So, when you are getting your 4% cash back on gas purchases, who is paying for that?
Just curious but which credit card is offering four percent cash back? That seems incredibly generous.
There are a few gas stations near me in Maryland that only accept cash. They seem to be doing fine.
Credit card companies make a lot of money. Not just from transaction fees, but from interest charged. Not everyone pays interest of course, but those who do can fund a lot of promotions, like 4% cash back.
The Costco Citi card has 4% for gas.
And late payment fees.
The highest return I’ve seen on a credit card across the board is 2%. My guess is that any card that’s offering more than about 2% cash back is doing so only on certain categories of purchase, and on average it ends up being less than 2% across all purchases.
The “U.S. Bank Altitude® Connect Visa Signature® Card”
That’s impressive that they have not lost any business, most people don’t carry cash anymore.
Ah, I assume you are talking about “Freestate Petroleum”? Impressive reviews they have, sounds like everyone appreciates the cheap gas, but hates the service.
Right, but I’ve never paid a fee or interest, so why are they trying to get me to use rewards cards?
Right, but we are talking about gas purchases specifically here.
It averages out. They know what they’re doing, and it’s working quite nicely for them. For those of us who don’t pay interest, it works pretty good too.
Yes, I think it is Free State. Their gas is quite cheap, which I guess is how they stay afloat taking only cash. I don’t mind the few extra seconds to go in and pay the guy behind the counter.
Other people have tried to answer this. I can tell you that I have not seen a payment type for a large customer (say $500M and up) that was over 3.25% in the last ten years. I’m nowhere near an expert on this, but I’m probably more knowledgeable than 99+% of the population but I only know about big retailers.
Small business is a whole different ballgame.
Right, I get that. What I’m saying is that the 4% you’re getting back on gas purchases is not all coming from the gas station. The gas station is paying interchange fees, and some of those fees, and some other fees from other businesses, and various other fees the card has.
When you get 4% back buying gas, the credit card company is losing money on that transaction, but they’re making it up in other places.
I wonder if the stations that offer a lower price for cash have higher insurance premiums. I’d think that would make them a bigger target for hold ups than the place across the street.
But I know that a rewards card charges the merchant more. I’m a merchant, and I am looking at my statement that shows that the different charges. Now, I’ll admit that they do their best to make it confusing, but I do pay about a percent higher on some cards than on others, and their codes do make them look like they are the rewards cards.
Now, the question is, is Visa really willing to lose money every time I get gas, or is some of that passed on to the owner of the station?
But why are they encouraging me to do something that costs them money?
They’re encouraging everyone to use their card. You’re just part of everyone. They don’t lose money on the other guys, and don’t lose money overall.
They know people have a lot of choices about which cards to use, and they want you and everyone else to be loyal to their brand. They know what promotions will motivate brand loyalty.
I’m not an insider, maybe the do have a way to make the gas station pay more when you’re getting 4% back then when you’re getting airline miles. But this is IMHO, and I’ve offered mine.
It’s not Visa; it’s whatever bank or financial institution actually issued your card to you. Visa is just a transaction processing network.
Likely because of one, or both, of the following:
- If they successfully encourage you* to use the card more, there is likely a correlation with, at least sometimes, carrying over a balance, and thus incurring interest charges
- Banks love to “cross-sell” products to their current, loyal customers. If you’re loyally using their rewards card, they will try to sell you on using them for an auto loan, home loan, bank account, etc. They’re using the rewards card as a bit of a “loss leader,” to try to sell you other services.
*- the generic “you,” even if you, personally, never ever carry a balance.
Because 4% is eyeball-grabbing. It’s a marketing expense.
And because most people use just one or two credit cards, so on average they’re paying out less than the 2% that is pretty much the ceiling of rewards cards’ rewards.
Gas is a good one to target too. For various psychological reasons, people are really attentive to gas prices. And we usually don’t plan our purchases very closely, so if you want to get a good price on gas (and people really want to get a good price on gas. More than they want to get a good price on other things), then you’ll have to have the card on you or in your car most of the time, increasing the chance that you’ll use it on lots of other purchases. It’ll become your “primary” card, rather than a spare one that is just used for a few purchases.
It’s a huge marketing win.
30 years ago I worked very briefly for a credit card issuer (so an underlying bank, not VISA/MC) who were one of the pioneers in measuring total customer profitability. They had more ways of making money off a customer than just the merchant fees, interest and penalties. Even back in the days when we were doing this using SAS on a mainframe we were able to segment customers into profitable and less profitable pools quite well. But there were limits.
Maybe they are losing money on @k9bfriender but he is “bycatch” in a net that is very profitable overall and they haven’t figured out a way to exclude him from the net.
And yes, @k9bfriender there are rewards cards where the cost is 80 bps higher than others. But not 400 bps higher. You’re not seeing differentials of 200+ bps on different types of VISA credit, are you?
Again, if you use a debit card, you get the cash price. I assume that’s what most people are doing.
Not everywhere. At a local chain Cumberland Farms you have to use THEIR debit card that is linked to your bank account directly without going through the card processors. Many people do not want to allow some random business to draft from their bank account. It’s kind of a single vendor EFTPOS card.