We were reminded of this fact when Cumberland Farms, a chain of convenience stores and gas stations in the Northeast, announced that customers could get 10 cents a gallon off gas when they used the retailer's new app, SmartPay. Instead of swiping a card or paying cash inside, customers with the app can just punch in the pump number to activate it and then fill up as usual. The discount will be given automatically, and the money will be deducted from the customer's checking or PayPal account. (The 10-cent discount is only for those with a linked checking account; those who link a PayPal account get 5 cents off.)
That last bit is important, and it's why the retailer is willing to give up 10 cents a gallon. Because the app is linked to your checking account or PayPal account, Cumberland Farms isn't processing a debit card or credit card. And that means it doesn't have to pay any swipe fees on the transaction.
And swipe fees can be painful for a gas station owner. The Durbin Amendment capped debit card swipe fees at 21 cents per transaction -- not too bad if a customer is filling up a big tank, but a margin-killer on smaller transactions. And since credit card fees are still calculated as a percentage of the sale, they can be a lot worse: If the bank is charging a gas station 3 percent per swipe, then it's giving up around 11 cents a gallon at current prices.
So it's clear why Cumberland Farms would rather offer 10 cents off with its app. Even if the swipe fees wind up being a little less than 10 cents a gallon, the retailer would prefer to offer that dime to customers as a promotional discount than hand money over to the bank.
But offering a discount for forgoing the use of plastic is nothing new. In some ways the SmartPay app is just a high-tech version of another gas station tradition: the cash discount.
It's long been common to see separate prices posted at gas stations for cash transactions, especially at small chains or local stations. And such variable pricing could get more widespread now that merchants are allowed to charge extra fees to customers using their credit cards.
None of this is to say that credit cards are always the pricier option. Swipe fees cut both ways: Just as merchants are willing to offer discounts to customers who use cash, card issuers are willing to offer rewards to customers who use their cards.
While the standard cash-back structure for rewards cards is 1 percent, some cards offer bonuses when used at gas stations.
The Chase Freedom card, for instance, is currently offering 5 percent back on gas station transactions until March 31; at current prices, that means you're effectively getting close to a 20-cents-a-gallon discount. While the cash-back percentage reverts to 1 percent at the end of the quarter, gas stations will return as a bonus category from July to September.
Gerri Detweiler, director of consumer education at Credit.com, suggests a few other cards that offer bonus rewards at the pump year-round. The True Earnings Card from Costco and American Express offers 3 percent cash back (or about 11 cents a gallon) at gas stations; it has no annual fee, but you have to be a Costco member to sign up. Another American Express card, the Blue Cash Preferred, offers the same 3 percent at gas stations plus 6 percent at supermarkets; while it has a $75 annual fee, you can earn a $150 in bonus cash for spending $1,000 on the card in the first three months, which means that, for savvy users, it's effectively fee-free for the first two years.
Finally, there's one card that offers a whopping 5 reward points per gas dollar year-round: the PenFed Platinum card, which Credit.com named the best gas rebate card last year. While it costs $15 to join the credit union, there's no annual fee. And while you can't actually get cash back, you can redeem your points directly for merchandise or save up to get your rewards on a prepaid debit card.
Swipe fees are big business, and gas stations are as eager to avoid them as the banks are to pocket them. Take advantage of that fact, and you can save some real money at the pump.
[CORRECTION: An earlier version of this article stated that customers with a linked checking account or PayPal account would receive a 10-cent discount. It was updated at 2 p.m. EST to reflect the fact that customers using PayPal only receive 5 cents off per gallon.]
Matt Brownell is the consumer and retail reporter for DailyFinance. You can reach him at Matt.Brownell@teamaol.com, and follow him on Twitter at @Brownellorama.