High Gas Prices Result in Increased Revenue for Credit Card Issuers and Increased Card Usage By Consumers
Written by CardRatings.com
Posted On: October 14, 2005
In the wake of hurricanes Katrina and Rita, rising gas prices are helping make credit card issuers richer while consumers dig themselves further into credit card debt. Caught in the middle are the gas station owners walking the fine line of keeping their profits while still remaining competitive. It seems Katrina and Rita’s howling winds are still sweeping across the country.
Credit card companies charge merchants a processing fee in the form of a percentage, so the higher the charges rise the more fee money banks receive. Today they are reaping the benefits as processing fees rise with the price of gas. Washington Post staff writer Margaret Webb Pressler quotes Nilson Report publisher in her article “Card Companies Are Filling up at the Station”:
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It’s unexpected revenue, because people are just doing what they were always doing.
That is people are still using their credit cards at the pump; and in fact with the rising gas prices even more people charge gas purchases which in turn further contributes to the increasing processing fees credit card issuers receive from gas merchants—the higher the charges, the higher the processing fees. The National Association of Convenience Stores estimates 70% of all fuel purchases are now made with a credit card. This is up from 54% in 2004.
According to Ira Stoller, a senior member of CardRatings.com's credit forum, another factor contributing to increased card usage is that people are starting to take advantage of credit card rebate programs. Stoller himself spends $140 a week on gas, so his 5% cash rebate on his credit card adds up quickly.
Before jumping on the gas rebate credit card bandwagon, though, I recommend reading through CardRatings.com articles on reward cards. Then comparison shop for a reward card in the Card Reports section. Using a rebate card at the pump can help trim your gas bill, but it can easily lead to increased credit card debt as well.
It would seem that with rising gas prices gas station owners would also be pulling in more revenue. However, that’s usually just not the case. Gas merchants are paying higher processing fees without the flexibility to adjust their profit margin to account for the higher expenses. Competition is so intense among gas station owners that they just can’t afford to raise prices any more and risk losing customers. Pressler writes:
Stations tack on anywhere from 7 to 11 cents a gallon to get their profit. That margin stays the same, or may even shrink a little, as prices rise, yet the station has to pay more each month to cover rising credit card transaction fees.
Rising gas prices is a complex issue affected by a wide variety of factors. But for the consumer it all comes down to affording a tank of gas at the pump. While paying with a credit card solves the immediate problem of filling the tank and it can even translate into some nice rebates, it could also lead to long term debt issues if the cash to pay it back is not available. Now is a good time to evaluate spending habits and learn how to use a credit card to your advantage. Good luck and please stay debt free if at all possible!
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