More on Credit Card Fees and Gas Prices

The recent environment of high retail prices for motor fuels has put additional focus on the cost of payment transactions. While credit-card companies have not provided relief, ConocoPhillips has chosen to reduce processing fees temporarily to help our customers save money."

Below is a comparison of the regular fee structure vs. the temporary reduction:

Visa -- From 2.00% + $.10 per transaction to 1.90% + $.10 per transaction

MasterCard -- From 2.00% + $.10 per transaction to 1.90% + $.10 per transaction

American Express -- From 2.50% + $.10 per transaction to 2.40% + $.10 per transaction

Discover -- From 2.50% + $.10 per transaction to 2.40% + $.10 per transaction

In other news:


Chevron Corporation (NYSE: CVX) today announced that its subsidiaries Chevron U.S.A. Inc. and Chevron Credit Bank, N.A. reached agreements to sell their respective proprietary credit card businesses.

"The credit card business environment is changing rapidly," said Danny Roden, vice president of Chevron North America Marketing. "Consumers' usage patterns are changing and they are looking for new payment products and features. Our goal is to provide payment products that attract and retain consumers, marketers and retailers."

From the Washington Post:

Major credit card companies are reaping huge profits from rising gas prices because the fee that banks charge gas stations to process a credit card transaction is based on a percentage of the purchase price. As gas prices go up, the processing fee goes up.

Since last year, the fees that gas stations paid to credit card companies have risen more than 75 percent, right along with the price of gasoline.

"It's unexpected revenue, because people are just doing what they were always doing," said David Robertson, publisher of the Nilson Report, a credit card industry newsletter. "It's not like a whole new market opened up. There's no behavioral change. It's just more money."

And lots of it. On a typical day, Americans buy 382 million gallons of gasoline, according to the Energy Department's Energy Information Administration. About 70 percent of that is paid for by credit card, said several trade associations representing gas stations. The credit card processing fees paid by gas stations, meanwhile, average about 2.5 percent, these trade groups agree.

That is $183 million more a month, or nearly $2.2 billion dollars on an annual basis in extra money paid to the nation's banking giants just because of rising gasoline prices.

"The credit card processors and banks are reaping enormous profits right now," said Paul Fiore, director of government affairs for the Washington, Maryland, Delaware Service Station & Automotive Repair Association. "That's right out of the dealer's profit."

Fiore said credit card fees have become the top issue among gas station owners because they have not been able to raise their profit margins to cover the increased fees they must pay to the banks. Typically, a retailer's own bank gets 25 percent of the processing fee, while three-quarters goes to the bank that issued the credit card, said Robertson of the Nilson Report.

The fees are especially burdensome for gas stations, because their profit structure is generally fixed: Stations tack on anywhere from 7 to 11 cents a gallon to get their profit. That margin stays the same, or may even shrink a little, as prices rise, yet the station has to pay more each month to cover rising credit card transaction fees.

Marty Dustin, who manages the Burnt Mills Citgo station in Silver Spring that he and his father own, said rising credit card fees are rapidly eating up the family's entire profit from the business.

"We are not going to be able to make it on that 7, 8, 9 cents [per gallon] because there's more coming out of the back side," he said. "We're all going to have to try and grow our margins a little bit to make up the difference."

But so far, Dustin and others say, the price competition among gas stations is so intense that few stations have been able to raise their margin to make up the difference, or even part of it.

Adding to the difficulty for gasoline retailers is the fact that consumers are using credit cards more often for those costlier gasoline purchases. The National Association of Convenience stores says that since Hurricane Katrina, the percentage of gasoline purchases on plastic has gone up 10 points , to 80 percent.

Each oil company's own branded credit card charges its station owners lower fees, but those cards account for a small -- and decreasing -- percentage of sales at retail gas stations, said Daniel F. Gilligan, president of the Petroleum Marketers Association. Debit cards, too, have slightly lower fees than traditional credit cards but also represent a small portion, about 16 percent, of total card transactions, according to the convenience store association.

It is major credit cards offering frequent-flier miles and rebates that get swiped the most, by far, these groups say.

But there is growing pressure on the industry to rein in its fees.

The lead plaintiff in a class-action lawsuit against the credit card companies for merchant fees has seen a wave of interest in his case because of the gas-purchase profits.

"As gas prices have doubled, so, too, have the earnings for the banks that own the credit card associations," Mitch Goldstone said. "What I proposed to the CEOs of both Visa and MasterCard is to very simply suspend the interchange fees at all service stations."

He got no response, but he has chronicled his battle on his Web site, WayTooHigh.com.

How Pay By Touch Can Put a Tiger in it's Tank

Awhile back, I posted about how Gas Stations were ripe for ID theft, and mentioned how Pay By Touch could not only solve that problem, but just as importantly, save them tons of money by offering to replace credit card transactions with checking or ACH debit reward transactions. But I never really did get into any detail. I will today.

