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Rising gas prices have been a source of financial hurt for thousands of consumers over the past few years. Many people don’t know, however, that there’s been an unforeseen consequence of this that’s hurting convenience stores and gas stations alike. It may seem like high gas prices automatically equal higher profits for these retailers but changing consumer habits mean that isn’t necessarily true. Profit margins are being reduced for gas stations across the country because people are changing the way they pay for gas.
In the past it was common for people to pay for their gasoline with cash. Now, however, gas stations are reporting that debit and credit card payments at the pump are increasing dramatically. How does this hurt gas stations? They must pay a fee for all credit card purchases to the credit card companies, reducing the amount they make from every credit purchase.
In February 2007 a study was performed by the National Association of Convenience Stores that showed credit card fees cost convenience stores an average of $45,785 per year to accept credit and debit card payments for gasoline purchases. Revenue, on the other hand, is much lower on average for the same stores during the same year: convenience stores only earned about $42,000 pre-tax! As you can see, credit card fees make up the largest cost gas stations and convenience stores must pay and force them to make up the difference on other sales.
Credit card fees cost about 3% per transaction for the retailer, which includes the fee for PIN based debit purchases, acquiring fees and more. Many small convenience stores that sell gasoline are having trouble making up for the fees they’re forced to pay by allowing plastic transactions.
Most consumers purchasing gas today prefer to use their credit card or debit card to fill their tanks, especially when the gas prices increase. There’s speculation that this is for two reasons. The first is that people generally carry less cash on them than in previous years. The second reason is that people have trouble parting with cash to pay for gasoline. This psychological effect means it’s easier for people to pay with plastic than to see the money actually part from their hands. The credit card bill won’t come for a few weeks but it’s tough to see all that cash go straight into your tank!
There’s also another reason people are turning to credit cards to pay for gasoline. Gas credit cards, which earn rebates and cash back on gasoline purchases, are more popular than ever. While 1% cash back on all purchases is common, some gas cards earn a steady 5% cash back on all gasoline purchases. This rebate means that the average price per gallon can be reduced by 2-25 cents, a big savings for the average consumer.