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Crazy World of Petro
By Tim Patterson, Alon Brands

Imagine for a moment that you are a business owner and the primary product you sell is a product that everyone needs, but is extremely competitive, driving the profit margin down to less than 4%. Now imagine that in order to sell that product, you have to accept some form of credit card, which typically takes 1.75% to 2.50% of your sale. Hypothetically, let's call that product "gas". Just to help you build your business case for selling that product, let's put a number to this product, and call that price $3.50 per unit, with a $0.12 profit margin.  Oh yes, and your profit margin is a fixed number, not a percentage of sales, so if your product price moves up or down, your margin stays the same.  Now, because the product is so competitive, add a daily swing in your profit of up to +/- $0.08. With your cost of payment, which does of course, change with the price of your product, running at an average of $0.07 per unit. Build me a business case for jumping into that business. Crazy right?  For any good businessman, that's a tough proposition.

Now, let's consider the payment risk aspects and mitigation.  For your business case, let's say that your primary method of sales is at an unattended kiosk. Your payment card company insists that the most secure method of authenticating a payment is a signature, verified by the expert handwriting analyst that of course you hired to work as a clerk at your store.  Your kiosk is unattended, so you have no way to ask for a signature there.  Unfortunate for you, as the card company rules say that they can charge back any transaction without a signature.  But wait! They have a deal for you – spend $20,000 to upgrade your kiosks and they will bring out a system to reduce the counterfeit fraud – which is the fraud that the banks suffer from!  There is a similar system in Europe that for years has been successfully reducing fraud.  However, in Europe, they also insisted on authenticating the cardholder with a Personal Identification Number (PIN) to insure that lost and stolen fraud was reduced (which is the fraud the merchants pay for), but the studies from the issuers found that really wasn’t necessary in the US.  So you, in your business case, you still have to assume that your current fraud remains, and may increase.  So why invest the $20,000?  Well, it’s for the good of the system, and if you don’t, the decision has been made that you’re then responsible for all theft at banks, system breaches or any other type of card theft.

This is the business case that every convenience store/gas station has to make today.  This is in an industry of just over 149,000 stores, 58% of which are single store operator/owners.  That’s down from over 200,000 stores just over 20 years ago.  It’s not “Big Oil” running the stores, it’s the small businessman, who struggles every day trying to keep up with payment card rules, extra expenses every year for PCI compliance, EPA compliance, tobacco compliance, alcohol compliance and trying to make a profit to keep their business running.  Last year, according to the National Association of Convenience Stores (NACS), these stores paid over $11 billion in credit card fees – more than the combined profit margin of the entire industry.  Now the card companies are telling them that they have to invest billions in upgrading for EMV, with no protection from the fraud that the stores pay for today.  In fact, with a signature based EMV card, the experience in other countries has been that many customers forget to retrieve their cards after a transaction, increasing the likelihood of an extreme spike in lost card fraud, especially when no cardholder verification is required at the pump for an EMV card.  You would have to be crazy to want to get into this business.  What’s even crazier is that we appear to be heading towards driving these small store owners out of business.  What does that do to the economy?  The real craziness is that this is the business model that convenience store owners have to live with every day.