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Old 01-27-2011, 10:56 AM   #1
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Gas Prices, Credit vs Cash


Hello all,

I have was looking for your thoughts on why there would be 10-15 cent differential in gas prices from credit to cash, personally I think its a money grab, what are your thoughts.

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Old 01-27-2011, 11:22 AM   #2
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Gas Prices, Credit vs Cash


I've never seen the differential as high as that, but the main reason is so they don't have to share the money with the credit card companies. Each company charges a % fee on each transaction. For the company to have to accept that card, they have to agree to pay that fee to the card company. So, that $3.00/gallon they are charging gets a few cents shaved off of it before it hits their bank account.

Cash would not have this charge. So, to encourage you to use cash, they charge you more for credit transactions (this also covers their cost of allowing you to use the card). Also, cash goes into the drawer and is in the bank that night. Credit transactions are not paid to the station until Visa/MC/DSC/Amex does the transfer. That's a minor issue though.

Back in the day, there was a shortage of people who accepted Discover - because their merchant fees were high and the card was not as common. Many are now forced to accept Discover, due to its popularity. One of the reasons DSC can give higher cashback bonuses, is because it charges higher merchant fees.


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Old 01-27-2011, 11:32 AM   #3
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Gas Prices, Credit vs Cash


It is very common here to see price differentials of .10 and as high as .13 per gallon, the more the gas costs the higher the differential naturally, I understand the transaction fee charged by the card companies, what I don't know is it really 3-4%?
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Old 01-27-2011, 11:42 AM   #4
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Gas Prices, Credit vs Cash


From what I can find, Discover charges a 6% fee off of the purchase amount. Visa/MC charge a 1.5% fee of the purchase amount. Averaging them together would be a 3.75% charge

3.75% * $3.00 = $0.11/gallon

The higher the price, the more the differential.
@ $4.00 you are talking $0.15/gallon.
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Old 01-27-2011, 11:52 AM   #5
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Gas Prices, Credit vs Cash


Credit card service charges vary from retailer to retailer. You can bet Walmart pays less then the local gas station.
Gas stations did this years ago and then abandoned the practice.
They will abandon it again if you refuse to go to the stations that charge extra if you use a credit card.
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Old 01-27-2011, 12:14 PM   #6
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Gas Prices, Credit vs Cash


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They will abandon it again if you refuse to go to the stations that charge extra if you use a credit card.
This. Although the result is then a higher price at the pump for everyone, to adjust for lost revenue.
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Old 01-27-2011, 01:03 PM   #7
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Gas Prices, Credit vs Cash


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This. Although the result is then a higher price at the pump for everyone, to adjust for lost revenue.
If that was totally true, then the stations that don't have this cash vrs credit pricing wouldn't be competative, and many times these stations have a cheaper price than the cash price of others.

I guess this is what prompted me to start the post.

Look at Costco, they only take credit, and they are always a couple of pennies less than the next guy.

I also wonder, if you have trucks on the road for your business, and the drivers have company issued cards, could the price differential be tablulated and deducted as an operating expense?
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Old 01-27-2011, 01:19 PM   #8
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Gas Prices, Credit vs Cash


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This. Although the result is then a higher price at the pump for everyone, to adjust for lost revenue.
Then, just like every other credit card taking establishment.
There are expenses to every business. Slapping someone in the face for a specific payment choice is a stupid business practice.
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Old 01-27-2011, 01:55 PM   #9
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Gas Prices, Credit vs Cash


A lot of it has to do with the volatility (might be a better word, but it seemed to fit, given the subject) of the market. A friend of mine, who owned a half dozen or so full service stations at the time, explained to me that he hated high gas prices more than his customers did, because, in order to remain competitive, he generally had to cut his profit. He also told me that the higher the price went, the more that his cost fluctuated, and that was when he really appreciated being paid in cash, because the more cash he had in hand, the more control he had regarding when to purchase gas from the refinery. I asked him if a credit card didn't do the same thing for him, and he told me that the turn around time was just enough, and with even the slightest consideration of a burp at the bank, in regard to them processing credit card receipts for the day, it left him at a possible disadvantage, as far as purchasing gasoline to fill his tanks at the best possible price.
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Old 01-27-2011, 02:17 PM   #10
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Gas Prices, Credit vs Cash


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There are expenses to every business. Slapping someone in the face for a specific payment choice is a stupid business practice.
Ron
It's also a matter of semantics. A lot of sellers and [especially] contractors offer a "cash discount" if you pay in cash. People like the way this sounds: I pay in cash and save money. Gas stations phrase it the other way and make it sound like a credit penalty, I use a credit card and have to pay more. If gas stations put the price at the higher margin, and offered a "cash discount" there would be less complaints for the same exact thing.

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Look at Costco, they only take credit, and they are always a couple of pennies less than the next guy.
Conglomerate retailers are going to have lower initial costs than smaller stations due to economies of scale. When Costco purchases a 250,000 gallons of gasoline from the refinery, they are going to get a better per-gallon purchase-prices than the independent service station that only purchases 5,000 gallons. Many places that look like they are part of a huge network (like Shell) are actually independent franchises that don't see many of the same benefits of economies of scale that large corporate chains see.

