[faustus77]

Hi everybody
I am also surprised about the waiver(I have HDFC card and have filled up using in all the northern states)
I think they would be paying the bunk without any deduction as the 2.5% would be more than the dealers commision on fuel.In a situation where there is no marketing effort is required it makes me wonder.Also there is no loyalty to the petrol bunk.
Any guesses why would the bank extend the credit period?
Regards

[born_free]

I never used a credit card in my life, always used debit cards and cash.
Now since I got car, I was shocked to see petrol surcharge of 50Rs on my debit card, though due to my ignorance.

So I started using cash to fill, and it was fine until you were filling for petrol for predetermined amount.
Once I started filling full tank, I ran into currency change problems, and at times I was not carrying enough money when tank was running low.

So I applied for the HDFC signature card which gives waiver at all pumps, and has been using it for my all expenses now.

[funkyp]

To tackle the fuel surcharge problem you can also opt for the standard chartered super value titanium credit card. Advantage? You get a 5% cash back on fuel(2.5% surcharge refund + 2.5% cash back), telephone bills and utility bills agnostic of the pump/service provider.

Clarification: I work for standard chartered. The intention is only to tell about a card which could save you money on fuel.

[binand]

Originally Posted by null

I still do not understand how can they extend credit for 30-50 days without any interest or annual fees.

Originally Posted by drsingh

The card company earns 2.5 percent from all purchases on a credit card!

Originally Posted by faustus77

I think they would be paying the bunk without any deduction as the 2.5% would be more than the dealers commision on fuel.

OK, I see that this question perplexes many. As someone who has some experience in this industry, let me try to clarify.

Each payment card (umbrella term for a lot of products like credit cards, debit cards, charge cards, prepaid cards etc.) transaction involves (at least) five parties:

1. The Merchant, who is actually selling the product (the petrol pump),
2. The Acquiring Bank or Acquirer, who is providing payment card services to the Merchant,
3. The Issuing Bank or Issuer who actually issued the payment card,
4. The Cardholder to whom the Issuer gave the card to (you or me), and finally,
5. The Card Brand, of which the best known are Visa and MasterCard, but there are also a number of lesser-known ones.

These five parties interact in a very complex fashion to process each transaction. The thing to remember is that for every Rs. 100 spent by the Cardholder on his card, the Merchant receives only about Rs. 97 (the exact number I do not recall now, but for the sake of this discussion let us assume 97) - the remaining Rs. 3 is divided among the Issuer, the Acquirer and the Brand. This Rs. 3 becomes the revenue model for these three entities.

So at least this point becomes clear: it is a no-brainer for the Issuer to encourage the cardholder to use its own PoS device (thereby becoming the Acquirer as well for that particular transaction), as it cuts one party out of the claimants for the Rs. 3 pie. Hence all the promotional schemes that try to do this.

The question that perplexes most people is WHY the Merchant should participate in this scheme. Apart from the obvious (and weak) argument that more people with indulge in impulse buying - buying for more than the size of their wallet allows at that particular moment - thereby increasing their revenues, accepting card transactions have these cost reductions as well:

1. Cost savings in storing cash (many times overnight)
2. Cost savings in accounting/reconciling cash transactions (card transactions have electronic and fully automated record keeping)
3. Cost savings in reduced human errors or intentional fraud (less cash accepted than transaction value, or more change given)
4. Cost savings by reducing theft (if there is no cash in the till, there is no theft)
5. Cost savings in transporting cash (no need for armoured vehicles or armed guards to transfer the day's collection to the bank)
6. Perhaps others too

The net effect of these costs savings to the merchant is valued at a lot more than Rs. 3.

The Merchant's only sources of extra expense are:

1. The costs of dealing with fraud (stolen cards etc.). If you end up receiving a lot of chargebacks, then you are liable to get fined some big amounts.
2. The costs of dealing with card info leakage from his establishment. Again, if such leakage is proven to be due to your own negligence, you get fined heavily.
3. The cost of delayed payments. Cash payments are spot payments, card payments are realized only a day or two later. This increases the Merchant's working capital requirements.
4. Lastly, and related to the above, the costs of complying with the PCI-DSS standard that the industry imposes upon Merchants. Read more about it at www.pcisecuritystandards.org.