I found an interesting article detailing how gas station owners /operators are becoming increasingly discouraged by accepting credit cards, and thought that now was as good a time as any, to take and explain my ideas as to why and how Pay By Touch could be a godsend to these owners/operators.

I'll just touch on some of the points, as I tie in the less expensive ACH Debit, with a loyalty program administered by Pay By Touch which refocuses on the niche that S&H GreenStamps carved out with Gas Stations years ago. It would be a good blend, and would result in a win-win situation for everyone involved. There's a tremendous opportunity for Pay By Touch in this arena.

The article is below...I interrupt it several times (always in green) in an attempt to either educate, make a statement or have fun with a sarcastic comment in an attempt to prevent myself from becoming bored doing this blog...

Gas stations discounting cash sales

ELIZABETH DOUGLASS, Los Angeles Times

Americans love their credit cards. But at more and more gas stations, it pays to use cash. In Costa Mesa, Calif., Craig Hummel pocketed a 12-cent-a-gallon discount recently for using cash at a Valero station instead of his Visa or MasterCard. He bought 9 1/2 gallons of premium for his Mercedes sport utility vehicle and saved $1.14.

"I know a lot of people just go wherever they want for gas ... but I only come here," Hummel said. "Over a year's time, you save quite a bit. I think more stations should offer it." (Ed. Note: Proof that loyalty exists in regards to consumers for gas stations)

They are. To dodge the rising fees that credit card companies tack onto transactions, both no-name and big-brand stations are charging drivers less when they buy with cash.

The Valero station favored by Hummel was offering self-serve regular for $2.97 a gallon for cash and $3.07 on a credit card a few weeks ago. Not far away, a busy Shell offered a 6-cent cash discount for regular.

Francisco Galicia, the manager of that Shell, said he had been offering cash discounts of 4 cents to 6 cents a gallon for six months. At first, customers had questions, Galicia said, but now "they understand why I'm doing it ... and they're responding." Fees vary, but on a typical credit card sale,

Galicia's station pays 10 cents plus 2 percent of the purchase price to the credit card company.

Editors Note: Here's as good a time as any to discuss how this 10 cents plus 2 percent creates an opportunity. First of all, the 2% is mentioned after the 10 cents, in order to create the illusion that the 2% is inconsequential. In reality, the 2%, at $3.00 per gallon is closer to 65%. I'll "touch" on that in a bit. Let's start here...

Gas station owner/operators have the same per gallon profit, whether gas costs consumers $2.00 or $3.00 or even $4.00. With that said:

When gas was $2.00 per gallon, 20 gallons cost $40.00.

2% was .80 cents + .10 cents. or .90 cents.

That's 4.5 cents per gallon to Visa/MasterCard.

Assuming a gas station operator makes 10 cents a gallon, (that's high, but it's easier for me to do the math in my head...) after paying the credit card fees, the profit is split 55/45.

The owner/operator gets only 5.5 (.055) cents per gallon at $2.00 because, Visa and MasterCard is earning 4.5 cents. (.045) of .10 cents.

That's a staggering 45% of the .10 cent per gallon margin.

Gas is no longer $2.00 per gallon so let's do the math at $3.00 per gallon.

When gas is $3.00 per gallon, the same 20 gallons cost $60.00 instead of $40.00.
2% of $ 60.00 is $1.20 + .10 cents. or $1.30)

Instead of .90 cents, it costs $1.30

That's .065 cents per gallon to Visa/MasterCard out of .10 or 65% of the profits.

As I mentioned, the gas station operator's profit, remains the same per gallon from their supplier, regardless of whether it's $2.00 or $3.00, but now, because of credit card fees, it has been reduced from 5.5 cents to 3.5 cents per gallon. The owner operator is being punished and the credit card companies are being rewarded, and nothing has changed except the price per gallon of gas!

Thus, instead of a 55/45 split in favor of the owner/operator at $2.00 per gallon, it now becomes a 35/65 split in favor of Visa/MasterCard at $3.00 per gallon.

The result is a 37% reduction in profit from the $2.00 per gallon price point to the $3.00 per gallon price point for the owner/operator. Of course, Visa will spin this into "It's only 2%!"

That hardly seems fair does it. Almost criminal and worthy of being looked into by the FTC. Wait, until you read about the $5000 a day fine Visa threatens when an owner/operator tries to offer a discount for cash...

Getting back to the breakdown of 3.5 cents to the owner and 6.5 cents to Visa/MasterCard, one could certainly understand why gas station owner/operators are becoming increasingly irked at the credit card companies.

