Cash or credit: same price?

Usually seen at gas stations. This may not be a good thing because it means:

  1. Huge multinational banks don’t charge oil companies for credit card transactions (very unlikely), or

  2. Oil companies have decided to absorb this charge regardless of its impact on their bottom line (fairly unlikely) or

  3. Oil companies jack up the price of cash purchases so that they equal the credit card purchases (most likely)

#3 seems like the winner, meaning gas prices are even higher than “required” by the supply & demand. Anyone wanna buy a used car?

Number 3 is indeed correct.

This is true of everything which you can buy using a credit card. The card issuer makes a small charge (either a % of the total or a flat fee) to the retailer. This is why many retailers insist on cash or cheque for purchases below a certain value.

However, it does not mean that prices are even higher than required by supply and demand. The cost of completing the transaction is one of the costs incurred by the business in the course of providing the service.

If they refused to accept cards, that cost would be shifted on to the consumer in the form of extra trips to the bank, the increased risk associated with carrying larger amounts of cash, and so on.

There might be a case for passing the card charge on to customers who wish to pay by card, but if I were managing a retail outlet of any kind, I wouldn’t want to be the first person in my neighbourhood to do this as I could potentially drive a fair proportion of my customers into the arms of my competitors.

They usually don’t charge a different price, for the same reason they don’t charge the person at the grocercy store for bags, or worse yet the older person that can only have a couple pounds put in each bag.

They average the cost of doing business over the complete customer base. They also have to decide if they make a profit providing the service in general to a lot of people. The profit might not be as great, but they did get those persons’ business and another store didn’t.

When two stores are close to each other, a person is going to buy something where it’s cheapest. That’s where making a little less profit, but still getting someones business comes in. The store across the street doesn’t charge extra to charge your gas purchase. The store you work for does. Your store loses most of the charge purchases, and the profit you would have still gotten.

While there are costs associated with credit cards, don’t forget there are costs associated with cash as well.

Cash has to be repeatedly counted, stored, and often transported in an armored truck.

In case of robbery, the cash is gone. Your credit card receipts are generally safe.

Even when there is no robbery, cash has a tendency to disappear.

In a supermarket environment, we found the most expensive form of payment, though, to be checks, both in “time in lane” and in risk.

I was under the impression that surcharges for using credit cards was illegal in the U.S.?

I was also under the impression that major bankcards (Visa, M/C, etc.) disallowed a minimum purchase for the use of their cards?

Another good reason why they don’t charge more for credit card purchases - it’s against their merchant agreement with the credit card company.

When I had a merchant account with VISA, I had to sign a document saying that I would not charge a surcharge for VISA purchases, and doing so would be grounds for having my merchant account revoked.

FYI: Gas prices don’t follow the traditional “supply and demand” rules. Many commodities, such as crude oil (gasoline), are known to be “sticky upwards” meaning that they are fast to rise and slow to fall.


“They’re coming to take me away ha-ha, ho-ho, hee-hee, to the funny farm where life is beautiful all the time… :)” - Napoleon IV

Johnny L.A.: I was under the impression that surcharges for using credit cards was illegal in the U.S.?
I was also under the impression that major bankcards (Visa, M/C, etc.) disallowed a minimum purchase for the use of their cards?

I remember in college during the big credit card boom, many gas stations would charge more per gallon for credit card purchases. They then changed it to cash discounts, which was a pain because I’d have to figure how much gas my $5 would buy, since the pump price was the “regular” price.

I think they finally figured out that all they were doing was pissing off their credit card customers. So they just went back to the one-price-for-all plan.

As for minimum purchases, I think that still is up to the business. But I have noticed less and less “minimum purchase” signs.

Wrong thinking is punished, right thinking is just as swiftly rewarded. You’ll find it an effective combination.

From what I’ve read, the big credit card companies started leaning on merchants, to keep them from offering discounts to people paying cash. (Credit cards charge the merchants a percentage fee for each purchase). Thus, a single price means that cash purchasers are subsidizing the credit card users.

A new problem is the debit cards. According to what I’ve heard on the Clark Howard Show, the fees to the merchants for accepting these are so high that the situation is now under U.S. antitrust investigation. (The higher fees are why banks are pushing them instead of credit cards).

In Britain, debit card fees are much lower than credit card fees, at least for larger amounts. While credit cards charge a percentage of the transaction, debit cards charge a flat fee of about 10 or 20p (about 15 or 30 ¢).

While it might be true to say that cash users are subsidising credit card users, it’s a bit like saying that in a restaurant, people who take their coffee black are subsidising those who take milk and sugar.

Also, as jens pointed out, using cash is not cost-free: what does it cost to handle the cash, including security costs? Would a cashless gas station, where all transactions were done at the pump electronically be cheaper to run? If so, who is subsidising whom?

AWB had it closest to what Opus was thinking. At one time when gas prices were ratcheting up quickly, some chains started advertsing a cash discount. Then other chains started advertising “same price.” Competition pretty much keeps the price where it’s going to be, whether cash or credit card.

Visa and MC used to charge about 3% handling fee, American Express a little more, and Discover a little less. Don’t know what the going rate is now.

And some locally owned retailers of big ticket items (like furniture and appliances) will give a discount for cash if you’re haggling with them.


I understand all the words, they just don’t make sense together like that.

In the US, for MasterCard at least,
it is NOT legal for merchants to
require a minimum purchase when
you use a MasterCard.
It is legal for them to offer a discount
on cash purchases.

I don’t know if the same holds true for
Visa.

I have successfully reported a merchant
who repeatedly refused to allow me
to use my MasterCard for less than $10.
MasterCard is very responsive to these
issues.
For more info, vist: http://www.mastercard.com/consumer/cust_serv.html

I think some people are a little unclear on the meaning of illegal…

If we sign a contract and I don’t keep my end of the bargain, the cops won’t come by to arrest me. Your recourse is to sue me for damages or just decide to stop honoring your end of the contract too.

I doubt there’s a law (you know, those things the government passes) against a minimum value for credit card purchases, or a cash rebate. In the “are pennies valid currency” thread we pretty well determined that which cash is legal tender, merchants are free to reject it in inconvenient ammounts. Being that credit cards aren’t legal tender, there are likely less laws regarding what a merchant must accept.

But, I don’t doubt Visa/MC/AMEX fill their merchant contracts with a bunch of restrictions, not as much to control those things as to have the ability to control them later, should they become a problem.

If you break their rules they simply threaten to take away your CC privs, and you fall into line or lose the business of people who won’t pay cash.
Around here (Vancouver, BC) a lot of smaller computer stores offer a cash rebates, essentially penalizing credit card users, but without a CC surcharge. They’ve been doing it for a long time, and most of them do it, so I assume they can get away with it.

It’s a bit of a pain, but then many of the smaller stores are on very low margins, 5-8%, because they’re basically all selling the same products, so they need any advantage they can get.

Trust me, credit card companies wouldn’t have much leverage against the large gasoline selling companies.

The practice of charging a higher price for credit card users was an attempt to market high gas prices as less high than they seemed: cash payers would think they were getting a price break. The strategy failed when some companies tried a different tact: marketing to credit card users gas that wasn’t more expensive simply because you paid with plastic. When the one-price companies started seeing an advantage in sales, the two-price companies gave up the split prices.

Ain’t ‘free-market’ economics fun? (Though I hate to use that term about ANYTHING the gasoline industry does)