THE ISSUE : Gasoline prices
OUR OPINION: Credit card fees an issue in age of $4 gas
Station owners long have found themselves explaining that gasoline prices are not their responsibility. They’re not on the big-money end of the oil-pricing game.
The radical spikes in gas prices of the past year have actually found retailers making less. A key reason why is America’s conversion away from cash. We’ve become a plastic society, and rising credit card fees are cutting in to the narrow profit margins that are a fixed amount for each gallon of gas.
Gas station owners may soon be forced to make changes in their credit card policies in order to make a profit.
At the core of the problem is the cost of the interchange fee charged by Visa and MasterCard. Visa and MasterCard charge a non-negotiable interchange fee to retailers.
This fee is typically 2 percent of every credit card purchase and is quietly passed along to consumers. Although the percentage of the interchange fee is fixed, the dollar amount of the fee goes up as the cost of gas increases.
But gasoline retailers are making a set amount of cents per gallon, even though the price per gallon of gas has increased significantly. So the station owners are making less today than they were when gas was $2 per gallon.
Additional credit card fees, known as acquiring fees (authorization, capture and settlement fees), can cost the merchant another 0.5 percent of the transaction, according to the National Association of Convenience Stores. So the total credit card costs can add up to 2.5 percent of the transaction.
“Gas stations are currently paying 8 to 10 cents per gallon for these credit card costs. The typical markup on a gallon of gas is 11 or 12 cents per gallon. These credit card fees are cutting into the small profit margins that a gas station owner makes off each gallon of gas,” says Bill Hardekopf, CEO of LowCards.com.
“If the cost of gas continues to climb, gas stations and convenience stores could start losing money on gas. They may have to make changes on their payment policies just to stay in business. Station owners may soon have no choice but to offer discounts for cash, charge fees for Visa and MasterCard payments, or stop accepting Visa and MasterCard altogether.”
Enticing consumers to another form of payment may be difficult because paying for gas at the pump with a credit cards is very convenient. NACS estimates 60-70 percent of all motor fuels are paid for with a credit card.
That number is rising as the cost of gas continues to increase.
“Saving money on gas with a cash discount sounds like a good idea, but we are becoming a cashless society,” says Hardekopf. “How many of us actually have $50-$60 in cash in our wallet to pay for gas?”
The complaints have not fallen on deaf ears at Visa, which announced that starting next month it is lowering transaction fees on gas purchases and easing restrictions on holds and blocks.
MasterCard capped interchange fees last year on gas purchases of $50 or more.
The reactions may not be all out of concern for American consumers.
Congress has acknowledged that retailers have a valid complaint about interchange fees. Both the House (H.R. 5546) and the Senate (S. 3086) have bills that tackle the issue. Both measures would, among other things, require credit card systems such as Visa and MasterCard to negotiate with merchants to reach a voluntary agreement on credit card terms and conditions.
In an environment in which people are looking for some kind of relief at the pump, it’s important that those with the pumps not get pumped either.