Some merchants think that these additional costs do not compare favourably with the savings they make elsewhere, so they refuse to take credit cards.

The 2.95% interest the banks charge every month is only to discourage delinquency (due to the insecured nature of the debt). Their financial models cover the cost of credit for the first 30 or whatever days within their share of the Rs. 3 pie.

[drsingh]

Originally Posted by binand

OK, I see that this question perplexes many. As someone who has some experience in this industry, let me try to clarify.

Thanks for the detailed information .... so retailers save on cash management. But I still think 3 percent is quite an amount that it gets factored into retail prices!

[null]

Originally Posted by binand

... Each payment card (umbrella term for a lot of products like credit cards, debit cards, charge cards, prepaid cards etc.) transaction involves (at least) five parties
.....

The 2.95% interest the banks charge every month is only to discourage delinquency (due to the insecured nature of the debt). Their financial models cover the cost of credit for the first 30 or whatever days within their share of the Rs. 3 pie.

The question is about fuel recharges and not the other purchases like departmental stores or apparel or food. The reason why you have fuel surcharge is because the oil companies don't want to foot the 2.5% charge imposed by the card companies as transaction fees.

So in general, for regular shops, it is this 2.5% charge which goes to the companies involved. So, 2.5rs / 100 for 30-50 days credit across 4 parties involved. The shopkeeper usually gets paid every month, within a week or two after submission.. so effectively a 45 days turnaround cycle for his money. 2.5% is what he bears for the card & another 2-3% because of the delay in the payment. Effectively the store keeper has to bear 3-5% of his turnover to provide credit card facility to his shoppers. Why would he do this? Just one practical reason (of what you have listed) - more business/turnover. So, does the shop keeper make any direct money from credit card sales? No (other than higher turn over & higher profit at a 5% lower rate though).

Coming back to credit card companies, they pay back the fuel charge & bear the surcharge themselves. How do they make up for this extra expense on their side? The amount from that 2.5% will go towards their administrative expenses mostly. So, what is their major source of income? the defaulters who end up paying that hefty interests month after month.

Anyways, bottom line message for a card user, use the credit card only if you are sure that you can pay up on time each time & never default. And you never get tempted to overspend i.e., spend over your repayment capability.

[srikanthns]

Originally Posted by funkyp

To tackle the fuel surcharge problem you can also opt for the standard chartered super value titanium credit card. Advantage? You get a 5% cash back on fuel(2.5% surcharge refund + 2.5% cash back), telephone bills and utility bills agnostic of the pump/service provider.

Clarification: I work for standard chartered. The intention is only to tell about a card which could save you money on fuel.

The bank does not encourage applications from even reasonably smaller cities , like my city Trivandrum, which pisses me off

[binand]

Originally Posted by null

So in general...

I wrote the original post as a primer to how credit cards work so did not cover all operational aspects of it; but still - I feel you make some factual mistakes (for example, nowadays I believe merchants get paid NBD - ie, "Next Business Day"). I think a detailed discussion on how cards work would be majorly off-topic on this thread, but I agree that it is the OMCs that take this "2.5% or Rs. 10 whichever is higher". Where I disagree is that the banks cannot afford to lose their share of this 2.5%.

The government also has a stake in promoting credit card transactions - it increases accountability of transactions and reduces tax evasion cases.

[rkg]

Originally Posted by binand

The government also has a stake in promoting credit card transactions - it increases accountability of transactions and reduces tax evasion cases.

In addition help in controlling fake currency also. That is why debit card transactions should have a flat fee like Rs 10-20/ transaction rather than a 2.5%.

RBI is trying to get the banks to reduce the debit card fee.

