Controlling costs and operating efficiently are critical to success in business. One method of reducing operating costs in the lending space is to leverage payment solutions that incorporate least cost routing. With least cost routing, a processor uses a proprietary algorithm in combination with identifying information embedded within the card number to process debit card transactions through the lowest cost network available.
The Cost of Debit Card Processing for Lenders
In 2010, the Durbin amendment to the Dodd-Frank law was passed, limiting interchange charges with the intent of passing savings from merchant to consumer. It also disallowed exclusive deals between network and a single card issuer, requiring that at least two networks be available for transaction routing.
The Federal Reserve found that the average cost per debit card transaction was 1.15 percent of the total transaction value in 2017. However, the interchange fee makes up 85-90 percent of the total fee. These interchange rates are set by the networks and are formulated based on several different factors, including the merchant industry, type of card, and compliance standards. Those rates are also reviewed two times each year.
These regulations led to an increased market for least cost routing, in which lenders are now provided with technology that provides the most cost-effective routing option for their business.
Achieving Least Cost Routing for Debit Card Processing
Because the fees are complex and variable, and transactions take place in seconds, it would be impossible to manage least-cost routing without the proper technology. However, with a payment processing partner such as Payliance, a lender can control processing costs, accomplishing least cost routing without any additional effort or delay when disbursing funds or receiving payment.
Advances in technology and regulatory changes offer more options to everyone involved in a transaction. With least cost routing, lenders can minimize fees associated with debit card processing, offering a great opportunity to gain efficiencies that minimize costs and maximize the return on loans as much as possible.
Payliance provides least cost routing for real-time fund disbursements and debit card processing, for both retail and online lending models. With our debit card solution, loans can be funded in real-time to borrowers, payments can be accepted instantly, and funds can be collected quickly and accurately to streamline debit card processing.
Request a consultation with our experts to discover how least cost routing can minimize your processing costs and streamline debit card processing, with an average savings of 25-30% when compared to other debit card processors.