New Report Identifies Unintended Consequences for Small Business if Government Regulates Merchant Fees

    TORONTO, April 1 /CNW/ - A new report from a leading small business
organization in the U.S. warns of the negative outcomes that regulating the
fees merchants pay for credit card acceptance would have on small business.
The report also highlights the benefits credit cards bring to small business.
    In the report, Chief Economist of the Small Business & Entrepreneurship
Council, Raymond J. Keating, identifies the potential unintended consequences
of government regulation of interchange fees, while outlining 10 key benefits
small business receives from credit cards.
    Keating notes that small business owners who use credit cards as a
financing tool for their businesses will "get squeezed on several ends -
higher costs to use their card for business purchases, fewer services and less
innovation from issuers, and lower sales due to a decreased number of cards in
use by consumers."
    The report also examines how government interference ultimately would do
more harm than good with respect to credit card use and access for small
business owners and their customers.
    According to the report "The interests pressing for government price
controls in interchange do not want a 'free-market solution' on interchange.
They instead want government to overrule the market to impose their desires."
    According to Keating, one consequence of government intervention could be
that "fewer cards can be issued and the benefits of competition are reduced.
Assorted rewards derived by consumers from using their cards can be wiped
    "This report from a notable small business organization corrects some
misconceptions about interchange fees, and most importantly, brings the
benefits small businesses receive from credit cards to the forefront," said
Jennifer Reed, Vice President, Communications and Government Relations,
MasterCard Canada. "The many benefits Canadian consumers and merchants receive
from card acceptance continue to be downplayed by retail sector lobbyists.
MasterCard looks forward to appearing before the Senate Standing Committee on
Banking, Trade and Commerce later this month in order to discuss the payments
    In the report, Credit Cards and Small Business: The Benefits,
Opportunities and Policy Debate, the top 10 benefits are:

    What's good for consumers is good for small business. The gains consumers
    accrue due to the use of credit cards translate into benefits for the
    small businesses that sell goods and services to those consumers.

    Helping to finance small business. Credit cards are a critical tool in
    expanding small business access to credit. According to the National
    Small Business Association, nearly one in two small business owners used
    credit cards to finance their business.

    Increased sales for small business. Consumers want payment options and
    offering the added options of credit card payments means more customers
    and increased sales.

    Guaranteed payments for small business. Credit cards remove a significant
    business risk for small businesses. Once a transaction with a credit card
    is approved, the merchant is guaranteed payment.

    Weathering economic storms. With an economic downturn and commercial
    lenders tightening access to credit, small businesses are turning to
    credit cards to help keep their businesses functioning.

    Eliminate costs. By accepting credit cards, small businesses shift the
    significant costs of offering lines of credit, including credit risks,
    billing and collections, and fraud protection to credit card companies.

    Enhance efficiency and cost savings for small business. Credit cards
    allow small businesses to better manage expenses and track purchases.

    Improved security for small business. With less cash in the till, small
    businesses greatly reduce employee-theft related costs

    Exports, international growth and opportunities for entrepreneurs.
    Electronic payment systems enlarge the consumer market for businesses,
    particularly in the e-commerce, travel and tourism sectors.

    Reward and innovations benefit small business. Competition and investment
    in reward programs enhance quality of service to small business

    To access the full report, go to

    MasterCard reiterates the following key points regarding interchange and

    (for more information:
        -  Canada has a well-functioning payments system that provides
           significant convenience and security to consumers and merchants.
           It has continued to operate effectively and drive commerce despite
           a global credit crisis. More than $240 billion in Canadian
           commerce is flawlessly expedited on credit card systems annually.

        -  When interchange was regulated in Australia, it led to reduced
           card benefits to consumers and there is no evidence that retailers
           passed on savings in reduced prices - such a cash grab should not
           be repeated in Canada. As the Australian Financial Review noted:
           "...While some substantial costs have been removed from the
           system, consumers are now subject to opportunistic fees levied by
           merchants, whether it be ad hoc overcharging at the point of sale
           or the unavoidable imposts charged by the airlines for online
           payment where no alternative is available..."

        -  A merchant that processes a credit card transaction enjoys
           guaranteed payment even at a time of increasing consumer default

        -  Merchants benefit from increased sales, improved payment
           efficiency, reduced cash handling, customer convenience and
           satisfaction, ecommerce facilitation, international purchase
           handling, automatic currency conversion and settlement, among
           other benefits.

        -  Interchange is a fee that passes between acquirers (who handle
           card processing for merchants) and card issuers. Issuers receive
           interchange to compensate them for significant costs and risks
           borne in offering credit cards including interest-free periods,
           account management, credit losses, fraud protection and

        -  MasterCard receives no revenue from interchange.

        -  Consumers do not pay interchange fees nor merchant fees.

        -  Merchants who choose to accept credit cards pay to participate in
           exchange for the benefits received. The fee accounts for the
           multiple benefits received.

        -  Merchants pay a merchant fee established by their acquirer, not
           MasterCard. Interchange forms a portion, but not all, of that
           merchant fee.

        -  MasterCard's 2008 adjustment to interchange rates was the first in
           seven years. Some rates were reduced.

        -  A merchant can obtain his MasterCard interchange rates via
  This information has been available for more
           than two years.


        -  MasterCard Worldwide has PIN-based debit payment solution --
           Maestro(R) -- used by more than 652 million cardholders in over
           100 countries.

        -  MasterCard Canada is preparing to expand its global debit
           processing system in Canada where it would deliver compelling
           benefits to Canadian consumers and merchants.

        -  Using Maestro, Canadian consumers could use debit all over the

        -  Accepting Maestro means Canadian merchants could accept
           international travelers' debit cards.

        -  MasterCard will provide technological advancements including
           greater security and fraud protections, innovations like
           PayPass(TM) contactless payment, e-commerce payment capacity, and
           mobile payments.

        -  MasterCard operates a global debit infrastructure with centralized
           operations that run 24/7. The system delivers significantly
           greater scale than Canada's incumbent debit network. It has had
           zero downtime in more than seven years.

        -  MasterCard will create competition in the Canadian debit market
           where it has never existed.

    About MasterCard Worldwide

    MasterCard Worldwide advances global commerce by providing a critical
economic link among financial institutions, businesses, cardholders and
merchants worldwide. As a franchisor, processor and advisor, MasterCard
develops and markets payment solutions, processes approximately 21 billion
transactions each year, and provides industry-leading analysis and consulting
services to financial institution customers and merchants. Through its family
of brands, including MasterCard(R), Maestro(R) and Cirrus(R), MasterCard
serves consumers and businesses in more than 210 countries and territories.
For more information go to

For further information:

For further information: Jennifer Reed, MasterCard Canada, (416)

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