MasterCard Canada Press Section

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

TORONTO, April 1, 2009 – 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 out.”

“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 industry.”

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 customers.

To access the full report, go to

MasterCard reiterates the following key points regarding interchange and debit:

(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 rates. 
  • 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 processing.
  • 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® – 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 world.
  • 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™ 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®, Maestro® and Cirrus®, MasterCard serves consumers and businesses in more than 210 countries and territories. For more information go to

For more information, please contact:
Jennifer Reed
MasterCard Canada