Credit card fees “used to be the fourth or fifth cost component” for gasoline, said Dan Fisher, director of national petroleum and convenience store sales for RBS Lynk, an Atlanta-based provider of electronic payment processing services, “but today those fees are the number-two component.”
But as fuel retailers scramble to cut overhead they may be overlooking options to boost their bottom line, suggested Rob Little, sales and marketing vice president for National Bankcard Services in Plymouth, Minn. “Most marketers do a good job of looking at costs in other areas and driving them down,” he said, “but they often miss the opportunities for alternative payment solutions, such as taking out the middle man with tools like prepaid fleet cards and loyalty programs.”
Because card processing fees are no longer a minor issue, it “literally pays to be choosy about your processing partner,” advised Paul Cwalina, senior vice president of global merchant sales at First Data Corporation, a Colorado-based company that handled 28 billion transactions last year. “You need to do business with someone who provides a single-source solution you can trust.”
These providers agree that, although petroleum marketers cannot control rising inventory costs, there are ways to cut costs in processing fees. The trick is in knowing what to look for and where to negotiate.
“It’s key to work with a payment processor,” said Cwalina, “that offers a full range of solutions to help you build your business and reduce costs.” Areas in which a processor can help include managing electronic interchanges so they are properly handled and recorded as well as offering alternate forms of payment such as ACH (Automatic Clearing House) cards, gift cards, and other prepaid products.
Though retailers may feel at the mercy of interchange fees, “There are things you can do proactively to keep costs down,” Cwalina said. “One of those is making sure you’re processing electronic payments as efficiently as possible. The point-of-sale system should be batched out at least every day. And try as best as you can to limit manually-keyed transactions.”
Reducing fraud at the dispenser is “also one of the biggest things you can do to manage costs,” Cwalina noted. “An address verification system will prompt for a zip code when the customer uses a credit card. It’s becoming more common for the average consumer, and it’s a great way for marketers to protect themselves.”
Petroleum marketers can likewise set “velocity” parameters for card usage. “You can limit the number of transactions for a card and refer customers indoors once they have exceeded the number allowed,” Cwalina said. “It might be a minor inconvenience for honest people. But in high-fraud areas it’s a great tool. And you can tell your employees to check the signature on the back of the card.” Sharing velocity data across locations within a geographic area is another way to discourage fraud.
Unfortunately, some employees can also be dishonest. “But you can set parameters by time-of-day and be alerted to manually-keyed transactions,” said Cwalina, “or to sales above a certain amount, between midnight and 5 a.m. Our system can immediately send an e-mail to a designated person, letting you catch dishonest cashiers before the end-of-month sales report.”
Most retailers are aware that different types of transactions mean different interchange rates. For example, Cwalina pointed out, “Checks have made a resurgence as a preferred form of payment, and they cost the marketer a third of the typical rate for a credit card.” And enabling the the POS system to ask for a PIN number and debit transaction can “save you, as the merchant, seven to ten cents. Plus it greatly reduces the risk of a chargeback.”
Some marketers have gotten creative in encouraging debit transactions. “I’ve seen marketers hold contests for their employees to get them to talk consumers into using their PIN numbers,” said Cwalina. And for pay-at-the-pump transactions where there is no employee interaction, a POS system that can distinguish credit and debit cards could be an asset. “There have even been studies that show that if a customer gets prompted for their PIN, it makes them feel more secure,” he noted.
Getting Better Rates
At National Bankcard Services, Rob Little counsels fuel retailers to scrutinize “not only a card processor’s pricing, but also how they service the accounts. Your processing partner should have the flexibility to implement solutions that are tailored to your specific needs. Otherwise, you might be missing out several different ways that you can save money.”
Savings start with “finding out your per-transaction fee,” Little said, “but the reality is that per-transaction fees only represent a small portion of what you pay. The interchange fees represent the vast majority of your costs—and certain processors and banks are better at managing interchanges.”
Marketers may be under the impression that fees charged by credit card companies are non-negotiable. But Little noted that there are ways to get better rates. “Your processing partner should make sure you qualify for the best possible rate and that your transactions comply with Payment Card Industry standards,” he said. “It’s our responsibility to help you understand and manage your interchange fees.”
In addition to negotiating interchange rates, Little said, “Your processor can help you by reducing fees for chargebacks and processing them as quickly and effectively as possible.” To discourage fraud and prevent chargebacks in the first place, he agreed that velocity checking and zip code verification are potent weapons.
The final piece of a marketer’s customized payment solution, Little said, may be “getting you set up to accept the types of cards where you’re the issuer, thus minimizing the impact of credit card companies.”
For example, petroleum and c-store retailers who issue prepaid cards, gift cards and loyalty cards control the rules. “Rather than pay almost two percent to the credit card company,” Little said, “you’re only charged a small per-transaction fee.” If a card is not fully redeemed, the marketer loses no profit. Eliminating the middleman cuts costs and can help marketers enhance customer loyalty and brand awareness.
Exercising Your Options
With billions of dollars in transactions swirling around the electronic ether, RBS Lynk’s Dan Fisher cautioned, “Check to see how fast a payment processor provides you access to your cash flow. You don’t want a processor to hold your profits for a couple days, so that you lose out on the interest.” And since speedy transactions go straight into the books, they help to keep accounts in balance. “Yet it’s amazing,” he said, “how many retailers still use dial-up technology when their volume has outgrown it.”
By contrast, RBS Lynk offers an online reporting system “so that you can look every day and see your interchange fees, look at your chargeback history, download all the information into a spreadsheet and manipulate the data how you need it,” said Fisher. “You can even look at the report online and see if the batches are being balanced. And if you don’t close your batches once a day, then you’ll be paying higher interchange fees.”
Petroleum marketers of all sizes — from large oil companies to single-site dealers — need payment solutions tailored to their operations. “As a payment processor,” Fisher explained, “we own and develop our own systems for our clients. That way, you work with a single-source processor — and can avoid all kinds of layered fees that are charged if a separate bank processes the settlement.”
Fuel retailers are often dismayed by seemingly hidden fees for card processing. But the good news is that today’s savvy marketers do have options.