BUFFALO, N.Y. – Rising gasoline prices, coupled with increasing credit card fees, continue to compress gasoline margins, say retailers, the Business First of Buffalo reports.

“I hear all the time, ‘You guys must be making a killing,’” said Michael Newman, executive vice president of NOCO Energy Corp. “But gas margins have been compressed.”

Newman and other experts point to rising credit card fees as a major cause for concern and mounting frustration. According to NACS spokesman Jeff Lenard, roughly two thirds of all gasoline purchases were made with a credit or debit card last year.

Paul Reid, president of Reid Petroleum Corp., said that in 2001, his company shelled out about three-quarters of a penny on every gallon of gasoline sold for interchange fees, which are those charges paid by a merchant’s bank to the card-issuing bank to cover portions of risk and cost incurred on cardholders’ accounts.

“It doesn’t sound like much,” said Lenard. “But multiply that times the millions of gallons of gas sold.”

In 2001, Newman said credit-card companies received approximately $350,000 in overall processing fees from his company; this year, he thinks it will be more than $2 million in fees. “The U.S. has the most secure system in the world for processing credit-card transactions,” Newman said. “Yet we pay the highest interchange fees in the world.”

NACS data shows profits for gas stations and convenience stores in 2006 totaled $4.8 billion, while the amount credit card companies raked in processing those transactions equaled $6.6 billion. “Credit card companies made more at gas stations and convenience stores than the stores did themselves,” Lenard said. “The reason for interchange fees, we’re told, is to pay for the technology infrastructure and fraud protection. The U.S. is arguably the best in the world in both these categories,” he noted. And, with U.S. interchange among the highest in the world, “to say that interchange pays for those things is unfathomable to me,” Lenard added.

In a July hearing, the Merchants Payments Coalition gave a comprehensive report the House Judiciary Committee’s Antitrust Task Force about Visa and MasterCard’s secret credit-card interchange fees. In September, the Justice Department began investigating transaction fees charged by credit-card companies.

To avoid paying these hidden fees, more and more gasoline stations are reverting to discounting gasoline purchases made with cash, the Aiken Standard reports. For example, Keton Patel’s service station reduces gasoline prices by four cents for cash-paying customers. He estimates he saves about 4 cents a gallon in merchant fees by not having a credit-card transaction, which is his primary reason for offering the cash discounts.

On his very first day offering the cash discount, Patel said he saw a nearly 40 percent increase in customers who used cash. He said he may offer an even larger cash discount if customer response continues to be positive.