Do the math at $3.50 and $4.00 per gallon and it becomes even more disproportionately unfair to the owner/operators.

This is where Pay By Touch can be of great assistance and help these owner/operators"... Now this is not as complicated as a Shell game, but you will need to follow where I'm going with this compelling argument, so here we go...

Instead of charging 2% and .10 cents Pay By Touch could charge a flat fee of .50 cents per transaction, still make a respectable profit, and insulate the owners from rising gas prices, and themselves, from competitors.

Gas would literally have to drop to $1.00 per gallon (20 gallons x $1.00 = $20.00 X 2%= .40 cents, plus .10 cents = 50 cents) in order for the credit card companies to be competitive with Pay By Touch on a 20 gallon fill-up.

On the flip side, at $3.00 per gallon, the owner/operator still pays only 50 cents to Pay By Touch for 20 gallons, thus instead of "Shelling out" 6.5 cents per gallon with a credit card transaction, they would pay only 2.5 cents per gallon. Kind of a nice touch, wouldn't you say? Therefore under the same 10 cent per gallon scenario with a 20 gallon fill-up they would EARN 7.5 cents per gallon instead of 3.5 cents.

That's 66% more profit for the owner/operator!

Kinda gives a new meaning to the Phillips 66 logo on the left, doesn't it? Plus imagine the loyalty that Phillips 66 would create with their owner/operators for providing the Pay By Touch service as a form of payment, thus increasing their profits without increasing their workload. In addition, they could get into the "Mobil payments industry" right out of the tank. Pay By Touch would still earn 25% of the gasoline profits, albeit far less than the 65% that Visa is currently making. But is that a bad profit. I think not.

Back to the article... because they touch on several more interesting points.

Customers pay, too.

In 2006, motorists -- whether they used cash, credit or debit cards -- paid an average of 4.2 cents a gallon more because of credit card fees, said Jeff Lenard, spokesman for the National Association of Convenience Stores, which represents outlets that sell about 80 percent of U.S. fuel.

Profit drain

Complaints have grown because money collected through card fees has more than doubled since 2001, and rewards programs have led people to use credit for everyday purchases.

For gas stations, soaring prices have magnified the percentage-based card costs and caused more customers to pay with plastic. (Ed. note: Yeah, that's what I said)

"What's happened is a double whammy," said David Robertson, who publishes the Nilson Report, a credit industry newsletter.

Members of the convenience store group, which has sued credit card companies over the fees, paid $6.6 billion in credit card fees last year, but booked only $4.8 billion in profits, Lenard said.

(Ed. Note: I'm aware that I said 65/35 profit split, and the 6.6 to 4.8 numbers are off from my example, but it's because not all gas stations make .10 cents per gallon profit, and those numbers include profits from food/drinks/car washes etc. where the owner/operator has a higher profit margin than they do on gas.) Still...my point remains significant which is that...)

"The credit card companies made more at our stores than our store owners," said Lenard.

(Ed. Note: The Sales Proposition seems to be as simple as letting store owners know that are aware of the problem and we address it and allow store owners to make more money than they do using their existing payment platforms)

Dealers say the problem is at its worst in California, where gas prices have been higher for longer and lengthy commutes mean drivers fill up frequently. (Ed. Note: Filling up more frequently doesn't have anything to do with it, higher gas prices do.)

Wording dispute

Oil companies have played a role too. Chevron Corp., Exxon Mobil Corp., ConocoPhillips and others have offered rebates and promoted branded credit cards to lock in loyalty.

(Ed. Note: I have an suggestion/idea... How about Gas Stations utilizing a loyalty program offered by Pay By Touch, (as we seem to have some experience there) and now that we've purchased S&H, we could implement an updated plan using Greenpoints. (S&H was pretty big with gas stations at one time...)

One angle...how about consumers being able to earn points to eat at restaurants, which complain about the business slacking off because of the high gas prices. There's something about nostalgia/loyalty and coming from help that always seems to have an attraction. And, it just so happens that S&H already offers the Dining Connection Rewards Platform. How "convenient"


Another angle, tie in Greenpoints with our grocery store clients. It would strengthen enrollments at both, and result in strengthening the Greenpoint program itself.

GreenStamps were huge not only at Gas Stations..but also Grocery Stores...(from Wikipedia)

Auburn, Calif.-based Nella Oil racked up $5 million in credit card fees last year at its 50 Northern California gas stations, said Thomas Dwelle, a partner in the family-owned business. This year, Dwelle launched a cash discount program at a few stations -- and landed in hot water with Visa.

The card company accused Nella Oil of violating its Visa contract by using the word "credit" on its price signs. Visa threatened to charge the company $5,000 a day (Ed. Note: Isn't the 65/35 split enough for them, resulting in $5 million) and cut off the stations' ability to take Visa credit cards. (Ed. Note: Sounds like that would create even more opportunity for Pay By Touch...)

