Fuel cards everybody moans about the margins, but continues to accept them as they are used in the transactions of around 20% of an average site’s fuel volume. They are key generators of fuel and non-fuel sales. But at what cost?

Behind the scenes, dealers nationwide are taking a closer look at the dwindling margins from fuel cards, and are beginning to question their contribution, particularly in the light of ever-rising site operating costs and changing dynamics within the marketplace.

"When did you last hear a dealer say they love credit card charges, bunkering margins, fleet cards, or paying RPI increases on Platts supply deals?," said one exasperated independent dealer. "In some cases they are netting less than 1ppl for the trouble of supplying expensive and extensive facilities, staffing, cash flow and tax-burdened operations."

In many cases, the card customer will pay the same price or more than the published forecourt price and it’s arguable that the card issuers are taking a higher margin than the dealer without any of the substantial costs and risks of providing fuel.

Mainly for hauliers

Fuel cards have been around for around 40 years, having started as a means of emergency re-fuelling on the road mainly for hauliers as they worked further and further away from their home base. They have now evolved from a paper-based means of obtaining fuel offered only to a select number of business users, to being a fully computerised, multi-billion pound essential business tool.

On the plus side they deliver loyal repeat customers who may also shop for higher-margin non-fuel items although some dealers are yet to be convinced. Try analysing the shop sales derived from fuel card customers and you may be surprised. On the negative side, these customers come at a price.

Fuel cards come in various formats: fleet cards eg AllStar; oil company cards such as BP PLUS or EuroShell; pay as you go (PAYG) bunker cards such as Diesel Direct or Texaco Fastfuel; or bunker cards such as Keyfuels or UK Fuels.

Merchant service fee

In terms of costs to the dealer, there are a number of different methods of charging for them. A merchant service fee (MSF) can be charged against the transaction value as a pence-per-litre rate or as a percentage, as is the case with the Allstar card. These charges are either built into the wholesale price of the fuel by the fuel supplier, or paid direct to Allstar by the dealer. The method used depends on whether the fuel supplier has a direct relationship with Allstar and passes on a centrally negotiated deal to the branded dealer; or if the dealer deals directly with Allstar.

In the case of branded oil company cards, the transaction is typically purchased from the dealer at the wholesale price they paid for the fuel, plus a pence-per-litre card commission such as with BP PLUS or EuroShell. For PAYG cards and bunker cards, the site gets a small ppl commission as the fuel is not owned by the dealer. In the ’good old days’ fuel cards served as useful ’incremental volume’ on top of the volume from traditional private consumers. However, with the growth of supermarkets with their price position and customer promotions dramatically altering the customer mix (mums are more likely to fill up at the supermarket) volume associated with fuel cards ie the business/commercial customer has gone from being a ’nice to have’, to being a vital component of a site’s overall volume in many cases.

However, as the volume has grown over the years, unfortunately the resultant net margin to the dealer has not. Card commissions those associated with oil company issued cards and bunker cards have stayed frozen at the levels offered when these schemes were launched 25-30 years ago, and in addition AllStar has started to impose an RPI-related increase on its charges. In most cases, industry experts estimate that in order to keep up with the rate of inflation, rates should be at least double what they are today. This all comes at a time when oil companies are imposing targets on retail volume and RPI escalators onto the Platts add-on for wholesale fuel.

A further problem which dealers complain about is the time it takes to get paid by the card issuer and the process by which they are paid, which can be very confusing and cause difficulties in reconciliation.

Other pressures include Allstar’s recent introduction of its ’Premier Programme’, in which Allstar markets a PAYG bunker card to its Allstar fleet customers traditionally bunker cards have been serviced by CH Jones (Keyfuels). However, both CH Jones and Allstar are now owned by Fleetcor. Experts believe dealers will lose out as traditional Allstar customers are now being encouraged to favour a Keyfuels-supplied PAYG bunker card, (acceptable at around 1,800, mostly dealer sites) to pay for their fuel at sites which accept both cards. The net result is that the dealer will get a reduced margin from the transaction as the commission on PAYG bunker is substantially lower than if the transaction was made using the Allstar card.

