Tuesday, July 22, 2008
When Roger Randolph came to believe it was costing him money each time a customer filled a tank with $4-per-gallon gas and paid for it with a credit or debit card, he banned plastic at his establishment.
"The more [consumers] buy, the more we lose," said Randolph, Manager of Mr. Ed's Chevron in St. Albans, W.Va. "Gas prices go up, and our profits go down."
While Randolph may be one of the first in the nation to ban credit and debit cards, station operators across the country are reporting similar woes as higher gas prices mean higher interchange fees the merchants must pay.
The interchange rate is tied to the amount of each purchase, so the amount of the fee rises with the price of the product.
The National Retail Federation said current events in the petroleum sector point to the unfairness of the interchange system overall.
Tom Burns, Senior Vice President of Orion Payment Systems, disagreed. "It is important to realize that the merchant has not been educated on this," he said. "They look at their statements and cry doom and gloom because they see interchange as taking 1.7 percent of their profits on every transaction.
"What they are not seeing is how much the oil company is taking from receipts and putting that toward the purchase of more product to put in the ground, or how much they are charging to lease the equipment. Add to that, merchants are paying 20 percent of their profit on taxes … so they're getting clobbered by a lot of other factors beside interchange."
So, station owners are seeking other ways to generate profits. "The motivation for cash-only is that it forces you to come inside, where you are more apt to do a point of purchase sale for [nonfuel] items, rather than paying with a card at the pump and taking off," said Paul J. Citarella, Senior Vice President of Sales and Marketing for Fleet Cards USA.
Perhaps to mollify merchants, Visa Inc. said it will simplify its fee structure and thereby lower fees for card sales at the pump. MasterCard Worldwide made a similar move two years ago.
But Jeff Lenard, spokesman for the National Association of Convenience Stores, said these actions do little to ease gas station owners' financial distress, and the underlying problem is Visa and MasterCard have too much power in setting interchange rates.
The card brands and others in the payments industry believe interchange is just part of the cost of doing business. According to Citarella, the best way to combat increased fees at the pump is to establish tighter controls over expenditures; he believes assisting merchants with this is a niche market for ISOs and merchant level salespeople.
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