Card Companies Are Filling Up At the Station
As the price of gasoline rides the storm tides of two
hurricanes, one group is crying all the way to the bank. Major
credit card
processing 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 64 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. So a year
ago, when gas prices averaged $1.87, banks involved in credit
card processing made about $12.5 million a day on fees. Now,
with prices averaging $2.75 nationally, the credit card
companies are raking in $18.4 million a day. 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 Nelson 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.
Article Source:
http://www.washingtonpost.com/wp-dyn/content/article/2005/09/24/A
R2005092400255.html