As if all this wasn’t enough, the popularity of paying for fuel using cards has grown dramatically among private consumers. It is estimated that at an average site around 80% of fuel is now paid for using some form of plastic card. Many people are now paying with premium-rate credit cards which offer enhanced loyalty schemes such as Air Miles or cash back. While this is good news for the consumer, unfortunately this is financed via inflated (compared with standard credit cards) merchant service fees from the dealer. To try and combat this, the PRA is working with the government to push for an early implementation of the EC’s proposals on interchange rates and one of these proposals will be to outlaw these premium-rate cards.

However, addressing the issues surrounding fuel cards is proving to be more difficult. In many cases acceptance of the cards is mandatory as it is an integral part of the fuel supply agreement, and rates vary between oil company brands. Besides that, the fuel volume is so significant that it would be commercial suicide to walk away from accepting these cards. Resentment among dealers is building they take all the risk, and the margin they’re getting on fuel cards doesn’t cut it any more.

Independent retailer Barrie Richards of St Blazey Service Station, said: "We need a strong voice in the industry to enable us not just to pick up crumbs, but to support and sustain our businesses going forward. Pinning us down to impossible returns is not going to support the card companies beyond the short term either.

"What do card operators think we make from fuel? It’s clear we are not very good, as an industry, at getting our message across."

Back to our ’exasperated’ retailer: "We are all too content to continue griping, yet readily accept the status quo. Independent retailers control the lion’s share of retail and commercial sites in the UK and have the critical mass to change their destiny. Ask yourself am I happy with this situation?"

Petrogas: we don’t take fuel cards

"We made the decision not to accept fuel cards in our Irish business a long time ago. We’d done a lot of work and found that the drivers using these cards added nothing to the business, in fact they were a deterrent. Truck drivers, for example, spend nothing in the shop, yet they block up the forecourt for half an hour, and put our regular customers off.
"When we first came to the UK we did accept the major fuel cards, but were outraged at the charges it was something like 2.5-3ppl. We decided not to accept fuel cards across our Applegreen network about four to five years ago, and it’s made no difference to the business at all. We certainly haven’t lost volume, in fact we have gained it. The same goes for our stores people are attracted by our offering, such as Subway, so even if they’re not buying fuel, they’re still eating!
"Obviously it depends on the type of business, and people have to make their own decisions about whether to accept the cards or not. It probably needs one of the big groups in the UK to take the lead, and stop the major fuel card operators holding a gun to everyone’s heads."

Fuel cards: key facts

BP/Shell Agency cards were the first cards (non magnetic-stripe paper- based scheme) now discontinued. In the early ’80s CH Jones started the concept of ’bunkering’ via its Keyfuels card. This offered ’commercially priced’ fuel plus a small handling fee on the road, typically 3-4ppl below average pump price at the time. Customers purchased fuel from a fuel supplier and had it delivered into the Keyfuels network, which consisted of a few truck stops, haulage yards and some dealer sites. The network has 1,800 sites, the majority being independently-owned retail sites. The dealer is paid a card commission for accepting the card typically 0.75ppl/0.80ppl.
In the ’80’s PHH launched the Allstar card, aimed at the company car driver/fleet sector, and currently accepted at more than 8,000 locations.
Keyfuels card acceptance is negotiated direct with the dealer, Allstar mainly with the fuel supplier.
Bunker is large volume but small margins as above; Allstar typically charge a fixed ppl or percentage commission direct to the fuel supplier who recovers this via the wholesale price of fuel. Some minor brands do not have a contract and retailers deal direct with Allstar.
Keyfuels and Allstar are both owned by FleetCor.
As traditional B2C volume waned due the rise of the supermarkets, fuel card volume has assumed greater importance and is now circa 20% of an average forecourt’s volume. UK fuel volume is around 45bn litres, of which around 20% 9bn litres is fuel cards.
There are four types of fuel cards: fleet, oil company branded cards, pay as you go (PAYG) bunker and bunker.
For further information, contact the PRA on 0207 580 9122.