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Thursday, June 26, 2008
Pay cash, save money
With gas prices soaring, some gas stations are trying to ease the pain by offering discounts for cash payments instead of credit card. Why? Because merchants have to pay a lot in fees when customers pay by credit cards.
The difference speaks to a relatively obscure aspect of credit finance called interchange fees. Those are the fees (usually slightly under 2% of a purchase) that the merchant must pay the credit-card issuer. As gas prices skyrocketed, the money paid to card issuers ballooned as well. Today, the fees amount to 9¢ to 12¢ a gallon. That, coupled with a sharp rise in the number of people who use cards at convenient pay-at-the-pump machines, squeezed Flash Foods' profit margins. Those margins have fallen to an estimated 4¢ to 7¢ per gallon. To put the increase in perspective, consider that in 2004 Flash Foods paid $4 million in credit-card fees, but this year it estimates it will pay $14 million.
Like customers, gas stations are also getting squeezed by rising gas prices which have further reduced their margins when customers use credit cards.
Gas retailers say that $136-a-barrel oil isn't the only factor driving up costs at the pump. Card companies have long charged interchange fees, but as credit-card use soars, the total cost of interchange fees has risen drastically. About 60% of gas purchases were made with a card last year. While the National Association of Convenience Stores (NACS) doesn't have comparable earlier data for gas purchases, the share of all convenience store purchases made with a card has risen from 32% in 2003 to 56% today.
I sympthatize with the gas stations and will consider paying by cash if the discount is good. Otherwise, I prefer paying by credit card as I can pay at the pump, don't have to worry about carrying cash, and at the same time, I can earn rewards on my credit card.

BusinessWeek: To Save Money at the Gas Pump, Pay Cash

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