It’s not only the customer who is taking a hit from high gas prices, some gas stations’ profits are being entirely mitigated by credit card interchange fees. The AP reports that gas station manager Roger Randolph was fed up with losing money on credit card fees. His solution was to place new signs on his Chevron gas pumps that read “No more credit cards.” Details, inside…
The article says,
His complaints target the so-called interchange fee — a percentage of the sale price paid to credit card companies on every transaction. The percentage is fixed — usually at just under 2 percent — but the dollar amount of the fee rises with the price of the goods or services.
As gas tops $4 a gallon, that pushes fees toward 10 cents a gallon. Now stations, which typically mark up gasoline by 11 to 12 cents a gallon, are seeing profits shrink or even reverse.
In a good month, Randolph’s small operation would yield a $60 profit on gasoline sales. But that’s been buried as soaring prices forced the station to pay about $500 a month in interchange fees.
“At these prices, people aren’t making any money,” said Jeff Lenard, spokesman for the Alexandria, Va.-based National Association of Convenience Stores. “It’s brutal.”
Many gas stations across the country have dealt with this issue by offering discounts on cash transactions which is not a perfect solution explains the spokesman for the National Association of convenience stores, “The problem with cash discounts is, if people don’t have the cash or don’t want to spend the cash, you’ve inconvenienced them.”
Another avenue being explored by some gas station owners is finding less expensive credit card companies. Tom’s Convenience stores in Pennsylvania has started using a new credit card company called Revolution which charges smaller interchange fees. Customers who use the card get an automatic 10 cent discount.
The National Retail Federation says that the recent surge in gas prices has focused attention on to what they believe is an underlying problem with credit card fees. They say that even though the price of gas has gone up, the cost of processing credit and debit cards stays the same. “We have always contended that it doesn’t cost Visa and MasterCard any more to process a $1,000 transaction than it does a $100 transaction,” said J. Craig Shearman, vice president of government affairs at the retail federation.
Currently, there is pending legislation in Congress which would allow merchants to bargain collectively with the credit card companies. Other legislation focuses on requiring credit card companies to explain how they calculate their fees. Unfortunately, approving and enacting such changes will probably take some time. So until there is any change in the structure of interchange fees, it seems that customers and owners will continue to experience pain at the pump.
Some gas stations banning credit cards [AP]
(Photo: Getty)
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@chrisjames: I agree.
Here’s the rub: who/what is a merchants “alternative” to not dealing with the cc companies. There is no alternative, so I wouldn’t necessarily say it was placid.
You must contract with “some” supplier in your area, and if you opt to sell a brand under some situations, the brand sets the rules you sell by.
Visa and MC work “both sides of the street” by charging the merch, and franchising their logo to your local bank for card-use.
When prices merely rise at a “normal” inflation rate, everyone gets a modest cut. But with wholesale fuel increasing up to 10% on a given day, and averaging a 120-140% increase over a year and a half, that little .10 cents per gallon margin that was your sweet-spot now becomes a major and serious loss-leader.
“If” (for those that will say just increase your margin) a station says, OK, I’ll mark-up 5% instead of .10 cents a gal, 2 things happen:
1) some stations can’t do it by contract
2) the .10 cent gal is already BUILT-IN to the price at the pump, as determined by their distributor’s wholesale cost at the storage port or depot (in New England its Providence and at Boston), so increasing their margin equates with an additional increase of say another .10 cents or more, and you know that higher price won’t look pretty on the sign outside and probably get the station more bad press.
Then…the cc companies still take a slightly higher percentage cut, your competition across the street most likely will NOT price match, and you sell even less volume as a result.
Now, if the stations all banded together to increase margins, guess what, we dump on them for being greedy little blood suckers, someone will file a price fixing suit (why don’t they do that when airlines collectively raise their fees?), and then they shut-down due to pricing pressues. We get no gas (unless it’s $9.00 a gal), but Visa/MC still rule the world, and the oil companies still maintain it’s not under their control, and speculators in cushy chairs still make a few mil….
My head hurts.
@ShadowFalls
“Most of the problems with the economy and stories mentioned on Consumerist regarding price increases and shrinkage, are a direct fault of the oil companies, who continue to profit.”
