Cash “discounts” at Gas Stations
While I was out running errands a week or two ago, I noticed a gas station that was doing something that I had not yet encountered before:
Thanks to the blurry nature of my cell phone’s camera, I might have to clue you in: the six prices represent both the cash and credit cost of the three qualities of gas. In other words, this gas station is offering a discount to customers who pay with cash. Regular unleaded will cost you $3.75 a gallon if you pay with cash, but $3.85 a gallon if you pay with credit.
Of course, this is certainly not a new development — for the last year or so, it has been well covered in the blogosophere and press. But this is the first time that I have run across it, and as someone who tries to make most purchases on a credit card to leverage rewards and benefits, I am both annoyed and troubled by this direction.
The Logic
The rationale that gas stations give for this change is fairly straightforward — it costs gas stations more money to process a credit transaction than a cash transaction. As this LA Times article notes:
With each price increase, more people use credit cards to buy gas, taking a bigger bite out of station profits. A dealer typically pays a 10-cent transaction fee plus 2% to 2.5% of the total fuel sale for each customer.
In other words, as gas gets more expensive and people spend more per fill-up, the per-transaction cost goes up for gas stations. Furthermore, gas stations are already feeling financially squeezed to begin with. So, as a result, many have taken to offering a cash discount for those who choose not to use credit cards, which is allowed under Visa/MasterCard merchant rules, assuming that they offer it as a “cash discount,” rather than as a “credit surcharge.” The Consumerist explains the distinction well:
This prevents people who pull over because they saw the posted price from getting an unpleasant surprise when they go to pump their gas. You should report this gas station to your credit card company.
Annoying
Of course, as someone who advocates using a credit card (responsibly) as much as possible, this is a disappointing development. I wholeheartedly agree with Raymond over at Money Blue Book who listed many of the benefits of paying for gas with a credit card:
- Credit cards offer rewards for spending; a card like the Chase Freedom card would give you 3% back on gas purchases
- Credit cards dramatically speed up the time it takes to complete a gas transaction; with cash, you will have to walk in to pay.
- Credit cards provide a sort of automatic record of your spending, useful for budgeting and accounting purposes
- Credit cards don’t require you to carry cash, which can be annoying to have to keep on hand
It is also a frustrating development given that gas stations are not unique in this credit card merchant arrangement; nearly every store has a similar structure that has variable costs that go up with the value of the transaction. The logic has always been that consumers are likely to spend more often and in greater amounts if they can pay via credit, which justifies the costs to merchants. Why do gas companies suddenly need to deviate from this? It is true that gas stations are unique in that people are not going to alter the amount they purchase at any given time much, but I could definitely see people being willing to fill up more spontaneously if they can use credit.
The Math: Credit Card Rebate vs. Cash Discount
Now, each time I visit a gas station, I’ll have to quickly figure out which is the best deal: using my Chase Freedom Card, with 3% cash back at gas purchases, or the cash discount. The gas station I mentioned earlier was offering a ten cent discount for cash purchases.
- At the current prices, the cash price is $3.75, while the credit cost is $3.73 after discount, so while the credit card rewards are heavily diluted, the Chase Freedom card is still a better deal.
- As a general rule, with a ten cent cash discount, the Chase Freedom card is a better deal as long as the gas is over $3.33
- With a five cent cash discount, the Chase Freedom card is a better deal as long as the gas is over $1.67
Ominous Future?
Even worse, some gas stations are simply outright declining to accept credit cards. As No Credit Needed pointed out, this presents the concern that one day you may find yourself needing gas in an area where no gas stations would accept credit. While this is perhaps an unlikely scenario given that cash discounts are becoming more widely permitted and accepted, it is still a frightening prospect. I plan on holding out with my credit card at the pump as long as possible, but the writing may be on the wall.
Does anyone else have experience with these “cash discounts”?
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We haven’t seen the “cash discount” here, yet. At least not at the stations that I frequent. We do have a chain in town that offers a “shopper” discount in relationship to the local grocery chain (with the little scan tag/card). But there are very few stations now that are NOT “Prepay or credit at the pump ONLY”. The local news covered the huge problem with drive offs since the prices went up.
Yep, I have experienced this. I saw the cash discount that they were offering and got super excited. I filled my scooter (about 8 tenths of a gallon) and went in to pay. I have experienced this - like 15 years ago! And again about 10 years ago at a Flying J…. It’s not new, it just comes and gos with economic fears.
“Why do gas companies suddenly need to deviate from this?” Well it’s not sudden and you answered your own question pretty effectively. The ‘your customers will spend more’ sales pitch only works at gas stations if you get them in the store. Pay at the pump keeps them *out*. I think the question is more, ‘Why would they NOT offer a discount for cash?’
Fear not, they’ll keep accepting debit/credit for the same reason they started - a larger base of potential customers. They just have no reason to cater to plastic.
@karla — I have spent some time in a region that has those Grocery Store loyalty card discounts, which can be pretty nice.
@NtJS — You raise an excellent point about it really only being lucrative when they get you in the store, especially given the (apparent) tight margins on gas — I wonder if there is some middle ground?
Middle ground? You mean like the parking lot? Or the car wash? And yeah, at this level, the margins are tight on gas. If margins were this tight elsewhere then you’d see the trend continue through other sectors.
“As No Credit Needed pointed out, this presents the concern that one day you may find yourself needing gas in an area where no gas stations would accept credit. While this is perhaps an unlikely scenario given that cash discounts are becoming more widely permitted and accepted, it is still a frightening prospect.”
Oh, no!!! Seriously, dude - it’s really not that big of a deal. It’s not difficult to carry some cash if this is the way things are going. It’s not tough to keep a couple of twenties stashed in the glove box for this or a real emergency. What is truly frightening is how reliant people have become on credit cards. Has it really gotten to where you’re fearful of the day when certain places won’t accept them?!
It’s honestly sad what these companies have done to our culture. If they wanted to, they could enable paying cash at the pump. They could ad a bill acceptor to those massive gas pumps just like a coke machine or a self-checkout. They have simply chosen not to - or been contractually obligated not to…..