credit relief is past due

The cost some retailers are paying on credit card fees is crippling, but a panel of retailers and industry experts said relief may be on the way.

Convenience Store Decisions, with the help of ISD Corp. and the National Association of Convenience Stores (NACS), hosted a Webcast Sept. 19 to discuss the ever-increasing credit card fees that convenience store and petroleum marketers are paying. The goal of the Webcast was simple: CSD wanted to show just how severe the problem is, while offering solutions that can help retailers alleviate their situations.

The Problem with Credit Cards
For some higher-volume retailers, credit card processing fees have soared past $1 million per month. In 2005, credit card fees cost the convenience store industry $5.3 billion, according to the 2006 NACS State of the Industry report. That’s a sharp $2 billion increase from 2004. The reason is due mostly to the higher cost of gasoline.

The higher cost of gasoline has had a devastating impact on processing costs. The industry sells approximately three-quarters of all the gasoline purchased in the U.S. Rising prices often means customers are more likely to use credit over cash when paying for fuel purchases. While some markets have moved to two-tier pricing for cash and credit, the majority of operators in competitive markets have been forced to absorb the additional processing costs at the expense of their fuel margins.

“Prior to Hurricane Katrina, credit card transactions at the pumps hovered around 55%,” explained CSD Editor-in-Chief John Lofstock. “But as gas topped the $3 mark, estimates on plastic at the pumps surged to as high as 90%.”

According to NACS, credit card fees in 2005 also accounted for 7.8% of all gross margin dollars, up from 6.1% in 2004 and 5.8% in 2003. In 2005, only rent and labor fees cost retailers more than credit card fees.

Because gasoline is such a large part of the c-store industry, more retailers are finding themselves within these demographics.

“Sales are largely being driven and pushed by the sale of gasoline,” said Gray Taylor, vice president of research for NACS. Taylor noted during the Webcast that out of the $495.3 billion pulled in by the industry in 2005, $344.2 billion was credited to the sale of gasoline. Like Lofstock, Taylor noted that the amount of cash consumers carry on them is playing a big part in the rising use of credit cards at the pumps.

“Most consumers are not carrying as much cash as they used to,” said Taylor. He estimated that the average consumer carries the same amount of cash as they used to back in the mid-80s, which is approximately $25. “Anybody who has gone out to fill up an SUV in the last few months can attest that $25 doesn’t buy you much fuel these days,” Taylor added.

Of course, all the blame can’t be placed on fuel prices. One growing concern is the heightened competition between credit card companies, which lead issuers to offer rewards to their cardholders, making the idea of using a credit card for routine purchases more lucrative.

Another reason processing fees are jumping is because there are many parties involved in the transaction process. Typically, as a part of a credit transaction, a portion goes towards paying processing or per-item fees to the processor involved. After that, access fees are paid to the credit card company. An even bigger percentage of the transaction is then used towards assessments, which are fees paid by the retailer to the credit card company in order to support association advertising and operating activities. Finally, and most importantly, the largest amount of fees from a transaction goes to interchange, a fee paid by retailers to reimburse the credit card issuers, such as banks, for assuming the costs and risks associated with issuing credit cards. When all is said and done, the average storeowner is forking over the bulk of their gasoline profits to these fees.

“Approximately 4.1 cents of every gallon-of gasoline sold in the U.S. is going to somebody in the credit card processing food chain,” Taylor noted.

Finding a Cure for Costs
In order to combat some of the fees and charges, Taylor recommended that retailers encourage customers to use PIN-based debit cards, which have smaller fees. He also recommended that storeowner’s consider using automated clearinghouses, two-tiered pricing, broadband connections and finding ways to reduce downgrades. Most importantly, Taylor suggested retailers review their processing contracts to avoid paying unnecessary fees and surcharges. “At the end of the day, it is just a processing contract and has a lot of negotiable details in it,” he said.

Doug Spencer, industry relations special projects manager for NACS, said the association was working with retailers to refine and rollout the NACS Credit Card Processing Program (CPP).

Created four years ago, CPP was created with the intention of helping smaller-sized retailers reduce overall processing costs, giving them and unbranded merchants a fair shake in the market. The program, which is a collaboration between NACS and First Data Merchant Services, works by cutting out the standard surcharges that go along with interchange. Instead, members pay a flat fee based on each transaction. Spencer said CPP saved participating retailers an estimated $4,257 last year.

Another solution was offered by ISD Corp., a provider of payment management software solutions.

“At its core, our software centralizes or consolidates transactions across all points of sales and then routes them out to the payment processing world for authorization and settlement,” explained John Filby, president and CEO of ISD.

“We are effectively bringing some of the robust transaction-switching capabilities of processors down to the enterprise level, thus enabling retailers to replace some recurring transaction fees with a one-time license fee.”

By insulating the point of sales, centralizing transactions over a wide-area network (WAN), establishing direct connections to the credit card associations, capturing enhanced settlement data and enabling PIN prompting and least cost routing, ISD can reduce the processing and interchange fees that come with the credit card process.

ISD also gives retailers several different-options for payment processing, allowing the operator to set up the best process method for their stores. Another option the company provides to retailers is PIN debit processing.

“From an interchange perspective, PIN debit can cost as little as half of what a credit card transactions cost,” said Filby. “Our applications help maximize the conversion of credit transactions to debit transactions.”

ISD offers retailers the opportunity to sell third-party gift cards and phone cards as a way of making some incremental revenue.

“Not only can we provide cost-saving capabilities, but revenue-generating capabilities as well,” Filby explained. The ability to make extra revenue off of card transactions is obviously a necessity for success in a market that is giving as much if not more of its money to Visa and MasterCard as its keeping for itself.

Currently, ISD has its software working for 15 different c-store and petroleum companies.

While there are options out there for reducing the excessive fees that come with high credit card usage, retailers are still going to have to find their own ways to incorporate these options.

“There’s not a lot we can do about the fees,” said Jeff Wrobel, controller of LaCrosse, Wis.-based Kwik Trip Inc. “We’ve focused as much as we can on pushing our customers towards non-credit card transactions.”

In order to do this, Kwik Trip encourages the use of checks, which still make up 15% to 30% of its volume. They also encourage PIN debit. To do this, they make sure “debit” is the first option to appear when customers pay at the pu

Dan Vaughan, president and general manager of Ogden, Utah-based Stimson’s Markets was one of the first chains to sign up for the NACS processing program.

“Our rates and fees in the beginning-were insignificant,” said Vaughan. “But when we started offering pyrethrum, the fees started to get our attention.” The fees became so much of an issue that the chain was having a hard time finding a way to affordably process them. That’s when it turned to NACS CPP. “We checked out the NACS CPP, and it was better for us than anything available.”

Bonnie Carr, controller for Norfolk, Va.-based Miller Oil Co., agreed, adding that the ease and quality of the CPP service were a major selling point.

“The transfer to the NACS program was simple and seamless,” she said.

The Webcast is archived online and can be viewed in its entirety at


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