Navigating interchange, the pricing matrix behind credit card pricing, is complex enough, writes Fuel Oil News contributor Larry Richmond, but now that complexity has been compounded by unexpected program changes and price increases from Visa Credit. It’s not good news for the heating fuels industry, Richmond says:
Simply put, your Visa credit processing rates increased 25% – 50% overnight. The $400 transaction that used to cost you six dollars now costs you ten dollars. Factor in the average number of transactions per customer per year per company, and every fuel dealer in the country could see thousands upon thousands of dollars zapped from their bottom lines. It’s imperative to take action and it behooves you to do so today.
Fuel marketers are adept at adapting to changing customer demographics and demands. It is essential to utilize financial technology (“fintech”) that is customized to the specific needs and accounting functions of fuel dealers. The tools that were best in class several years ago are in many ways obsolete today. The combination of intelligent fintech and processing expertise are essential tools in the ever-changing world of credit card processing.
The Visa Credit rate increases that went into effect back in mid April are detrimental to the industry. For added perspective, consider the differences between the multi-generational heating fuels industry and the conglomerate utility companies that trade on the New York Stock Exchange. The fuel industry focuses on individual customers and cares about, and responds to, those immediate needs. This is where Big Business drops the ball. The priorities of publicly traded companies are the investors and shareholders, and this in turn often forces those companies to look at daily operations and overall goals differently.
From a competitive vantage point, there is no question that Big Business can utilize its resources to help tip the scales in its favor and win market share.
The heating fuels industry, made up of thousands of family run businesses, needs to think creatively to compete in an environment where the odds are stacked against it.
When it comes to electronic payments, the major brands (Visa, MasterCard, Discover and American Express) are publicly traded companies that operate around the globe. They have a lot to prove as they trade in public markets where good news and big profits are constantly on display for stockholders and investors.
Again, in April the payment landscape drastically changed for the worse for heating fuels dealers. After more than 15 years, they are no longer eligible to participate in a reduced Visa Credit interchange category, resulting in a significant increase in fees the likes of which this industry has never seen. To compound the issue, in conjunction with the elimination of the discounted program for fuel dealers, Visa simultaneously released its largest general rate increase in the last 25-plus years, magnifying the processing expenses associated with accepting Visa credit. And lastly, the icing on the cake, consumer Visa credit cards represent the largest pool of card types used by your customers.
The good news is that you don’t have to take it on the chin.
Consider the following: For every 100 customers you convert from a Visa credit to MasterCard, Discover, Visa debit or Echeck/ACH, you will save $4,000 a year, year-after-year. Converting 2,500 customers equates to annual savings of $100,000; 5,000 customer conversions yields annual savings of $200,000.
This is not the first time the fuel industry has had to respond with a different approach when it comes to the payments industry. It is essential that fuel dealers continuously push the envelope forward, challenging any and all obstacles that get in the way of diminishing the good work and hard earned profits you’ve rightly earned. The time has come to creatively outmaneuver these burdensome expenses while embracing the opportunity to engage with customers and build loyalty, stickiness and the value-add that differentiates you from your competition.
It is no easy task, but I can assure you if handled properly, the byproducts of executing a well thought out plan will yield great dividends to your organizations and the entire industry. Let us once again come together and rise above the tsunami of big business.
You are not powerless. You have options and if you align with the right consultative expert, it’s actually a very exciting time. Game on, it’s showtime!
Larry Richmond, a specialist in cash flow automation, is president of Richmond Financial Services. He can be reached at 617-843-5700 ext. 200 and at firstname.lastname@example.org.