Receive the latest Trees Full of Money articles FREE in your E-Mail or via RSS.
Whether you carry a balance or not, whether you participate in a cash back program or not, the credit card companies are making money off you every time you make a purchase with your card. You just don’t realize it because there is a credit card “interchange” fee buried in the marked up sales price of the products you buy.
Have you ever seen those signs along the highway advertising two prices for gas, one for “cash” and one for “credit”? Maybe you’ve wondered why it matters to the gas station how you pay for gas. The reality is, every time the price of gas goes up and you use your credit card, your local gas station makes less money.
Many people don’t realize that in addition to charging interest rates on users who carry a balance, credit card companies charge the merchant an additional “interchange fee” (transaction fee) between 2 to 2.5%. An interchange fee doesn’t just apply to gas stations, it applies everywhere your Amex, VISA, or MasterCard is accepted.
12 Years ago, when the price of gas was around $1.30, gas stations where making between 25 to 30 cents per gallon (gross) profit. When the transaction was paid with a credit card, the interchange fee was only 2 or 3 cents per gallon. Today, that same gallon of gas cost over $4, the fueling station is still only charging 25-30 cents over what they pay per gallon. But now, the interchange fee the merchant must pay is 10 cents a gallon, effectively cutting the retailers profits more than 40%.
In some cases, gas stations are able to pass interchange fees on to their consumers. However, increased competition between gas stations in populated areas makes this practice difficult because their may be a station that is willing to sell gas at a loss to attract customers to other services they provide such as snacks, or vehicle repairs.
Be under no illusion that you are “winning” in the credit card game. In fact, not only are you loosing, but you are making everyone that pays cash loose too because they end up having to pay the same inflated price that you do.
{ 2 comments… read them below or add one }
Whoa…I assume this applies to debit cards, too? Jeesh…now I feel bad for paying at the pump.
And I always thought those “pay cash inside” signs had something to do with preventing drive offs but what you said really makes sense now. Wow..
It does apply to debit cards too, however the fee is less for debit purchases than credit. That’s why rewards programs on debit cards, require the purchases to be signed for, in otherwords run as credit, as opposed to entering your pin. The extra money the bank makes, obviously more than pays for the rewards program.
Credit purchases inherently make those goods more expensive than they otherwise would!