Monday, October 13, 2008

Refueling your wallet at the Pump (Cash vs Credit)

Driving back to New York yesterday, I kept bemoaning not having filled up the tank near where we were staying -- I saw it as low as $3.21 for the basic stuff. As we drove south, it crept higher ("Let's not stop at this one, we'll see one cheaper") until we crossed into Connecticut and it rocketed to the $3.50 range. So as I'm doing the responsible thing of driving on fumes, I see a Hess station in the distance with a sign for $3.17. Since this was lower than anywhere we'd seen, I expected to see it closed and boarded up. But sure enough there were people at it, so I pulled in. What gives? Aha -- a discounted price for paying with cash.

By giving us a reduced rate to pay in cash, the gas station avoided paying fees to the credit card companies, averaging 2.5% depending on the card (USA Today article covering the same topic). So if you spend $100 and pay by credit, the company sends $2.50 to MasterCard for the privilege. Perhaps people spend more freely with credit cards, and thus the fee is insignificant to business owners?

While I'd usually go with my trusty Amazon card, I opted for paper over plastic this time and saved. With my credit card, I get 1% back (in Amazon dollars). By paying cash here, I saved 2.45% vs. the credit price. This made using cash a good decision for me. But what about if credit rewards were a non-issue?

The gas station pays an average of 2.5% in fees for customers paying with credit. For customers paying with cash, the gas station parts with 2.45% of the price as a cash incentive. Either way the gas station is only receiving about $3.17 per gallon. So you think a gas business owner would rather pay 2.5% of their sales to Mastercard, or earn brownie points with the locals by offering them the same goods at a discounted price? Eliminating the credit card is a win-win for both business and customers, and makes me wonder if we are approaching a shift in how we as a culture spend our money.

Rough economic times call for giving up creature comforts first. If that means carrying a little cash around now in order to have more in the bank later, I can certainly live with a little bulge in my wallet.

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