PURCHASE, N.Y. -- MasterCard's announcement that it would cap credit card transaction fees on gasoline purchases above $50 has sparked cautious optimism among retailers, rather than hurrahs.
Gary Arnold, CFO at Belleville, Ill.-based FKG Oil Co., operator of 70 retail outlets in six Midwestern states, considers MasterCard's move a token gesture that will generate small savings for fuel operators. For me, it will mean $8,000 savings, Arnold told CSP Daily News. It's a very small drop. It's more political than real savings for us. The other question [image-nocss] is whether Visa will follow.
Visa did not address a cap on gasoline purchases in its response to MasterCard's statement that it would publish its U.S. interchange rates at www.mastercardmerchant.com.
Rhonda Bentz, vice president of Visa USA, said in a press statement, There is full visibility of pricing within the Visa system. Retailers do know, and always have known, the price they pay to accept Visa cards. Retailers do not pay fees to Visa. Instead, they negotiate their cost of acceptance directly with their bank; this price is known as the merchant discount. Retailers are fully aware of the merchant discount they pay. Interchange, on the other hand, is a fee paid by acquirers, the merchant's bank, to issuers, the cardholder's bank, within the Visa system. It is, in essence, the wholesale cost of a payment card transaction.
A MasterCard spokesperson clarified a key point left out of Wednesday's press release. He said the company is viewing April 1, 2007, as the deadline for implementation of the gasoline-purchase cap. Payment networks are sophisticated and complicated, he told CSP Daily News. It's not like flipping a switch.
Retailers across all categories have railed against the transaction fees charged by MasterCard and Visa and banks, but none as much as those in the gas station and convenience store industry, which, along with other retail groups, has filed a class-action suit against the credit-card giants. The upward volatility of gasoline prices has meant a similar increase in transaction fees charged retailers, for whom fallen margins on gasoline are further decreased by the fees. The National Association of Convenience Stores (NACS) and other industry associations have taken their protests to Capitol Hill in the past two years.
Two industry insiders seemed united in their guarded happiness. Ankeny, Iowa-based Casey's General Stores CFO Bill Walljasper said that the $50 cap would not come into play for most of Casey's customers.
And Tim Columbus, a partner in the Washington, D.C., law firm The Scott Group, which has represented the industry in the issue, said, They're acknowledging that the merchants have some legitimate issues. It's clearly something they've been thinking about. It would be great if it turned out that this was the first step in a wonderful thing. So far all I know is, it looks like a first step. It's too soon to tell what this means.
It didn't go unnoticed that MasterCard's announcement came in the midst of plunging gasoline prices. Average U.S. retail gasoline prices dropped 31 cents in the four weeks ending September 4, according to the Energy Information Association (EIA).
Isn't that something? said Dan Gilligan, the president of the Petroleum Marketers Association of America (PMAA). It does change the dynamic a little bit. I don't know what that means, but definitely prices are falling and therefore credit card fees are falling. The cost of MasterCard diminishes as the price falls. You always hate to speculate on someone's intent or calculations or whether it was a strategy.
He added, All we can say is we're glad that even though it may be mostly symbolic, we're glad that they recognize the exceptional burden that's been put on gas and diesel retailers. It's a crack in the dike, you might say.
Bill Douglass, president of Douglass Distributing Co. Inc., Sherman, Texas, testified on the industry's behalf in front of the Senate's Judiciary Committee in July. He reserved in-depth comment because, like Columbus, he wasn't sure of the details beyond MasterCard's announcement.
It's vague, Douglass told CSP Daily News. I have to confess, I think it's in response to the pressure they're getting, and they're going to say they did something. They've obviously got a cartel, and it's a very successful cartel, and they're going to do as little as a cartel has to because they don't have to do much. The proof will be in the performance.
The MasterCard spokesperson said the company was not reacting to retailer or federal browbeating. MasterCard obviously talks with merchants every day, and let's face it, 50 of them are suing [MasterCard], so there's a lot of dialog, so it's in response with trying to work with the merchant community. Hopefully, it does provide some relief to consumers at the pump, as merchants pass it on, and hopefully it provides, especially small merchants some relief from the squeeze that has gone on.
NACS spokesperson Jeff Lenard said that because of the announcement's ambiguity, all his organization could say was it's clear that it demonstrates that the retailer concerns are legitimate.
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