ROCK HILL, S.C. -- Gas stations are once again offering discounts to drivers who pay cash, said a USA Today report on Wednesday.
With gasoline prices high and margins low, station owners are trying to encourage customers to pay cash to reduce the amount in mandatory fees the stations have to pay banks that issue credit and debit cards, said the report. Retailers are doing anything they can to try to figure out how to reduce their credit card expenses, National Association of Convenience Stores (NACS) spokesperson Jeff Lenard told the newspaper.
Although there are no official statistics, Lenard said more stations are offering cash discounts than in recent years. He said some stations are even refusing to accept credit cards.
More than three-quarters of the gas pumped in the United States is sold at convenience stores, he said. In 2005, 58% of gasoline was bought using credit and debit cards, and retailers said that number has been climbing in 2006, according to Lenard.
Merchants pay banks that issue credit and debit cards a percentage of the sales paid with plastic. Station owners pay 1.5% to 3% of credit and debit card sales in fees, David Robertson, publisher of The Nilson Report, a newsletter about credit and debit cards, told the paper.
When gasoline prices go up, the amount paid to banks increases. For example, a station owner paying a 2% fee would pay 4 cents a gallon when gasoline is $2 a gallon and 6 cents a gallon when it is $3. But margins on gasoline typically don't increase with the price, and sometimes drop as stations compete to attract price-conscious drivers. Station owners make less money, or even lose money, when prices rise and customers pay with plastic. It is not unusual to find guys who are losing money on every gallon they sell, said Lenard.
The average pretax margin for a gallon of gasoline in 2005 was less than 8 centsbefore card fees but after other expenses, according to the NACS. Margins can vary greatly because of several issues, including local competition.
It's a penny business, Hal Crenshaw, who with his sister owns six stations in three counties in South Carolina, told USA Today.
As reported in CSP Daily News, merchant groups have filed a class-action lawsuit against MasterCard and Visa International. The merchants allege the credit card associationsmade up of banks that issue credit cardsare engaged in unlawful price-fixing of fees. MasterCard and Visa deny the accusations and say fees are necessary to process payments made on plastic.
Merchants benefit from electronic transactions, the card associations say, because more customers might shop at stores that accept credit cards, and merchants can get them through the checkout line faster than if they paid cash.
MasterCard believes these lawsuits are without merit, and are a clear demonstration of merchants wanting the benefits of accepting payment cards without having to pay for the value of the services they receive, MasterCard said in a statement on its website.
Crenshaw said his margins typically average about 4 cents to 5 cents per gallon, not including overhead, such as staff and electricity. A lot of the money he is making on gasoline, if not all, is being eaten up by the credit card fee, which is 2.5% from the total when people pay with plastic.
Crenshaw started offering a 4-cent discount for those paying with cash at his station in Rock Hill about a week ago, said the report. Engaged in a price war with the station across the street, Crenshaw last week was charging $2.32 a gallon for regular for cash-paying customers and $2.36 for those using credit cards. He was losing money on every gallon sold, cash or credit, at this location because the gasoline was costing him more to buy than the retail price.
He has been offering cash discounts at his station in Lancaster, S.C., for about five monthsand it's paying off, the report said. Only 18% of customers at that station are paying with credit cards, down from 60% to 70% before he started offering the cash discount.
There have been some unexpected benefits, too, according to the report. In a development that Crenshaw calls crazy, the volume at the station has doubled as drivers seeking ways to cut gasoline costs have flocked to the station. He had to add a register in the convenience store to handle the additional business. Sales inside the store of chips, candy, soft drinks and other items have also risen as more people are coming into the store to pay rather than inserting credit cards at the pump. Margins on the items sold inside c-stores run much higher than those on fuel.
If it weren't for the inside, we wouldn't be able to stay in business, Crenshaw said.
But not everyone is buying in. Paying with cash forces customers to make one, if not two, trips into the storeonce to prepay and potentially a second if there is change, said the report, and many people collect airline miles or other benefits on their credit cards.
Crenshaw said he has received two formal complaints since adding the cash discounts last year. But such complaints will not deter him from adding cash discounts to his other stations. It's been good for us, and it's good for [drivers], as well, he told the paper.
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