@galileogirl – it actually goes deeper than that. Forever gas was at or under a buck a gallon, so a percentage discount was by and large the same, give or take a couple pennies as a per gallon discount. Credit card companies charge say 30 cents plus 3% of the transaction. Well, when gas was $1 a gallon and somone bought 15 gallons, it would cost the gas station 75 cents, or about 5 cents a gallon to make that sale. Since they mark up gas about 8 cents a gallon, that still represents a 3 cent per gallon, or in this case a 3% profit margin…not bad. Cash is better, but this is why often they’d give a 3 cent a gallon discount, it would save them the 30 cent surcharge and they’d make 2 more cents a gallon with cash even after a 3 cent a gallon discount.
But look at when gas was $4 a gallon. First of all, your average sale probably goes down from 15 to 12 gallons because people don’t always fill up. Now, you’ve got to pay 30 cents, plus 3% of the $48 total, so that’s $1.74. You’ve now made $3.855 per gallon. But that gas cost you $3.92 a gallon, you’ve lost 6.5 cents per gallon (insted of making 5 cents). Now some gas cards can offer as much as 5% cash back on gas, so effectively you might pay $3.80 a galon, so a 3 cent a gallon or even 5 cent a gallon discount for cash which would bring your price to $3.95 and still give you a 3 cent a gallon profit, can’t compete with a 20 cent a gallon discount, because you bear all but 5½ cents a gallon of that discount and as such LOSE money selling gas.
This is why your smaller family run gas stations have all but disappeared, and your bigger gas stations all sell food at outrageous prices…a buck for a candy bar or 4 bucks for a gallon of milk, when you can get ½ off that at a grocery store…but overall it’s just a buck or two extra and it’s worth it for you to not have to make the extra trip. They can recoup what they lose on credit card gas sales. And the other thing they all do now is have their own banks with special negotiated rates to get you to sign up for their card, because it’s going to cost them LESS per transaction if you use THEIR card than it is if you use your bank issued card, even AFTER the outrageous teaser promotions they give you (30 cents off a gallon, free $50 gift card, etc.). And of course, with competition, they don’t dare charge one penny more than they have to because they will be undercut, and people will go to a different station to save 3 cents a gallon. But they can’t undercut each other too much because the government establishes minimum profit margins for gas…many a local station in my area was able to eek out a profit by only accepting cash and charging a price lower than other stations, but was then fined a hefty sum and either went out of business or became the most expensive station in town.