Last time I filled up my car's gas tank, it was fifty bucks. Even. (Actually, it was $49.86; I squeezed off an extra fourteen cents' worth for the sake of rounding.) I didn't put it on my debit card, because I didn't want some massive hold put on my meager funds. Meanwile, gas stations generally are not fond of plastic these days, as the interchange fees have been eating their lunch, or at least their margins:
The fees, which are fixed percentages that must be paid to card companies for every transaction, do not usually exceed 2 percent of the purchase. But fees rise with the cost of goods or services. As gas hovers around $4 per gallon, the fee translates to about 8 cents per gallon in interchange fees.
The actual cost of the transaction is one thing; loss exposure is another, and certainly MasterCard and Visa stand to lose more on a fraudulent $1,000 transaction than on one for $100. Still, it seems unlikely that it cost MasterCard anywhere near $1 to process my gas purchase. What's more, or less, the average gas station earned 12.5 cents a gallon before expenses, says the Oil Price Information Service, which means that this particular station, were it around the average, cleared a whole 56 cents on that $50 tankful after paying MasterCard.
Both Visa and MasterCard have moved to cap transaction fees. The MasterCard move places an unspecified cap on transactions over $50, which means that transactions under $50 will presumably continue to be unprofitable; Visa this week phases in a 95-cent cap on debit-card transactions, which sets the line at $47.50. (Both these figures assume 2 percent interchange fees; some merchants may pay slightly less, others a bit more.) And the Visa move has drawn fire from the National Association of Convenience Stores:
"There are so many qualifiers. There are some transactions where it makes things worse by swapping a lower percentage for a higher fixed fee." Indeed, on non-rewards cards, Visa's new rate will cost merchants more for transactions under $57.
The mechanics of it:
[Visa is] raising the ceiling at which it prices unsigned transactions at higher card-not-present rates from $75 to $125. Effective with its semi-annual business review in October, Visa is cutting its consumer credit card rates for gasoline to 1.15% plus 25 cents, regardless of the type of card. Typically, rewards cards carry higher interchange than non-rewards cards to fund the consumer incentives. And it plans to raise the card-not-present threshold even higher, to $500.
This would have cut the interchange on my $50 tank to 83 cents, which is a little better, but not a whole lot.
And it appears I haven't been helping by running my purchases on actual rewards cards, although both of them are MasterCards. (I did, however, make about $11 for myself during World Tour '08, not counting the hotel rooms I'd earned over previous Tours, which over three nights came to $350 or so.) It's probably a good thing that Visa and MasterCard are moving to cut these fees, although I'd be just cynical enough to think that they were doing so to avoid possible government action.
And guess what? Here's the possible government action. HR 5546 would set up a three-judge panel within the Department of Justice's Antitrust Division to rule on credit card fees. The presumed criteria:
Subject to the provisions of this Act, the function of the Electronic Payment System Judges shall be to make determinations of access rates and terms calculated to most closely represent the rates and terms that would be negotiated in a hypothetical perfectly competitive marketplace for access to an electronic payment system between a willing buyer with no market power and a willing seller with no market power. In determining such rates and terms, the Electronic Payment System Judges shall consider the costs necessary to provide and access an electronic payment system for processing credit and/or debit card transactions as well as a normal rate of return in such a hypothetical perfectly competitive marketplace.
Of course, in a perfectly competitive marketplace, hypothetical or otherwise, there'd be no such thing as Electronic Payment System Judges.
Which leaves me with a quandary. I am philosophically opposed to this sort of governmental tinkering; on the other hand, your neighborhood gas station may be on the way to extinction. Perhaps the best we can hope for is that this alleged "bubble" in oil prices is quickly punctured.
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Copyright © 2008 by Charles G. Hill