Why do they do it? Yeah, I know there’s fees for businesses from the CC companies, but just about every other business sector I can think of is willing to float those fees out of consideration for consumer convenience of not having to fiddle with, ahem, paper money, and their own convenience for same. But gas stations - not all of them, but a notable contingent - didn’t seem to get the memo. So you’ll see things like, 10, 12, even up to (I have seen) 15 cents per gallon off for cash vs CC.
One reason to offer the discount is that you’re forced to enter the store at least once, to pre-pay for the gas, and perhaps a second time to get change. Some percentage of the customers will buy something else while in the store.
My understanding is that gas stations typically have a very narrow profit margin on gasoline, and even those few percent charged to them by the credit card processors add up.
Also, WAG, but as @Dewey_Finn notes, paying with cash usually also means going into the store, and increasing the chance that you might buy a drink or a snack (on which they do make money).
Card processing fees are higher as a percentage of the transaction amount for pay at the pump than they are for most retail purchases, and the product profit margins are much lower. The transaction requires both a pre authorization (now typically $100) and then the actual purchase. There’s a separate charge for each.
In areas where there are a lot of gas stations an operator can make a pre-transaction fee margin of 15-20 cents per gallon, so $1.50 to $2.50 on a $50 purchase. The card fees can be $1.50 or more for credit cards. Less for debit, more for Discover.
At a drug store a $50 purchase might generate a $0.75 charge at MOST. And the margin will be more like 35%-40%.
If you start offering 10c a gallon off for cash, the first thing that happens is that you lose 10c a gallon on all the EXISTING cash transactions, then converting a bunch of customers from debit to cash which is still not a break-even proposition. Finally you will convert a small number of credit transactions on which you will save $1.50.
But you will need to hire more staff if 50% of your customers are now cash instead of 15%. And you’re going to need more frequent armored car pickups.
Thanks Mighty M for a detailed explanation. Sounds like you’re saying it’s a dubious gain at best. Yet there’s still a proportion that do it. Not to mention, ARCO-AM/PM was one of the first, and they carried on for 2-3 decades. Then not long ago, they released an a mea culpa ad campaign where they basically said, so sorry we’ve been doing this, please come to our stores, ‘cause we’re not doing it anymore. That lasted about a week.
As @Dewey_Finn and others have said, it’s to get customers in the store to buy the high-margin items. If you consider the slightly extreme example that a gas station makes 0% on gas, there is no value to them if you pay-at-the-pump and drive away. Anything they can do to get you inside to buy something is an improvement.
Gas stations make more than 0%, but not always a lot more.
If your existing staff has free bandwidth, then any additional cash customers they can serve is all profit. If you have to hire an additional employee, then it doesn’t take many customers an hour to break even – an additional employee making $15/hr only has to serve 10 customers per hour to break even.
I was going to say that it would be illegal in the UK but was unable to find a cite. However, I have never seen such an offer anywhere. I have noticed that some places do not have pay-at-pump which forces me to go into the shop to make the payment.
There has been some controversy over some filling stations taking £100 from credit cards as a “pre-authorisation check”. This means that if your card is nearly maxed out, you may not be able to get that 10 Pounds worth of fuel you need.
Considering there are apps to track the price of gas near where you are and people willing to go out of their way to save pennies on the price, offering a discount for cash likely can and does bring in additional business. That such business must go inside the little store at the station probably generates additional sales.
You may find using cash troublesome but not everyone does.
Some people, such as myself, often carry and extra $20 in their wallet. Granted that doesn’t buy nearly as much gas as it used to, 4-5 gallons is still a useful amount. In particular, when traveling long distance on the road I pay for my gas in cash - it avoids racking up those “authorization amounts” on my bank account, and it’s a lot harder to hack cash than e-payments.
Merchant fees for card usage are 3X to 4X higher in the US than in the UK.
No matter what people are saying in this thread, take it from a guy who has worked on a dozen business cases with actual C-store chains on payment discounts. It’s primarily about the transaction fees.
As I remember, Arco was either cash or debit (with a small fee of about fifty cents for using a debit card) but recently they allow credit card payment (at a higher price per gallon than cash).
In NJ, where gas stations frequently charge different amounts for cash or credit, it’s not to get you into the store – you don’t pump your own gas here, so there’s no reason to go to the store.
I’m surprised NJ stations encourage their gas station attendants to carry around wads of cash. But, what probably happens is that people just use their credit cards anyway, so the gas station is making an extra profit.
I’m sure the same applies to restaurants, now that lots of them are charging a “service fee” for using your credit card People just pay with credit card anyway, and the restaurant has stealthily raised prices by a few percent.
Even if that’s true, and the CC company happens to find out that a vendor has been charging differently for cash or credit, the CC company has a dilemma. If they end the business relationship, they lose the revenue from future CC transactions at that vendor. If they try to enforce it by fining the vendor, at some point the vendor will choose to end the business relationship and the CC company will lose all future revenue from that vendor.
TL,DR: it may be in the CC company’s interest to not be terribly heavy-handed when it comes to enforcing any “same price” clause in their service contract.
My rewards card says I get higher points on gas purchases, and I’ve seen as high as 4 points per dollar on some cards.
I assume that that cost of the higher rewards is being passed on to the gas station. I know that when someone uses a rewards card with me, I pay higher fees on it.
So, with the standard transaction fees, plus rewards, it seems gas stations would be paying well north of 5-6%. (I’m not a gas station owner or operator, so this is an assumption, but I don’t see how it could be much different.)
That’s not insignificant at all. If three people per hour who buy $100 in gas each all switch to paying cash, that pays for an extra employee making $15 an hour, and an employee can do far more than three transactions an hour.
Most gas stations are independently owned and operated. They would be doing their own negotiations here, so it’s not like Visa is going to lose the Shell account or anything.
A gas station could not exist without taking credit cards. They aren’t going to end that business relationship willingly.
This might be true for some small operators. For billion dollar companies it is not the case. More like 2-3%. Most gas stations may be owned and operated by small operators but they typically piggy back on the “brand” platform. The 7-11 franchise may be owned by a family, but the fees are negotiated by 7-11 not the franchisee.
There’s a company called Square that offers a smartphone accessory to allow just about anyone to accept credit card payments. So I imagine that any gas station or store with a conventional credit card terminal is going to pay more than Square charges, which is “2.6% + 10¢ for contactless payments, swiped or inserted chip cards, and swiped magstripe cards.”