Replace “oil companies” with “government” above. The state and federal governments make more on every gallon of gas than the oil companies do. Interestingly, the government is also the primary reason that gas prices are as high as they are by refusing to allow oil companies to find and explore new sources of oil.
Its simple: Demand for oil based products is climbing and has been for some time. Congress refuses to allow any increase in domestic supply and foreign governments seem uninterested in increasing supply as well. The end result is that prices go up. We can change two parts of that equation. First, we can increase domestic supply by authorizing drilling in oil-rich domestic reserves. Secondly, we can decrease demand by being smarter about oil consumption.
My two cents…
Something is not right here. No question,the little guy that owns the gas station is taking it in the shorts.Hate it for him. business ain’t beanbag.But…
High profit margins attract competition. Low profit margins repel competition. Visa/MC would seem to have a lock on the market and they will make more money than the guy providing the product.We’ve established that.
My question: Discover is an also ran. DISTANT third (or fourth)among branded credit/debit cards.This would appear to be the opening that they need to be a player in the big leagues. Harness technology,offer a better deal to the merchant and cut the fees to the point where everybody makes a little coin.This seems not to be the case.They seem to be happy with stepchild status and the merchants that could use them as a counterbalance to the Visa/MC axis of evil just bitch and moan. (Forget Amex- they make their money a different way . They take a higher vigorish than V/MC would dare)
Anybody ?
I use cash whenever possible. I do not want to support those leaching CC Companies. If I get a discount all the better.
Whoever said the card issuers eat most of the fraudulent transactions must work for Visa or Mastercard. I’ve worked for large large retailers and owned my own small retail shop. In 95% of cases, it is the retailer that pays for the fraud, and NOT Visa or Mastercard. Visa/Mastercard makes it so incredibly difficult to get your money back on a fraudulent transations, that most retailers just end up paying it and building the losses into their prices.
I’m surprised many gas station owners haven’t just given up and gone on to other businesses. It’s shocking to me that a ‘franchise’ can last so long with such a huge failure rate and such a tiny (or negative) profit margin.
@Southern: @MsClear: Yes, debit transactions also have interchange fees, but they are capped. That’s why PIN pads at retail stores usually default to PIN when you can hit “cancel” and process it as a credit transaction…they usually pay less interchange on the PIN transaction, but the processor makes less money.
I feel for the small operators, I really do, but look at the procedure to fill up the tank:
Credit Card:
insert card
pump gas
leave
Cash:
walk into station
wait in line
fork over cash
walk back to pump
pump gas
walk back into station
wait in line
get change
walk back to car
leave
Yeah, I could just guess how much gas I need and pre-pay that amount, but unless the cash-only guy is offering a HUGE discount, it’s not worth it to me.
@NoWin: The mechanics of the situation applied years ago just as much as it did today. Even if there was and is no way out, there’s no reason to let things go this long without a peep, then start ranting and raving when you get backed into a corner.
Still, I don’t agree that there was no way out. There was plenty of time for merchants, probably through an entity like the National Retail Federation, to negotiate with the credit card companies for fairer practices. Not to mention they are actively seeking an alternative now, an alternative that was never an impossibility. The fact that this idea is only now gaining force implies that they’ve been letting things slide this long and they’re now paying for that decision. The markup trick doesn’t work anymore, at least not with gas.
I won’t sympathize with a group of people that never bothered to question this because they can just let the consumers pick up the costs. The consumers, you know, the ones getting the shaft from the start. It’s a terrible practice on the part of the credit companies, but these merchants had the ability to effect a change all along. It’s too late for sympathy.
@Snarkysnake: I think the basic diff between Discover and the V/MC line is simple branding. Visa and MC brand their name “out” to the banks (and us) to use “their network” for processing (Visa/MC not being card companies, but the processor of the transaction request). Discover is a card company and network in itself, so they risk more than being just the company the “faciltates” the card info between merch and you bank.
Think of Visa/MC as a commerce-processing version of Paypal (bad analogy, but I think you get the point)
@johnfrombrooklyn See Mac-phisto’s explanation: certain types of transaction (SecureCode, Verified by Visa, “No Signature Required”) are charge-back proof. Unless you were trying to chargeback multiple gas authorizations or fast-food purchases, different scenario.
