Buying Gas on Credit

Credit Card Companies and Gas Stations: Who Wins?

Gas prices are hitting their records, arousing consumers' anxiety and clearing out their pockets. Most of us tend to blame station owners, but in fact these guys happen to incur great losses of profit, too. At first sight, the situation might seem vague and even illogical but at a closer inspection we are able to single out a certain pattern of making and processing gas purchases.

Gas prices are rising due to the more expensive oil, and gas station owners just have to comply with the market laws to survive and make profit for further development. So, they do charge more for a gallon. And this is a rather lucrative field for credit companies to pick up revenues.

Card companies teamed up with major and smaller gas chains quite a time ago, but since then the greatest profit from the deal seems to be the prerogative of creditors. Let's see why.

Banks and companies predicted that their gas credit offers will get on like a house on fire and enjoy a great demand among car owners. It was not that difficult to guess that as the gas price grew, customers will turn to credit cards as a basic payment tool.

Gas stations were quick to accept credit cards as they speed up transactions and help manage and track finances more efficiently.

But the cards are now getting stacked against gas stations and their profit margin is drastically reduced. The thing is credit card fees (interchange or transaction fees) are rising together with gas prices and are eating away most of the retailers' profit.

Credit card transaction fees, imposed, as claimed by companies, to cover transaction processing costs, are really enormous at times and leave gas owners with just enough to go by. Gas stations, together with other retailers have acquired a legal right to negotiate the rate of the transaction fees directly with banks and card companies but things are not getting easier as yet.

However, gas retailers have hit upon a presumably effective method of giving battle to credit companies - they encourage customers to pay cash, offering them a good discount (5% or more) as a reward.

Allowing such a discount but not having to pay transaction fees, a gas retailer is incomparably better off. Unfortunately, not all consumers hurry to pay cash instead of their credit card. Estimates show that eight of every ten cardholders prefer to buy gas on credit, and this is no wonder, given the ever rising gas prices. This is a closed disk in fact.

There is one more reason why customers use plastic. It is all those various gas credit rewards programs that stimulate one's buying decision and the decision does not speak in favor of cash so far. Gasoline rewards plans are much more beneficial than a 5% discount.

Just imagine the rewards earning capacity of a gasoline credit card. You not only get points and cash back at the participating gas station but you are also entitled to rewards at other retailers, restaurants, supermarkets, drugstores and others.

Most cardholders are not ready so far to refuse from such generous benefits. That's why, credit card transactions at gas station still prevail, ruining smaller retailers and alarming the bigger ones.

Doug Nicholas

Doug Nicholas, a financial consultant by profession with a Masters degree in International Business from Brown University, is also an ardent writer. Though he has a full time job at one of the companies listed on Wall Street, he does manage to squeeze in time to follow his passion. He puts his ideas to words in his articles related to finance and business.