Quick Summary
There are a few main reasons why gas stations offer a cash discount on fuel purchases:
- Credit card processing fees – Gas stations have to pay transaction fees to credit card companies every time a credit card is used. These fees can range from 1-3% of the total sale amount. Offering a cash discount allows stations to avoid the credit card fees.
- Incentivize cash purchases – Gas stations want to encourage more cash transactions because it improves their cash flow and reduces their expenses related to credit card processing. The cash discount provides an incentive for customers to pay with cash.
- Competitive pricing – Stations in highly competitive markets may offer a cash discount to attract customers away from other stations. Even a difference of 5-10 cents per gallon can make a difference.
So in short, the cash discount allows gas stations to reduce their operating costs while remaining price competitive. The customer benefits from lower prices when paying cash.
Credit Card Processing Fees
One of the biggest reasons gas stations offer lower prices for cash payments is to avoid credit card processing fees. Whenever a credit card transaction takes place, the merchant has to pay a percentage fee to the credit card network and processor.
For gas stations, these credit card fees can range from 1-3% of the total transaction amount. That means on a $40 fuel purchase using a credit card, the gas station may have to pay 50 cents or more in just credit card fees. These fees add up quickly with the high volume of transactions at gas stations.
By offering a cash price that is 5-10 cents lower per gallon, gas stations can incentivize more customers to use cash and reduce their overall credit card processing costs. Even a difference of 5 cents per gallon on a 15 gallon fill up would save 75 cents in credit card fees.
Typical credit card fees for gas stations
| Card Type | Typical Fee % |
|---|---|
| Visa | 1.51% – 2.9% |
| Mastercard | 1.55% – 2.95% |
| American Express | 2.5% – 3.5% |
| Discover | 1.56% – 2.3% |
As you can see, the fees for premium cards like American Express are higher. Gas stations have to weigh the cost of accepting premium cards versus the potential for losing customers who want to use those card types.
But overall, credit card fees represent a major overhead cost for gas stations. Even a small cash discount can lead to major savings in credit card processing expenses.
Incentivize Cash Purchases
In addition to avoiding credit card fees, gas stations also want to incentivize cash transactions for other reasons:
- Improved cash flow – Cash payments mean the gas station gets the full payment immediately. With credit cards, there can be a delay before the funds are received.
- Less credit card fraud – Cash payments essentially eliminate risks like stolen cards or fraudulent transactions.
- Reduce accounting work – Credit card reconciliations and bookkeeping require more time and labor versus simply handling cash.
By enticing more customers to use cash, gas stations streamline their operations and reduce overhead expenses in multiple ways. The cash price discount provides a financial incentive that benefits both the business and cash-paying customers.
Industry surveys have shown the cash discounts do in fact encourage more cash transactions:
- In a recent study, 45% of consumers said they would likely switch to paying cash if gas stations offered a 5 cents/gallon discount.
- 76% said they would pay with cash if the discount was 10 cents/gallon.
So while the discount amounts are small, they can dramatically shift customer payment behavior in favor of cash. And the collective savings for the gas station from reduced credit card fees and other cash-related benefits add up over time.
Competitive Gas Prices
In highly competitive gasoline markets, another factor comes into play – gas stations leverage cash discounts to attract customers away from rival stations.
By advertising a “cash price” that is 5-10 cents lower per gallon than the credit price, gas stations can lure in price-conscious customers. Motorists are very aware of even small differences in gas prices between stations. A nickel or dime per gallon seems minimal, but adds up quickly for a full tank of gas.
Even major brand gas stations run promotions like:
- “Pay Cash and Save 10 cents per gallon!”
- “5 cents off if you pay inside with cash”
They know customers are always looking for the best gas prices. Cash discounts allow stations to keep their overall prices competitive while still having a credit price that covers their full costs.
Some independent gas stations rely heavily on cash discounts to help them compete. They attract cash customers away from the major brands by undercutting prices by 5-15 cents in some cases. For motorists who get gas regularly and pay cash, the savings can be substantial.
Average National Gas Prices
| Month | Average Price Per Gallon |
|---|---|
| January | $3.28 |
| February | $3.49 |
| March | $4.06 |
| April | $4.05 |
| May | $4.37 |
| June | $4.66 |
| July | $4.16 |
| August | $3.71 |
| September | $3.74 |
| October | $3.87 |
With gas prices fluctuating month to month, saving 10 cents/gallon with cash can provide significant savings.
Is it Legal to Offer Cash Discounts?
Some people have questioned whether cash discounts at gas stations are legal. Isn’t offering one price for credit and another for cash considered discriminatory pricing?
The short answer is no – cash discounts are perfectly legal, as long as they are properly disclosed.
The relevant law is the Cash Discount Act, passed in 1981. It allows merchants to offer differential prices for cash versus credit, as long as:
- The discount is clearly posted for customers
- Both the cash price and credit price are displayed
- No minimum purchase is required for the cash price
As long as the price differences are clearly communicated at the pump and follow the terms above, gas stations are fully within their legal rights to provide cash discounts.
Some key considerations on cash discounts and legal compliance:
- Discounts must be offered unconditionally – A minimum fuel purchase cannot be required to get the cash price.
- No specific payment types can be excluded – Debit cards, prepaid cards, mobile payments, etc. should be treated equal to credit cards if not paying cash.
- Cash paying customers cannot be given priority – Pumps and lines should not favor cash customers over credit customers.
There have been cases of stations violating discount laws – for example requiring a fill up of 8 gallons or more to get the cash price. As long as stations avoid these kinds of conditional discounts, they are following state and federal regulations.
The Future of Gas Station Cash Discounts
Looking ahead, will increasing use of electronic payments and mobile wallets diminish the need for gas station cash discounts over time?
Perhaps, but for now cash remains very relevant for gas purchases:
- 27% of U.S. consumers still prefer to pay cash at gas stations.
- Paying cash inside rather than at the pump can allow customers to avoid pay-at-the-pump fees of up to 35 cents in some states.
- Cash is easy to use for travelers who may not have their credit or debit card.
Certain customer demographics like seniors are also more likely to use cash. As long as a material percentage of gas customers continue to use cash, the discounts are likely to persist.
Gas stations may slowly phase out cash discounts as more payment processing migrates to mobile platforms. But for now, the 10 cent difference remains at many pumps across the U.S.
Conclusion
The ability to save 5-10 cents per gallon by paying cash gives consumers an easy way to save on one of their largest regular expenses. And gas stations benefit by reducing their operating costs through lower credit card fees and more cash transactions.
Offering a cash discount is perfectly legal for gas stations as long as the pricing is clearly disclosed to customers. While cashless payments keep rising, cash remains relevant for fuel purchases.
So paying with paper money may sometimes feel old-fashioned, but can pay off at the pumps. Gas stations are unlikely to remove this popular discount anytime soon. So if you’re looking to maximize savings, be sure to check the gas prices on your next fill up. Having some cash on hand could unlock the cheapest fuel price available.