False Claim: Small merchants have no power to negotiate interchange rates.

Truth: Merchants can, and do, shop around and negotiate for the best possible rates and terms for accepting credit and debit cards from among thousands of banks and card processors. Small retailers also work through local chambers or trade associations that will frequently offer significant savings on card acceptance. Furthermore, there is nothing prohibiting any merchant from engaging in a negotiation directly with Visa and MasterCard. Merchants can – and do – negotiate interchange fees applicable to their transactions based on a variety of factors directly with MasterCard or Visa.

False Claim: Interchange is a hidden fee for consumers.

Truth: Interchange is a cost of doing business, just like postage expenses, the cost of accepting checks, or Web site management expenses. Merchants that choose to accept debit and credit receive significant benefits for doing so – and they pay a few pennies on the dollar for these benefits. Furthermore, there is nothing prohibiting merchants from disclosing any business expenses right on the customer receipt.

False Claim: Interchange creates a perverse incentive for more cards to be issued regardless of creditworthiness.

Truth: Banks and credit unions that issue cards rely on interchange revenue to cover write-offs when customers can’t pay their bills. With average interchange rates at about 1.6%, this doesn’t even come close to covering the kinds of losses card issuers face today – with write-offs reaching 7.74% in January 2009.

Furthermore, merchants who accept Visa, MasterCard, or American Express are better able to weather an economic downturn like this, because they are protected from these credit losses. Target, for example, which runs its own card program, had to write off 12.28% of its credit card receivables in January 2009. With losses like that, it makes sense that Target has taken steps to sell off a large portion of their credit card receivables and remains under pressure from the investment community to stop issuing their own cards.

False Claim: MasterCard and Visa are a duopoly, collectively setting interchange rates in secret, with the large banks exercising significant control over the level of those rates.

Truth: There is active competition in the payments system among all the large debit and credit networks, as well as many other forms of payment, including cash, checks, ACH transactions, PayPal, and emerging players like Revolution Money and a large number of other new and emerging networks. All of these payment networks and forms are fiercely competing for business in a highly competitive market.

False Claim: Merchant credit or debit card fees are more expensive in the U.S. than in Europe.

Truth: The total amount merchants pay for the benefit of accepting credit or debit cards (the “merchant discount fee”) is in fact roughly the same in the U.S. and Europe, according to a report by the Aite Group. The interchange portion that is applicable to a transaction, which varies from country to country, does tend to be higher here than in Europe. But the remaining portion of the merchant discount fee is significantly lower, rendering the overall cost to merchants virtually the same.

False Claim: Merchants are unfairly charged higher transaction fees when customers use a rewards card.

Truth: The vast majority of merchants do not, in fact, pay any more for rewards cards than for any other card on a particular network. Nearly all smaller merchants have chosen to pay a “blended rate” for card acceptance – in other words, they pay the same rate no matter what card is used. It is typically the larger retailers who choose to pay what is known as “interchange plus,” which many have found offers them additional opportunities to save money on card acceptance. Moreover, rewards cardholders have higher incomes, better credit, and are proven to spend more at the retailers where they shop.

False Claim: Interchange legislation would benefit small business.

Truth: Small businesses would be harmed – not helped – by interchange legislation. Today’s growing and thriving electronic payments system allows even the smallest kiosk on Main Street to compete on a level playing field with the world’s largest retailers. And studies of small retailers find that revenues jump 50% when they begin accepting debit and credit. Interchange legislation, however, would result in a tightening of consumer credit – meaning fewer sales for small merchants, higher fees or restricted credit for their own business credit cards - or potentially the loss of the ability to offer card acceptance altogether. Hidden under the guise of “helping small business” interchange legislation would in fact create a destructive domino effect for small business owners at a time when they can least afford it.

False Claim: Interchange rates are continually rising.

Truth: Interchange rates have stayed virtually the same over the last decade, even with the significant advancements in technology, convenience, and new security and fraud protection measures – all advances that add significant value for merchants and consumers. In terms of the volume, this is not a matter of widgets in a widget factory. In the case of transactions, the higher the volume, the higher the risk shouldered by the card issuer.

False Claim: Only 13% of interchange is for processing the transaction and the rest is profit.

Truth: This is patently false. This is a falsehood perpetrated by some merchant groups, manipulated from a report by Diamond Consultants that included a lengthy and comprehensive analysis of the entire credit industry. Since that time, the report’s author has insisted that the merchant groups and Members of Congress stop falsely characterizing their report, as they did not explore some of the larger costs associated with running card programs, such as credit losses, fraud losses, and card program operation expenses. In a public statement, Diamond Consulting wrote, “We find it unfortunate that a report that was actually intended to provide valuable insights . . . could be deployed by others to stifle innovation and hamper free market forces.”

False Claim: It is very difficult for merchants to offer a cash discount.

Truth: There is nothing prohibiting merchants from offering a cash discount. In fact, federal law allows merchants to offer cash discounts, and the card networks all make very clear in their rules that cash discounts are allowed. Last summer, for example, when gas prices were skyrocketing, cash discounts were widespread at gas retailers across the country.

False Claim: Given the popularity of credit cards, merchants do not really have the option to refuse credit cards.

Truth: There are many successful cash-only businesses; businesses that accept only American Express, or MasterCard, or Visa; other businesses that will or will not accept checks; online businesses that use only the new emerging payment networks available; or businesses that may choose to accept debit cards but not credit cards. Every day, businesses make decisions on how to accept payments, and which forms of payment to accept, based on the competitive and economic benefits offered by each form. There is nothing impeding this decision-making process.

False Claim: The interchange system is not transparent.

Truth: All merchant rules are available on each of the respective networks’ Web sites. A simple “Google” search reveals this. This only excludes any rules which would, if public, be used by fraudsters; however, these more confidential rules are easily accessible to any merchant who simply contacts his or her card network directly.