Gas Stations Facing Dilemma When Accepting Credit Card Payments

When you go to the pump to fill up your tank, you may find yourself faced with a whole new dilemma – should you pay with cash or with credit? Over recent years, paying at the pump with a credit card has become an increasingly popular practice. The convenience of swiping a card and paying for it later rather than keeping cash on hand and waiting in line definitely has its advantages. Similarly, with the high prices of gas, many smart consumers are finding ways to make money through credit card rewards programs.

The high gas prices, however, are hurting the profit margins of many gas stations. It has never been a secret that the gas stations make their money from their store rather than from their gas. With the increased costs of gasoline, this profit margin is being squeezed even tighter as the gas stations are forced to pay interchange fees to the credit card companies. Since interchange fees are based on a percentage of the purchase, the amount of money lost through a gasoline purchase has become greater.

To understand the problem a bit better, consider these facts. Typically, gas stations have to pay a 3% interchange fee on their purchases. In addition, gas stations usually make only about 10 cents per gallon of gasoline sold. If the station sells 10 gallons of gasoline at $2 per gallon, the station only makes $1 but has to pay a total of 60 cents to the credit card company. If the gas is $3 per gallon, on the other hand, the gas station has to pay 90 cents in interchange fees and makes only 10 cents from the transaction.

As a result of this problem, gas stations in New Jersey are looking at providing a “discount” to those that pay for their gasoline with cash. According to the bylaws of the credit card companies, the gas stations cannot pass on the cost of interchange fees to their customers. Therefore, the stations have to be creative in how they word their differences in cost. In all, the discount provided to those that pay with cash will equal around 7 to 10 cents per gallon.

The New Jersey Division of Consumer Affairs has laid down a few rules regarding this practice. First of all, the signs gas stations use to display their prices on their pumps must clearly state the price for credit card purchases as well as for cash purchases. In addition, roadside signs must clearly state the different prices.

According to Visa spokeswoman Rhoda Bentz, Visa would rather see stations post the credit card price as the base price and then give out cash discounts to those that purchase with paper rather than plastic. Nonetheless, the New Jersey method of posting both prices is perfectly legitimate.

The question that remains is whether or not consumers will be willing to pay the extra cash for the convenience of paying at the pump. In addition, with prices of gas being so high, few are likely to carry enough cash on them to pay with paper. If only the days of paying less than $2 per gallon were back upon us….

This entry was posted on Wednesday, June 6th, 2007 at 9:23 pm and is filed under Credit Card News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.