ROCK HILL, S.C. – Whether customers pay with cash or plastic could help retailers reduce costs associated with high credit card fees, reports USA Today. 

“With gas prices high and margins low, gas station owners are trying to encourage customers to pay cash to reduce the amount in mandatory fees the stations have to pay banks that issue credit and debit cards,” writes the newspaper.

NACS spokesman Jeff Lenard commented that retailers “are doing anything they can” to reduce the costs associated with high credit card fees, adding that more store operators are boosting their cash discount promotions than in recent years, particularly as gasoline prices are high. Some retailers are even refusing to accept credit cards.

A motorist from Edgemoor, South Carolina, stopped at a local convenience store to fill up his truck. Instead of using a credit card, he paid in cash to take advantage of a 4-cent discount for cash customers. “Four cents a gallon, that's a pretty big break,” he said. “On a 27-gallon tank, it adds up.”

Lenard said that more than three-quarters of the gasoline purchased in the United States is sold at convenience stores. In 2005, 58 percent of gasoline was purchased by customers using credit and debit cards--a figure that retailers say is climbing.

David Robertson, publisher of The Nilson Report, told the newspaper that merchants pay issuing banks a percentage of the sales paid with their credit and debit cards, noting that convenience stores “pay 1.5 percent to 3 percent of credit and debit card sales in fees.”

Therefore, when the cost of gasoline goes up, so does the amount paid to banks. A retailer who pays a 2 percent fee would pay 4 cents a gallon when gas is $2 a gallon and 6 cents a gallon when gas is $3,” writes the newspaper.

Lenard noted that gasoline margins typically don’t increase with the price, meaning that retailers make less money when prices rise and consumers pay with plastic. “It is not unusual to find guys who are losing money on every gallon they sell,” he said. 

The newspaper cited NACS statistics that indicate the average pretax margin for a gallon of gasoline in 2005 was less than 8 cents, before card fees but after other expenses.

“It's a penny business,” South Carolina retailer Hal Crenshaw commented. He said that his margins typically average about 4 cents to 5 cents per gallon, which doesn’t include overhead expenses such as staff and electricity. Of the mere cents he is making on gasoline, most of the profit “is being eaten up” by credit card fees, which is 2.5 percent from a total purchase made with plastic.

Crenshaw began to offer a 4-cent discount for customers who pay with cash at his Rock Hill station. He had already been offering cash discounts at his Lancaster station and the benefits have paid off. The newspaper notes that only 18 percent of his customers are paying with plastic, which is down from about 70 percent before he started offering the cash discount.

Other unexpected benefits have also popped up, as motorists trying to save on gasoline have poured into his station. Crenshaw added a register to keep up with increased volume. Sales of snack foods, soft drinks and other in-store items have also increased, as customers paying with cash are forced to go inside the store. “If it weren't for the inside, we wouldn't be able to stay in business,” he noted.

However, not all customers are “sold” on cash discounts. Charles Allen, and 82-year-old from Lake Placid, Fla., told the newspaper that offering a cash discount on fuel is “punishing people who pay with credit cards.” Allen uses his credit card to earn airline miles.

Crenshaw commented that he has only received two formal complaint from customers since adding the cash discounts to his business. However, such complaints, while respected, are not going to keep him from adding cash discounts at his other stores.

“We can give you instant gratification,” said Crenshaw, adding, “It's been good for us, and it's good for (drivers), as well.”