Credit cards, which the National Association of Convenience Stores estimates cost fuel retailers $5.3 billion in fees in 2005, versus industry profits of $5.8 billion, are currently a blessing and a curse for fuel retailers.
For each credit card-based fuel purchase, retailers pay an average of 3% to the card-processing bank, a rate that increases with gas prices. While credit card fees are negotiated between banks and fuel retailers, some, such as Casey’s General Stores in Iowa, are looking into setting up their own card-processing units, to reduce credit card fees in addition to offering debit card payments at the pump, for the lower rates available.
With credit cards accounting for 70% to 75% of fuel purchases at the average fuel retailer or convenience store, merchants that eliminate credit cards as an option for fuel purchases, would quickly go out of business. Profits at some stores currently total just 3 cents a gallon, and many independent fuel retailers are exiting the industry due to the costs. If gas costs $3 per gallon for instance, retailers that pay a 2.3% charge per gasoline purchase pay 69 cents on an average 10-gallon fill-up. This total implies a profit margin of just 10 cents a gallon for the retailer, or a paltry $1 per fillup, and underscores the crisis that is faced by many in the fuel industry.
Sales of food, drinks and other merchandise or services such as car washing, are alternative profit streams for fuel retailers, but drivers feeling the squeeze of high prices may limit their discretionary purchases. Credit card fees in the US are three times higher than in Australia, according to NACS, which is lobbying for reductions. As gas prices hover around $3 however, drivers are using credit cards for more fuel purchases due to lacking hard cash, which hits station operators in fee terms. In fact, some post notices on pumps to declare that they are not responsible for high prices, nor for temporary ‘holds’ that may be put on customers’ cards for gas purchases.