Every retailer reading Jac Roper’s page in last month’s issue should have been horrified by the prospect of a major electronic funds transfer (EFT) processor changing their debit card handling fees from a ’per transaction’ cost to a percentage of turnover. That’s because this was an attack on one of the few payment options available to fuel retailers which wasn’t subject to the punitive ’turnover tax’ based on pump prices levied by the card companies, or the high costs of cash-handling charged by the High Street banks.
As we’ve pointed out many times on these pages, the card payment systems as they’ve been applied to fuel retailers for many years are fundamentally weighted against this industry as it operates today. Take the fleet or fuel cards. You’ll be waiting for between seven and 21 days to receive payment for your sales. And, as many retailers have found in recent months, even then you might not receive a full statement against which to check your EFT polling reports. So the deal is that you pay for the fuel within three to five days of it going into your tank, but you’re likely to have to wait between a week and three weeks from the sale date before you see your money. And this in an age when most bank customers can make same-day funds transfers through their online bank accounts. Surely it’s time for the fleet/fuel card operators to get into the 21st century and make their profits and obtain their cashflow from their customers, not their suppliers?
With a bog-standard consumer credit card, because they charge their merchant fees on a straight percentage of the retail transaction value, you suffer an increase in your costs every time the pump price rises. Even if the rate is ’only’ at 1% (rather than the 1.75% or 2% for some of the fancier ’premium’ cards) when pump prices went from 134.9 to 142.9ppl over the winter, your credit card costs rose by £8 for every 100 litres that you sold on those cards. It’s hard to imagine how the card companies can justify that windfall extra profit that they take from you. Have they incurred any additional cost in processing the transactions? It’s hardly likely. And should you be tempted to feel the slightest sympathy for the card companies, just remind yourself that while the Bank of England Base Lending Rate has been at 0.5% for over three years, most of the card companies are still charging their customers anywhere between 16% and 35% APR on purchases.
Of course, your gross fuel margin in terms of pence per litre doesn’t automatically change with the pump price, although perhaps this industry should follow the rest of ’retail’ and work to gross profit percentages on fuel rather than fixed unit margins but that’s a subject for another day.
Readers of a certain age, who’ve been in the fuel business for many years, may remember the days when every garage seemed to offer local ’credit’ accounts, particularly to their business customers. They might also remember the advice that their accountants and business advisors used to give them at that time. You should charge your customers a premium not offer them a discount for the luxury of not having to pay cash every time they fill up. And you should have at least a few weeks’ worth of money up front from them to reduce the risk should they go bust. It was sound advice at the time, and thankfully we don’t see many retailers consciously trying to offer ’credit’ (free or otherwise) to their customers today. Simultaneously, they were being encouraged by their oil companies to persuade those unwanted local credit customers to move onto the oil company’s branded fuel card offering. Again it wasn’t unreasonable advice since it took away the very real risk of customer debts going bad.
And, with the advent of EFT technology, it cut down on delays at the till and some of the back-office administration associated with credit accounts.
The promise was that by moving to the cash-less, paper-less world of plastic cards and EFTs, you could eliminate risk and it would be far easier, cheaper and quicker to get your money.
It seemed reasonable maybe because there were more providers competing for your business. But somewhere in the intervening 25 years between then and now, things have gone awry.
Petrol retailers are again waiting too long to get their money, being charged too much for the privilege, and have been left with few alternative ways of operating.
Until now the one payment method that didn’t seem to unduly penalise petrol retailers was the debit card. Payment processing times haven’t quite kept up with advances in technology it still takes the same three working days that it did 10 or even 20 years ago but at least the cost of each transaction has been the same, regardless of the retail value.
If that is to change to a percentage method, then retailers will be left with yet another cost over which they have no control, and very little choice in the marketplace.
That question of ’choice’ is perhaps one that should attract some attention from the OFT and/or the EU Competition authorities. Strip away the plethora of ’brand names’ and look at how many companies actually provide the fuel/fleet cards? As for consumer credit cards, yes there are two minor players in the UK, but everything else falls under the umbrella of the two ’giants’ of the plastic payment world. It’s not a lot better in terms of debit cards or, for that matter, High Street banks.
Events since 2007 have resulted in a wave of mergers and bail-outs that have reduced competition.
If the OFT can’t or won’t get interested, then fuel retailers collectively will have to look at what they can do to wean the industry off its addiction to a very expensive habit, and find alternative payment systems more attuned to their particular needs.