Taking Control of Credit Card Costs

by John MacKenna

Fuel companies can save a lot on processing fees when customers pay their bills with the right credit cards, and payment processor Avatas is helping companies move to a more profitable credit card mix.

MasterCard and Discover offer lower processing fees for fuel companies than Visa and American Express do, thanks to work done on behalf of the industry by Avatas founders Larry and Tracy Richmond. The Richmonds worked with MasterCard and Discover to recategorize fuel companies and secure better rates. They had also encouraged Visa to provide the same advantage, but Visa declined. “Visa is a much bigger animal,” said Avatas National Sales Manager Collin Sullivan. “They did not feel they needed to make this push.”

To take advantage of lower processing fees, Avatas is helping companies proactively improve their card mix. “We’ll take a deep dive into your credit card usage and the kinds of cards your customers are using and see if you can convert customers using Visa to payment by MasterCard or Discover,” Sullivan explained. “If they use those cards, it will cost you less per gallon. Our goal at the end of the day is to shift payer behavior so our client gets the lowest rate.”

Avatas Marketing Manager Brad Wand said that higher processing fees can add persistently higher costs for fuel companies, because the fees repeat with each payment from that customer. If a fuel company is properly set up in the utility category, the charge from MasterCard or Discover can be a flat fee of 65 cents or 75 cents per transaction. But if the customers choose the wrong card or the bank categorizes the company like a pizza shop or a movie theater, the fee could be 1.43 percent on the entire payment, which amounts to nearly $6 on a $400 customer charge.

Move the Customer Over
Avatas will look at a client’s credit card records and determine what percentage of payments are coming in under each card type. “When you are dealing with large average tickets and high volumes, it is alarming how much a difference in payment processing fees can cost a company,” Sullivan said.  “If we see the company is getting 60 percent of its payments through Visa and 40 percent with MasterCard, we try to come up with different ways to improve the mix.”

Avatas and MasterCard have several promotions they run with fuel dealers. In one of the campaigns, companies offer a chance to win $60,000 for any customer who switches their account to MasterCard. There is no administrative burden on the fuel dealer, as MasterCard manages the promotions. Avatas helps companies promote their campaigns with customized bill stuffers, email templates and promotional materials that are co-branded for the fuel company and MasterCard. The fuel company supplies its logo, and Avatas produces the materials.

Avatas also works with clients to develop hands-on strategies for moving customers to the cards with the lower processing fees. For example, Avatas can help train customer service teams to convert payments to the preferred cards. CSRs learn to proactively prompt customers to use a MasterCard or Discover when they are making a payment by phone, and the company can run a contest that rewards the representative who gains the most card conversions.

The Savings Keep Coming
Switching the customer’s card is an effective long-term cost control measure when a company uses its back-office software to retain the customer’s credit card information, according to Sullivan. The payment processor tokenizes the card information for security purposes, so there is no risk of card theft, and the number is retained for subsequent payments indefinitely. “Once you convert a customer to MasterCard, you will hit that card on every billing cycle, so the job is done after you first get the MasterCard on file,” he said.

To illustrate the potential benefits of moving payments to MasterCard and Discover, Avatas looked closely at two comparably sized client companies that took different approaches to managing their customers’ credit card choices. Both companies were taking in about $2 million per year in credit card payments, with approximately 60 percent of customers using Visa or American Express and 40 percent using MasterCard or Discover.

One of the companies preferred not to bother its customers about their credit cards, while the other one elected to work with Avatas over a six-month period to reach out and ask customers to switch using customized bill stuffers and other communications tools.

The company that pursued the credit card conversions also trained CSRs to solicit credit card conversions and hosted a pizza party in honor of the representative with the most conversions. The results were significant: After just a few months, the percentage of customers paying with MasterCard and Discover increased to 45 percent, and the company had reduced processing fees by more than $3,000.

Sullivan believes that fuel companies can achieve an even larger shift to the preferred cards over time if they continue to work at it. “It all depends on where you are located,” he said. “There are a finite number of MasterCards out there, and they are most prevalent in the Northeast.”

As companies work to move customers to MasterCard or Discover, they can also promote the use of debit cards, which have lower processing fees than credit cards, according to Sullivan. “The best option is to accept debit cards,” Sullivan said.

It is hard to say exactly what the difference in processing fees is between Visa and MasterCard, because there are many variables that affect rates. For example, cards that provide cash-back rewards to customers typically have higher processing fees.

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