Pump This!

Ever think about why gas stations are the only retail store that charges different prices if paying by cash or paying by credit card?

A few years back, back before the financial mess, the price for paying for your gas either by cash or credit was the same.  The economy then soured, leading all businesses to cut expense and look for additional revenue streams.  For small businesses one opportunity soon become clearer.  Looking at ways they can trim their credit card transaction fee.

In case you didn’t know, retailers pay a fee for the privilege of letting consumers use a credit card.  These fees paid to the credit card companies typically range between 2-3% depending on the type of card used. (Yes that is how credit card companies can offer you 1% cash back or rewards points; they still profit a 1% transaction fee.  And the more consumers use their card the more 1% fees they can collect).

Gas stations unlike most other retailers have very minimum products.  The typical station has 89, 91 & 93 octane fuels and diesel fuel.  Therefore they only need to have eight different price points 2 x 4 (products offered).  It is also rather easy to display the differences in prices on the large price board as you drive by.

On the other hand other business, like a grocery store, may have hundreds if not thousands of products that they sell.  Multiple that number by 2 and you then you have one really confused consumer.

I’m sure most merchants would prefer to pass the credit card transaction fee along to the consumer.  Back in July retailers won a law suit that allows them to charge more for credit card purchases (10 states still restrict this, see NY Times article for full disclosure).  Previously only gas stations and convenience stores were exempt. However merchants know that between a confused consumer and the probability of less cash in the pocket means less items sold is not the best business strategy.  This strategy works for gas stations as they can charge because there is a need to fuel your vehicle if you want to get up and go.

So why does that $.10 a gallon difference of cash versus credit seem so high.  It’s really not.  Using an average cost of $3.50 per gallon cash the price differential of the credit price is 2.9%, which is the typical transaction fee.

So next time when you are filling up and thinking why am I getting screwed for paying with a credit card and why are these gas stations making more money off me, just remember their really not.  You are just paying the credit card transaction fee.

Nonetheless it still sucks. The differential can add up to approximately more than $75 a year for paying by credit.

And be sure to keep a look for price increases and differentials from other retailers as well as they look to increase revenue and pass fees on to you.

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