to follow them too.

The 2011 rule set both the fee cap and the routing protections in one package (Federal Reserve). Online debit was the gap. When the Fed updated the rule in October 2022, it said the updates specify that issuers should enable at least two networks for all debit card transactions, including card-not-present ones such as online payments (Federal Reserve).

The Board's explanation is blunt about why. Merchants often hadn't had the chance to choose between two unaffiliated networks for card-not-present sales, and the Board described the change as clarifying that existing requirements cover those sales rather than adding new substance (Federal Reserve). The 2021 proposal behind it drew more than 2,750 comments, which tells you how much money rides on the question.

There's one limit worth knowing. Board staff wrote that the final rule doesn't require an issuer to ensure two unaffiliated networks will be available to the merchant for every transaction (Federal Reserve). Some sales will have only one route, and there's nothing to optimize on those.

How much can least cost routing save?

On cards from smaller banks, quite a lot. On cards from big banks, usually much less. The Fed's 2024 averages show why:

Source: the Fed's average interchange fee data for 2024. Across all exempt transactions, the average was $0.51 a sale.

For covered cards, the federal cap already limits interchange on every network, so the network averages sit within a few cents of each other. For exempt cards, the networks set their own rates, and the spread is wide. Network by network, the Fed's 2024 averages for exempt transactions include $0.21 on STAR and on Maestro, $0.35 on Interlink, $0.60 on Visa and $0.63 on Mastercard.

Read those numbers with care. They're averages across different mixes of merchants, ticket sizes and sale types, so they show where the money is, not what any one sale will cost. Our processing fees page covers the other things that shape a sale's cost.

Here's a rough illustration using them. A hardware store in San Antonio runs 1,500 debit sales a month on cards from smaller banks. If routing moved those sales from the dual-message average to the single-message average, interchange would fall by $0.35 a sale: $525 a month, or $6,300 a year. Real savings would depend on which networks each card carries and on network fees, which the averages leave out.

For a sense of the dual-message side, Visa's own rate for an exempt debit card dipped or tapped at a retail sale is 0.80% + $0.15 (Visa). On a $60 sale, that's $0.63.

How does least cost routing work in a store and online?

In a store, the customer dips or taps, and your processor works out which networks that card can use. Its routing logic then sends the sale down one of them. The customer usually doesn't notice a thing.

The "credit or debit" button doesn't change what the card is. Visa's rules say a debit card is still a debit card even when the customer selects "credit" at the terminal (Visa). The routing options come from the card and your setup, not from the button.

Online is where the 2023 change matters. Before it, the Fed found that merchants often had no choice of network for card-not-present debit. Now issuers must enable a second unaffiliated network for them, and the Fed's rule materials describe the benefit as letting merchants route over a network with potentially lower fees or better fraud tools (Federal Reserve). Your gateway and processor still have to support those networks for card-not-present sales, so ask.

Don't chase the lowest fee at the expense of fraud protection. In the Fed's report on 2023 debit transactions at large issuers, merchants absorbed 65.1% of card-not-present fraud losses (Federal Reserve). A route that saves 20 cents but lets one fraudulent $300 order through has cost you money. An online store in Portland should weigh both. Our online payments include fraud screening with AVS, CVV checks and velocity rules, and our guide to card-not-present transactions covers the risks of remote sales.

Who decides how your debit sales are routed?

Legally, you have the right to direct routing. In practice, your processor's routing table makes the call on every sale, under whatever arrangement your agreement sets out. That's why least cost routing is really a question about your processor.

Ask these five questions, and get the answers in writing:

1. Do you route my debit sales to the lowest-cost network available, both in person and online?
2. When routing saves money, does the saving show up on my statement, or do you keep it?
3. Which debit networks do my terminals and my online checkout support?
4. Can my statement show which network each debit sale used, and what it cost?
5. Do any routing choices change how disputes or fraud are handled on my account?

Question 2 matters most. On interchange-plus pricing, interchange passes through at cost, so a cheaper route lowers your bill automatically. On a flat rate, you pay the same percentage whichever network carries the sale, and the routing saving stays with the processor. Our comparison of interchange-plus vs flat rate shows the difference in dollars, and our pricing page explains how we pass interchange through.

How can you tell if your debit is being routed for cost?

Your statement gives it away, if it itemizes debit by network. Labels vary by processor, so this takes a few minutes of matching rather than a single number.

1. List every debit line, with the network or program name, the number of sales and the interchange charged.
2. Separate regulated debit from exempt debit. Regulated lines should average at or below the federal cap for your ticket size.
3. For exempt lines, divide interchange by the number of sales and compare the result with the brand network's own rate. On Visa's schedule, an exempt card in person is 0.80% + $0.15, so at a $45 average ticket that's $0.51 a sale.
4. Look at where the exempt volume lands. If nearly all of it sits under Visa or Mastercard program names at their full exempt rates, ask your processor whether it routes for cost at all.
5. Check online debit on its own. Card-not-present routing only became a requirement in July 2023, so older setups may never have been updated.

Our guide to reading a merchant statement shows where the interchange section usually sits. If your statement shows one blended rate for every card, there's nothing to check, and that's the first thing to fix.

When is least cost routing not worth the effort?

Sometimes it barely matters, and it's better to spend your attention elsewhere. Least cost routing won't do much for you when:

• Most of your card sales are on credit cards. Routing choice is a debit rule.
• Most of your debit comes from large banks. The cap holds interchange down on every network, and the Fed's averages for covered cards differ by only a couple of cents.
• You're on a flat rate. Fix the pricing first, or the saving never reaches you.
• You sell mainly in Canada. The US routing rules don't apply there.
• Your debit volume is small. On 100 exempt sales a month, even a 35 cent difference is $35.

It's worth a hard look when you take a lot of debit from community banks and credit unions, when your average ticket is high enough that exempt percentage rates add up, or when you sell online and haven't checked your routing since the 2023 change.

Least cost routing vs the Durbin fee cap

They come from the same federal law, the Durbin Amendment, but they do different jobs.

The cap is covered in our guide to the Durbin Amendment, and the Fed's small issuer exemption page lists which institutions are exempt. Our guide to debit card processing fees puts both together on a real month of sales. Because Regulation II is federal, these rules work the same way for merchants anywhere in the United States.

Your next step

Your statement shows whether routing is working for you, as long as it itemizes debit. Send us a recent one for a free statement review and we'll separate regulated from exempt debit, check what each costs per sale, and tell you whether a different setup would route it more cheaply. If you'd rather talk first, contact us.