Coverage of volatile gas prices is a bit overblown here in the United States. What is ultimately an issue of limited supply and insatiable demand becomes fodder for political finger-pointing: Republicans promise to cut the taxes on gas and Democrats blame speculators for driving the price of crude high on commodities markets. Of course, doing away with the taxes would be useless because we would no longer be able to pay for highways on which to burn the gas, and the commodity speculators wouldn’t be there were the demand not there in the first place. These culprits are nothing but distractions at best, and outright lies to the American electorate at worst.
But everyone wants a cheaper tank of gas, so we need a new culprit, don’t we? So why not interchange fees? and merchants, too! Both, sure, why not? This sort of nonsensical finger-pointing has come to the banking and payments world, and just like in politics, no one really has the answer.
Gas stations are raking it in?
The Electronic Payments Coalition released a report this week stating that gas retailers will pocket $1 billion a year from the Durbin amendment’s caps on debit interchange fees — because they have not lowered their prices to reflect the cap.
According to their research, Americans frequently pay with debit cards when buying gas — 36 percent overall, and therefore “overwhelmingly the most popular payment choice at the pump,” says the study. Among poorer households, the preference for debit is even higher.
The EPC, which represents banks, credit unions and payment card networks, argues that gas retailers ought to be providing a debit-specific discount on gas considering the savings associated with debit interchange reform. By visiting 21 stores in six different U.S. metro areas, immediately before and after the Durbin rule’s effective date, they concluded that gas retailers were not passing on the savings to consumers because 12 of these stores raised their prices and 4 kept them the same. The methodology is anything but precise.
More confusing is that GasBuddy.com indicates that nationwide, and in every single metro area surveyed by EPC, gas prices were on a downward trend in late 2011, when the Durbin rule went into effect. See the graph with both San Francisco, Atlanta, and national averages below, as well as crude oil’s price. All three regions saw prices drop during the fall of last year, after the Durbin amendment was implemented.
But note that Durbin’s implementation, October 1, 2011, coincided with a spike in crude oil prices.
The EPC recommends a 4-5 cent per gallon discount for debit customers, and the organization has even created a website to petition for such a thing.
Actually, banks are to blame
The National Association of Convenience and Fuel Retailing, not surprisingly, begged to differ, throwing scare quotes around “study” and questioning its methodology.
“When prices rise, retailers usually cut margins because they want to remain price competitive, even if their wholesale margin costs increased,” said Jeff Lenard, Vice President of Industry Advocacy at NACS, in prepared remarks. Retailers will even lose a couple of cents a gallon on gas to stay competitive, said Lenard. This seems to jive with with what our graph says.
NACS, incidentally, also issued a report earlier this month explaining how swipe fees are causing customers to pay more for gas than they might otherwise. The report shows that swipe fees have grown faster than gas prices over the last decade, and concludes that the banks are the ones not giving consumers a break on gas prices. The report isn’t long, but it manages to discuss the payments processing industry in great detail without once mentioning the name Durbin.
This isn’t exactly a new debate, however.
“This is an old issue…[one] that makes the Hatfields & McCoys look like the Osmonds,” said Tom Kloza, Chief Oil Analyst at Oil Price Information Service (OPIS).
Neither side is being exactly honest here, and American consumers are the actual losers. Could gas retailers offer a special debit discount? Sure, but that would be complicated to implement. Could Visa and MasterCard lower their interchange fees? Sure, but they’re an effective duopoly — why bother competing?
The only culprit here seems to be the incredibly convoluted and opaque payments industry, which both sides — banks and retailers — are willing to intentionally misunderstand to score cheap points against one another. The only losers are drivers. But here, too, we could use some perspective.
We pay less per gallon than virtually anyone in the developed world for gasoline. Over in Great Britain, what they call petrol will soon cost 150p per litre. Translated into American English, dollars, and standard measurements, the Brits pay nearly $11 a gallon right now. Of course, they use less gas than we do, and perhaps that’s the point.
Mad about gas prices? Find someone who can go back in time and make more dinosaurs, and then kill them, but in the land mass that will eventually become North America. Short of that, consider that driving a car is a choice, and living in places that requires lots of driving is also a choice — and probably a bad one, at that. Take a breath, feel the 80 degree spring weather that much of the U.S. is experiencing this week, and wonder if what lies ahead is worse than paying a few cents extra per gallon at the pump.