Further the 2.5% fee is not uniform. it will get reduced if the value of transactions at merchant site is more( like in big bazzar or malls)

[faustus77]

Hi everybody
One can understand about stores or other shopping centers taking a hit of 2.5% as there margin absorbs this.There can be a lot of impulsive buying no doubt about that.It is a tendency when you get credit.
What my point is how does the bank make profit in petrol transactions.No way is the petrol dealer going to take a hit of 2.5% so it is the banks baby.
Incidentally in the last couple of years I used HDFC only to fill petrol so they couldnt be getting additional business which would compensate for petrol charges.( Though in the last couple of months have used quite a bit)
Regards

[born_free]

Originally Posted by rkg

In addition help in controlling fake currency also. That is why debit card transactions should have a flat fee like Rs 10-20/ transaction rather than a 2.5%.

The following article does a good job of illustrating the point you made.

It also explains how credit card work, and who are the partied involved in a credit card transaction.

Ajay Shah's blog: New moves in regulation of debit card payments

[gopinathann]

I am using Standard chartered card for the past 4 years and getting 2.5% fuel cash back and 5% cash back on telecom bills, maximum waiver allowed is Rs 1000 per month

[born_free]

Following article points to fuel surcharge charges scam involving ICICI bank and HP fuel pumps.

It says that HP forced its dealers to install only ICICI swiping machine, so that only ICICI credit card customer would get waiver on surcharge.

I have no experience of HP petrol pumps as I fill at OIL pump, others can share their experiences.

Surcharge scam in petrol pumps busted - The Times of India

Quoting from article

The Competition Appellate Tribunal has now come to the rescue of consumers by quashing the agreement between Hindustan Petroleum and ICICI Bank, terming it as restrictive. The tribunal bench headed by Justice V S Sirpurkar also imposed a cost of Rs 2 lakh on the oil PSU and the private bank for entering into such an "unfair" agreement.

[S_U_N]

^ Very strange.
On my recent trip, I filled up at HPCL bunk on a highway. I had asked if they have ICICI machine and they said yes. Plus my card is an HPCL ICICI gold credit card.
Now I realized that the surcharge has not been waived off.
I wrote to ICICI and also looked at the charge slip. They had actually used Axis bank gateway as per the charge slip.

Now, this is the response from ICICI.

-----------------------------------------------------------------------------
We understand your concern.

We wish to inform you that the excess amount billed in your credit card is towards fuel surcharge.

We inform you that the fuel surcharge waiver on an ICICI Bank HPCL Credit Card is applicable on a fuel purchase up to Rs. 4,000.00 per day, at selected HPCL petrol pumps. More importantly, the waiver is applicable only if the card has been swiped on an ICICI Bank EDC machine.

If the fuel purchase on a given day exceeds Rs. 4,000.00, the surcharge waiver is not be applicable on the excess amount swiped (over and above Rs. 4,000.00)

We also want to inform you that a fuel surcharge of 2.5% or Rs. 10.00 which ever is higher is charged on the transaction amount, if:
You purchase fuel on any other outlet other than HPCL outlet.
You purchase fuel for more than Rs. 4,000.00 on a day, even at HPCL outlet.
Your card is swiped on Non ICICI Bank EDC machine, even at HPCL outlet.
The transaction which you have referred to was done at KHED TALUKA SAHAKARI K, PUNE outlet, and the card was swiped on Non ICICI EDC machine.

Please note that Service Tax of 12.36% will be charged on the surcharge if the transaction is done from a Non ICICI Bank EDC machine.

The surcharge and Service Tax are charged by the merchant bank, hence, we would be unable to reverse these charges.

We would suggest you to swipe your ICICI Bank HPCL Card on a ICICI Bank EDC machine at HPCL outlet to avoid further charges.

Please contact us if you need any further assistance. We will be happy to assist you.

Sincerely,

-------------------------------------------------------------------------


Edit: Saw this very interesting comparison:
http://www.ratekhoj.com/credit-cards...edit-cards.php

Apparently, my HDFC World MC card has waiver across all petrol bunks.

[born_free]

Originally Posted by S_U_N

Edit: Saw this very interesting comparison:
Zero Fuel Surcharge Credit Cards

Apparently, my HDFC World MC card has waiver across all petrol bunks.

HDFC have waiver across all pumps in cards that offer the same unlike ICICI

ICICI's tie up with HP is found to be scam as mentioned in post above your's