@johnfrombrooklyn: It’s true that a merchant may have to absorb losses due to any fraudulent card-not-present transaction, but otherwise, I can’t imagine it’s that hard to dispute a chargeback. Just produce the physical delivery signature. Case closed.
hum here we don’t have to prepay for petrol (yet) [and i don't understand why you're complaining about such a cheap gas price
] so it’s “pump gas, walk into station, pay, leave”
@emington: well, here, americans steal gas whenever possible (b/c we all carry guns & if we can’t have free gas, we’ll take it, dammit!)
seriously though, in some states, courts have ruled that allowing a patron to dispense fuel before paying constitutes aiding their theft. ergo, everyone prepays now.
@boomerang86: That’s how Costco typically does it, unless you use an AmEx.
@johnfrombrooklyn: no, i don’t work for VISA/MC. guess what? i work for a card issuer. i see more fraudulent transactions in an hour than you see in a year, so i’m pretty sure i know the rules.
Maybe people should buy less gas.
I fail to see what the big deal is and why gas companies are selling gasoline at a loss. This sounds a lot like airlines bitching about how they have to cut peanuts and sodas/water from flights because fuel prices have gone up. HELLO?! Put your profit margin in, adjust for your new, higher costs, and sell it at the higher price. Yes, people will bitch, but there’s no sense in whining about probably the second most fundamental concept of business.
So…
You want me to carry around $100 in cash for gas, AND wait in line for 10 minutes behind all the mouthbreathers that are buying beer, lottery tickets and cigarettes? I don’t think so.
Anyone else uncomfortable with the power the credit card companies are gaining? As credit/debit cards become “money”, these types of stories will become more common. When I spend cash, the government doesn’t get a cut for printing the money (other than taxes of course, but those are supposed to go to running the government, not make it rich). Judging by the posters on here who would refuse to use cash-only business like gas stations, they are sure to be a dying breed, which will give the CC companies even more power.
My uncle owned a gas station that recently went bankrupt, partly because of the fees he had to keep paying to credit card companies. His station brand wouldn’t allow the discount either.
@coan_net: I use my card twice in those situations as well. It doesn’t hurt them that much, because the bulk of the fee is based on a percentage as opposed to fixed rate. If you are doing debit pin transactions then you are causing them a slight loss.
Gas stations used to have separate cash and credit prices. The credit card issuers banned that practice, and until merchants revolt they won’t relax.
More power to this guy, but I’m going to drive to the next station.
I get 3% back on gas purchases with my Chase Freedom card. I pay it off in full. If merchants offer a 5% cash discount I’ll take it, if its a 3% discount, I’ll just get it from the bank later (not to mention $200 of rewards can be redeemed for a $250 check).
@peejaybee:
As you’ve described, the ulterior motive here is to get people into the store to buy stuff that they actually make money on.
Oh! and Cash is King, FTW
Less convenient here? Sure
Are you really in that big of a hurry? No. Otherwise, swipe the card and pay for the convenience.
@RayDelMundo: “Not true. This is a full service gas station, not a convenience store. This guy makes way more on repairs than he does on gas.
There are virtually no full service gas stations around here anymore. 99.9% of the places that sell gas are convenience stores. I live a couple of miles from this guy’s station.”
I am not sure where you live but if that is the only full service gas station for miles around that is a shame. Vast majority of gas stations where I live are full service. I suppose the benefits of living in a heavily populated metropolitan area. Plenty of cars need servicing creating a heavy demand for full service stations.
However, none of this has anything to do with the issue at hand, which is paying cash for gas. Regardless of how much of his business comes from repairs, he will still lose business from non-cash carrying gas customers who will drive to the nearest convenience store gas station that accepts plastic.
I dunno.. If I had the choice of paying $3.90 at one station for gas with CASH and $4.00 at the other station with PLASTIC, I’d probably go to the bank and take out the cash.. With a 20 gallon tank that’s (up to) a $2.00 savings.
Hell, I already pretty much do that at Wally World, I’ll put $150 or so on a GiftCard and just use that at the pump because they usually have the cheapest price around anyway, and the Gift Card saves me ANOTHER 3¢ per gallon. if they expanded it so that using a GC or Cash saved me 10¢ a gallon, I’d be all over that.
So if the guy that doesn’t want to accept credit cards made sure his price was at least 5¢ a gallon less than anywhere else, I bet he’d get more business than he could handle, even as a cash only business.