Many "grocery store gas stations" also charge less because they don't need only the gas to survive. You're going there to save .02/gallon, but will sometimes go in the store and make other purchases, where their margins are higher.

Quote:
If that was totally true, then the stations that don't have this cash vrs credit pricing wouldn't be competative, and many times these stations have a cheaper price than the cash price of others.
It depends on the situation of the station with the cheaper gas. It could be as simple as the gas station with the different prices has higher lease costs, higher labor costs, etc. that need to be made up in whatever way they can.


Quote:
I also wonder, if you have trucks on the road for your business, and the drivers have company issued cards, could the price differential be tablulated and deducted as an operating expense?
The total price of the purchase of fuel for your company would be an operating expense - regardless if they paid a higher price with a credit card or a lower price with petty-cash.

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Old 01-27-2011, 03:54 PM   #11
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Gas Prices, Credit vs Cash


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Originally Posted by hyunelan2 View Post
It's also a matter of semantics. A lot of sellers and [especially] contractors offer a "cash discount" if you pay in cash. People like the way this sounds: I pay in cash and save money. Gas stations phrase it the other way and make it sound like a credit penalty, I use a credit card and have to pay more. If gas stations put the price at the higher margin, and offered a "cash discount" there would be less complaints for the same exact thing.
This is psychologically different. It's the carrot vs. the stick. Penalty vs. reward. The average person(me) will avoid punishment for a behavior more often then finding the "cash discount" reward (which is a statistically insignificant number). For every 1000 transactions a person does, how many will offer a cash discount?
Conglomerate retailers are going to have lower initial costs than smaller stations due to economies of scale. When Costco purchases a 250,000 gallons of gasoline from the refinery, they are going to get a better per-gallon purchase-prices than the independent service station that only purchases 5,000 gallons. Many places that look like they are part of a huge network (like Shell) are actually independent franchises that don't see many of the same benefits of economies of scale that large corporate chains see.
They also have a larger overhead. The large purchases are a way to offset the overhead.
h.
Bottom line for me is that I enjoy the convienice of paying using a credit card. To tell me I'm paying more for this is not good business. If that were the case, other businesses would be doing it.
And they don't. Never have. Gas stations are the only ones who have done this. It failed the first time. It will fail this time.
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Old 01-27-2011, 04:05 PM   #12
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Gas Prices, Credit vs Cash


I'd like to add my view on this subject: "DexterII" offers a good answer/opinion on this also. A family in my town has had, over about 40 years, three full service gas stations/repair centers. NOT curb stores. These are now in the third generation of operation also. Recently the decision was made to discontinue business at two locations and to stop selling gas at the remaining location. Here's why: They were making 4 per gallon profit from gasoline sales. When someone used a VISA/MasterCard there was a 3% fee per transaction to use these cards from the banks the cards are drawn on. Now figure at $2.50 ($2.499) per gallon of gas, someone buys 10 gallons. That's $25.00 for the gas. The operator makes 40 on this purchase. IF the customer pays with a credit card, there will be a 75 charge by the credit cards issuing bank. That was a 35 loss on the purchase. I've seen the books on these locations, know the family well enough to believe this and understand why they are now only a "garage" to repair auto's/trucks. He did sell the other two locations to convenience store outfits, so all was not a total loss.
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Old 01-27-2011, 04:12 PM   #13
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Gas Prices, Credit vs Cash


There can be a significant charge from the credit card companies especially for small businesses. My plumber told me they charge him around $10.00 per transaction so I always make a point of paying him with cash or a check. Some small motels will not take credit for this reason.
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Old 01-27-2011, 04:23 PM   #14
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Gas Prices, Credit vs Cash


Now let us throw this in the mix.

What about debit cards, when used as a debit card?

The money is moved from the account at the point of sale, should these rules apply as well, should companies charge to use debit cards?

hyunelan2 - I did go and do some research the card companies all be Discover that is, will not allow a business to add charges to a CC transaction at point of sale, they will however tolerate discounts for cash sales, semantics, where would we be without them.

So the banks get it from both sides, nice business, without lifting a finger the banks get anywhere from 6- xx% from the user and another 1.5-3% from the business accepting the card, WOW, capitolism at its finest.
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Old 01-27-2011, 04:50 PM   #15
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Gas Prices, Credit vs Cash


With a debit card, typically YOU end up paying the $0.75 fee when you have a transaction that you enter the pin - at least that's what it is with my MC debit card. If I run it through as a debit, there is a 0.75 charge on my account. If I run it as credit, the seller will get hit by MC. I have no idea what the charge structure is for companies when you use a debit. There are some grocery stores (like Aldi) that do not accept credit cards, but do accept debit cards only when run through as a debit. I'm guessing the charge has to be less for them to want to deal with it in this way..

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