It demanded that Dwelle use the words "regular" or "standard" rather than "credit" to differentiate the higher price from the cash cost. (Ed. Note: Does Visa have a clue?)

State regulators said Visa's recommended signage would confuse customers and violate California law. Visa backed off.

Visa USA declined to discuss the dispute. Visa Vice President Rosetta Jones said in a statement that a cash discount "is confusing and naturally implies a surcharge for payment card transactions.

(Ed. Note: Yes, but of course using the word "regular" at a gas station wouldn't be confusing at all, would it. I would suggest that, if stations offered a discount for using Pay By Touch, then it would "naturally imply that Visa's surcharge is overtly higher than it needs to be.)

She went on state: "People who use credit cards "should not have to pay what amounts to an unfair checkout fee."

(Ed. Note: Is she insane? Taking credit cards should not result in merchants, who last time I checked, were also "people" too, having to pay what amounts to 65% of the profit. Does Visa even realize how ridiculously hypocritical they sound? Luckily for them fewer people understand the credit card industry and basis points than understood how ARM's worked when they took out their subprime mortgage.

How hard could it possibly be to get these frustrated gas station owner/operators on Pay By Touch's side. en masse). The spillover of owner/operators to Pay By Touch would make the Exxon Valdez look like an oil drip from an ATV on a driveway...

The article continues...

Travis Plunkett, legal director at the Consumer Federation of America, likes the trend toward cash markdowns for fuel.

"It is something that dealers should be freely allowed to pursue, with no coercion on the part of the payment systems," Plunkett said.

Conclusion: If Pay By Touch can make store owner/operators understand that they can increase their profits by 66% on a 20 gallon purchase, using Pay By Touch, the pressure they would put on their supplier would be tantamount to having lobbyists working for us in D.C.

If we could make the oil companies understand how we could reinvent and reintroduce the S&H program and tie it in to a platform that would reward their customers, increase loyalty, increase profits for the owner/operators, and make the transaction significantly more secure (remember Ripe for ID theft) then what do you think would be the result?

In addition, Pay By Touch would accelerate the transaction times, and make them more convenient by having the stations installing Pay By Touch at the pumps. How many times have you waited at the pump while someone goes inside and waits in line to pay. And it sure takes them a long time to come out with their coffee and donuts while I wait at the pump.

Might even get a few enrollees out of it too. Could even strengthen the existing S&H platform. Oh, and they wouldn't have to be threatened with paying a $5000 a day fine or be bullied by Visa into having their livelihood taken away. Which is B. S. anyway, unless they would cut off a company that paid them $5 million last year in fees. Sounds like opportunity staring us in the face while Visa bites off their nose to spite theirs.

Add in a personalized marketing loyalty program using the power of S&H's nostalgic impact, include a Citibank debit card under our partner Discover, and Pay By Touch could have a gas with the possibilities...

Credit Card Fees Show No Mercy

DES MOINES – As credit card fees rise with the cost of gasoline, c-stores are struggling to keep their heads above water. Some, like the Eastown Amoco in Des Moines, tread water for as long as they can, but have succumbed to the high fees and have been forced to close their pumps.

Jim Krueger, owner of the Eastown Amoco, told The Des Moines Register "Credit card fees can eat you alive." Those high fees, and a decline in profits, have made him shut down the pumps and only serve as a towing service. "I reached age 61, and I decided I am not taking money out of my retirement fund to offset my gasoline business," he said.

Other stores in the area, while they remain open, aren't faring so well either. Urbandale, Iowa-based ShortStop is a six store chain owned by Dave Carpenter.

According to Carpenter, roughly 70 percent of customers pay with credit cards at ShortStop. Last year, he told The Des Moines Register, one of his truck stops paid $650,000 in credit card fees. "We've always had good times and bad times in this industry. Now we're in a bad void, and nobody knows what to do about it," he said.

"Credit card fees are the biggest issue in the convenience store industry right now. It's the fastest-growing expense behind labor and rent," said Jeff Lenard, director of communications for the National Association of Convenience Stores to The Des Moines Register.

Gas stations pay 3 cents per transaction for credit card purchases. NACS estimated that stores paid $5.3 billion in gas-related credit card purchases last year, while industry profits totaled $5.8 billion.

Casey's General stores saw credit card fees increase 39 percent for fiscal year 2006 as reported by The Des Moines Register, even though they installed debit card payment at the pumps to decrease the fees,

"It's a big number that is eating into our overall gross profit," said CFO Bill Walljasper.Don Rhodes, policy manager for payments and technology for the American Bankers Association suggests eliminating credit card payment options an alternative to high credit fees. "It's not unheard of," he said.