Just take care when paying with big bills if you pay cash – the other day an attendant pulled a scam on me insisting I had given him a $20 bill when in fact I had given him something bigger. No way to prove it and I was in a hurry. The moral of the story is, never hand over anything bigger than a $20 without making sure the attendant or cashier confirms the denomination before taking it.
Catch-22. Damned if ya do, damned if ya don’t. Good reason to never base profits on a flat fee amount, ’cause eventually the %’s always catch up.
@sashazur: General point in life. I know that sometimes it’s unavoidable, but otherwise, NEVER do things in a hurry.
If I was in your situation and I had some time, I’d ask the police for their opinion.
—
Mr. Randolph’s point (from the original article) is moot in my case. Yes, I pay by credit card. But after the price of gas hit $3, I simply stopped filling my gas tank in full. Maybe to halfway at most. So, assuming that the cost of interchange hasn’t skyrocketed within the last 5 years, you’re still paying a similar amount for serving me gas this year when compared to about 5 years ago.
Of course, this is practical for me because I usually drive only in the city (to places where it is very inconvenient to access by mass transit) or otherwise, one or two counties away from the city itself.
And I usually know where I’m driving and how much gas it’ll take me to get there, so I usually don’t run the risk of running out of fuel.
—
Also, I do find it disturbing that the card networks are collecting so much in interchange here in the states. Of course, for convenience, nothing is free. I’d expect some degree of compensation for the convenience (in the form of interchange and perhaps some loss in anonymity).
But at the same time, I cannot completely acquit the merchants of blame in this issue. See, some of them have been accepting credit cards since when the credit card industry was making roots. They had ALL THAT TIME to complain/revolt/what have you to ask for lower interchange or to ask to pass the interchange directly to us, the customers (as opposed to incorporating it into the sale price uniformly). They did not and they folded relatively quickly when the card companies made their decision / “mandate.” So, some blame goes to them for not keeping them in check.
The consumer, on the other hand, had very little to complain until recently. It is a relatively recent development of the shady billing practices, business practices, etc. Before that, everything was relatively straightforward and we got perks for using the cards. So I feel compelled to acquit the consumers more than I would to the merchants to the issue at hand today.
@BrookeCossus: You are very right. Most Americans just let shit happen until it affects them – now its too late. It’s no coincidence that Bush and his friends are oilmen and that prices have been steadily going up since he took office. George Bush is laughing all the way to the bank. This latest increase in gas is his parting gift to himself. All you people that voted for this crook are just as guilty. It also seems funny that Consumerist readers would be so foolish to pay for gas with a credit card that they will then pay interest on.
Kinda reminds me of eBay.. A few months ago they reduced their LISTING fees (which were fairly cheap to begin with), but INCREASED their final sales % fee.. So while you might save 25¢ from listing your item, you could wind up paying $2.00, $5.00, $20.00 (etc.) MORE in the final sales fee, depending on the final selling price of the item.
And they of course tried to gloss that over. Bah.
I simply stopped filling my gas tank in full. Maybe to halfway at most.
Be careful with that — you really don’t want your gas tank to fall below 1/4 tank or so, as the position of the fuel pump (which is on the inside of the tank of most cars/trucks these days) is such that at around a quarter of a tank, the level of the fuel inside the tank falls below the fuel pump, which causes it to heat up and really shortens its life span. Above 1/4 tank and the pump is submerged in the fuel, which keeps it cooler.
You’d be better off just filling up once, then when you get down to half a tank, filling back up; you’re still putting in the same amount of gas as you would from putting in a half tank from “Empty”, and your fuel pump will last a lot longer.
@Steaming Pile:They have that here in California at Arco stations.
Not sure why other gas stations don’t do what ARCO does…you can pay cash outside by inserting bills into a machine OR pay with a debit card and get assessed a 45¢ “fee” for using your card.
I totally do not agree with the debit card fee, but for station owner in the story it seems like it would solve his problem.
@sashazur: That is one thing I have ALWAYS been paranoid about happening. Its not as if they give you an receipt when you bring cash inside to prepay for your gas. How do I make sure some unscrupulous cashier doesn’t decide to make off with half my cash?
I don’t carry cash….I carry plastic. If you don’t cater to that I don’t buy from you. Its a simple choice on everyone’s part.
