cash at the gas station

September 5, 2007 11:14 AM

How does offering discounts for cash payments benefit gas stations?

I started with the theory that a customer has to go in to the store to pay cash, and is therefore likely to make impulse purchases that will make up the difference. You buy ten gallons of gas at a 20-cent-per-gallon discount, you save $2, you go in and buy a $2 soda.

My boyfriend pointed out that a $2 soda doesn't actually net the gas station $2. Duh, moonlet.

So our theories are a) people make substantially larger impulse purchases than $2, b) the lower price draws in a higher volume, c) the giant signs advertising the cash price suck in people who end up paying with credit, or d) something nefarious involving the processing of credit card payments.

I suspect it's some combination of all the above, but I feel like we're missing something.

posted by moonlet to travel & transportation (17 comments total)

Credit cards take a percentage of every sale.
posted by milarepa at 11:15 AM on September 5, 2007 [1 favorite]

And it's not legal to pass this chanrge on to the customer directly, so this is how they do it indirectly.
posted by jessamyn at 11:16 AM on September 5, 2007

Credit cards charge merchants 2 - 3% of purchase price. That coupled with impulse purchases probably explains the discount.
posted by Mercaptan at 11:16 AM on September 5, 2007

Small discounts are simply the difference between keeping all the money and paying the credit card companies their rake on credit transactions. I've only ever seen large discounts offered by grocer / gas combo stores where you have to buy $25 of stuff inside before the discount applies.
posted by TeatimeGrommit at 11:19 AM on September 5, 2007

And credit card companies also charge exorbitant fees for pay at the pump vs inside. For some cards it's like 6%.
posted by AaRdVarK at 11:23 AM on September 5, 2007

Credit cards charge merchants 2 - 3% of purchase price


more if it's AmEx, that's why merchants dislike it so much.

and yes, the answer's obvious, they want to avoid paying the credit card companies cut.
posted by matteo at 11:25 AM on September 5, 2007

That's a really excellent point, but are you sure about that rate? This weekend I saw a gas station in Marin County, CA charging $2.92/g for credit, $2.72/g for cash. A 3% transaction fee still gives them $2.83.

The rate for credit was comparable to the prices at other (non-cash-discounting) gas stations, too.
posted by moonlet at 11:36 AM on September 5, 2007

Sorry this is a little piggyback (I concur the answer is CC fees btw), is it also illegal to have a small "paypal fee" for online stores? and if so can someone point to where the relevant law/statute/? is that talks about it.
posted by edgeways at 11:38 AM on September 5, 2007

a $2 soda doesn't actually net the gas station $2

No, but they probably profit much more off that than $2 worth of gasoline. That said, it's almost certainly to save on credit card processing fees.
posted by grouse at 11:38 AM on September 5, 2007

If AaRdVark's statement that some CCs charge 6% is true, that makes up the difference between $2.92 and the $2.73. If not, I'm sure drawing people into the store adds enough incremental purchases to make up for it.

Maybe gas stations should offer a "pay inside" discount. If they can slice their CC fees by having people pay inside vs. pay at the pump, they're probably a lot more likely to get big incremental purchases when people are paying with a credit card.
posted by PFL at 11:41 AM on September 5, 2007

edgeways: there is no law; it is an almost universal condition of merchant agreements with payment processors in some countries (such as the U.S.). For example, the PayPal User Agreement says:

4.7 No Surcharges. You agree that you will not impose a surcharge or any other fee for accepting PayPal as a payment method. You may charge a handling fee in connection with the sale of goods or services, as long as the handling fee does not operate as a surcharge and is not higher than the handling fee you charge for non-PayPal transactions.

posted by grouse at 11:44 AM on September 5, 2007

The motivation for different rates is to avoid credit card fees. But the actual different rates should be determined by what people will pay for the credit convenience, not how much it saves. So it's hard to relate the credit card percentage to the price differencec.
posted by smackfu at 11:45 AM on September 5, 2007

Credit card fees are definitely a large part of it, but paying cash does force you to come inside and look at the items they make their real money off of.

If my days in retail have taught me anything, it's that while standing out a counter, customers always tend to grab a candy bar or something else extra.
posted by drezdn at 11:45 AM on September 5, 2007

Re: Charging a paypal fee.. It's against the paypal terms of service (as pointed out above) and voids any protections you would have through them. Supposedly it's illegal in several states including California.
posted by drezdn at 11:52 AM on September 5, 2007

Volume? I always see this at a gas station that is RIGHT BY another one, and wants to differentiate itself and make a reason for me to turn into station A rather than B.

Two stations in Seattle were duking it out. One has a sign that said:

WE DISCOUNT FOR CASH

and the other's sign said

WE DO NOT CHARGE EXTRA FOR CREDIT
posted by GaelFC at 12:49 PM on September 5, 2007

Two things I can think of:

1) Pure and simple price discrimination. People who are price-sensitive will pay cash (and perhaps use the station's surcharged ATM to get that cash), while those who are not may mindlessly pay with a credit card.

2) The stations in question may pay higher-than-normal merchant fees for their credit-card processing due to a history of fraud. I assume this also explains the few cash-only gas stations I've been to.
posted by backupjesus at 2:03 PM on September 5, 2007

no one has mentioned that ... perhaps the franchise owner is not "running the cash through the till" ... and avoiding sales tax.
posted by jannw at 2:18 AM on September 6, 2007