Chris writes:
“My in-laws own and self-operate a Citgo gas/service station: they are lucky if they can mark-up their gasoline by $0.05 cents. If they sell an average of 500 to 1,000 gallons per day, you do the math on how much “money” they make by selling gasoline. Add to this the cost of credit card fees, and they break-even on gasoline, and sometimes LOSE money on every gallon.
I do not recall a time when they were ever in a situation to mark-up their gasoline by $0.10 to $0.12 cents per gallon.”
There seem to be plenty of people willing to pay cash/debit at the Arco station down the street from me (for those of you who haven’t seen it mentioned before, Arco doesn’t take credit cards at their stations.)
Sure they lose some business, but it’s better to have a small part of a profitable market than a big part of an unprofitable one.
I know a guy in Escondido that runs a gas station. He says he’s making about 1-2 cents per gallon. 1-2 cents! Take the transaction fee for a credit card and he’s out the entire profit from the gas. Makes sense to me, everyone’s gotta eat and it certainly won’t help the economy if smaller stations everywhere suddenly go belly up.
Again, read the damn merchant agreement, it’s a contract, don’t sign it if you DON’T agree with it. This could co$t you even more then the stupid fees if you refuse to accept the card when you have a merchant agreement that binds you to accept them.
@ mac-phisto:
You Americans don’t seem to trust each other o_O… But I don’t understand the motivation to steal petrol if one is able to… can anyone explain this? Is it a part of the American attitudes or psyche?
@anatak: It’s not just about speed. There are protections when your card gets stolen but the $100 you had in cash is just gone.
Not to mention just pulling out that kind of money makes you a target.
Interesting. I never really saw it as a problem. I guess people are freaking out. I’m not worried about gas prices. I wish it will hit $10/gal. I was listening to NPR this morning, and they said that Americans are driving 1.8% less than last year, and the numbers are expected to drop. I converted my car to run of waste vegetable oil and I haven’t paid for fuel since Jan. The higher gas prices go, the more money I save. It’s sick, I know, and I love it. Check out my pimp ride at austinchu.wordpress.com
also to add to my previous questions, why do you all seem to only pay by credit card? ._. it seems financially risky.
@emington: first of all, it’s not that we don’t trust each other – we just like guns. a lot. second, taking something that isn’t ours is the very foundation of this great nation.
seriously though, fuel is a major part of every household’s expenses & we’ve seen that cost double in the past 18 months. & quite frankly, there’s a lot of us that can’t afford it, but require it. real wages for the average american have been stagnant for the last 30 years. some say they’ve been stagnant even longer.
in america, gas is akin to food, clothing & shelter b/c it is the means with which we obtain those necessities. public transportation in all but the largest (or more progressive smaller) cities is virtually nonexistent. & development trends in the 70′s, 80′s & 90′s spread services all over the countryside.
so, in short, expensive gas is turning the entire country on its head. it’s exposing the truth for what it is – our standard of living is slipping away. & when people only have money for gas or food, they’re going to buy one & steal the other. it’s just a question of which is the easier target.
The only obvious solution to this is to have a government takeover of the credit card industry, nationalized credit cards. That will happen immediately after taxing the windfall profits of the credit card companies.
There ya go. Problem fixed. Quit yer bitchin’.
@oldskool71: Hrm? Interest? Never heard of it. Rewards on the other hand, to the tune of 3-10%, that’s another story.
@austinchu:
Great solution. Just don’t let Uncle Sam find out you’ve been driving on his roads with fuel that you have not been paying taxes on – it’s a major no-no and a federal crime. The fine is worse than the cost of the fuel. Unfortuate, but true.
@mac-phisto: I think you’re forgetting that with credit cards, the credit company makes money off both the customer and the merchant. It isn’t unreasonable to expect merchants to not be charged in facilitating a credit purchase, when most CC companies rake up to 29% APR on the average user.
In other industries, this would be classified as double dipping and probably be illegal.
@Southern: Thanks for the warning.
I keep my fuel level between halfway and a quarterway at all times (except when travelling long distances, in which case I keep the tank full). I don’t actually let the fuel level fall below the quarter mark.
Just wanna add my two cents here that in smaller towns, gas station businesses are based almost entirely on store sales as gas stations get only 3-4 cents on each gallon and not the 11-12 cents/gallon as presented in the article.