SA’s latest fuel hikes benefit financial service firms like Visa and Mastercard, says Fuel Retailers Association
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SOUTH Africa’s recent massive fuel hike that sees motorists paying close to R20 per litre at the petrol pump from this month meant that financial service companies like Mastercard and Visa will simply get increased returns on their profits due to the linked expenses as a percentage of pump price, according to fuel retailers.
The Fuel Retailers Association (FRA) chief executive Reggie Sibiya said on Friday that the payment platforms would gain more profits without breaking any sweat, but by extracting more from the fuel margin allocation.
“The SA Reserve Bank (Sarb) has just announced their intention not to review these payment cards interchange fees knowing very well how fuel purchases linked to cards compromise retailer margins,” Sibiya said.
The association of service station owners noted with concern the massive fuel prices this month, with petrol pump prices getting closer to R20 per litre.
“These fuel price increases are a serious enemy of our members’ profitability, which will be impacted by volume drops due to less consumer expenditure and also the fixed cents per litre margin further eroded by expenses like credit cards that are linked as a percentage of the pump price,” he said.
In an illustration made by the FRA at the request of Business Report showing the detrimental effect of price increases on fuel retailer profitability/ cashflow, Sibiya showed that:
Before the price increase the pump price of 95 octane fuel (inland) was R18.33/litre. The transaction value of 50 litres at R18.33/litre amounted to R916.50. Gross retail Operating Expense (Opex) margin was fixed at R1.339/litre amounting to R66.95. Merchant Service Fee (Credit Card interchange plus “bank commission”) at 1.75 percent amounting to R16.04 was said to equate to 23.9 percent of Gross Margin. Opex margin (before other expenses that included labour, rentals utilities, among others) amounted to R50.91.
After the recent price increase the pump price of 95 octane fuel (inland) reached R19.54/litre. A transaction value for 50 litres at R19.54/litre reached R977.00. Opex margin (fixed) at R1.339/litre became R66.95.
With Merchant Service Fee (Credit Card interchange plus “bank commission”) at 1.75 percent it reached R17.10. This now equates to 25.5 percent of Gross Margin for the same volume amount. Opex margin (before other expenses like rent, labour, utilities, among others) would be R49.88.
Sibiya said the retailer was in effect R1.06 (R50.91 – R49.85) worse off for the same transaction of 50 litres. He said that assuming they had a 300 000 litre a month pumper, this would amount to being worse off by R6 360 for the month selling the same volume. For the period of a year this would see them about R76 320 worse off.
The Sarb said it was entrusted with the mandate to determine and regulate interchange in the payments industry to increase transparency and competition in the markets. It said transparency was to afford the end users, like consumers and retailers, to know how much interchange was included in the fees charged by their respective service providers.
“It is for this reason that the implemented interchange rates are published on the Sarb website. In this regard, the merchant service fee paid by the fuel retailers is not determined by the Sarb. The merchant service fee is probably covered in the merchant service agreement that they would have with their respective banks.
“The Sarb has no influence on these service agreements and fuel retailers may negotiate merchant service fees with their respective acquiring bank directly.”
Sarb said it was responsible for the regulation, oversight and supervision
of the national payment system and its mandate was limited to the payment service providers such as banks and system operators.
It said one of the activities of the Sarb was to determine interchange for the various payment streams.
“The interchange process is guided by overarching principles such as ‘the Sarb will always act in the interest of the NPS as a whole, rather than that of individual stakeholders and stakeholder groupings’.”
The Interchange refers to the process whereby banks, through their devices, systems and procedures,
facilitate the acceptance, collection, exchange, clearance and settlement of payment instruments used by their customers within the NPS.
Interchange is said to encourage interoperability among payment infrastructures or facilities which was critical for the facilitation of payments.
Responding on this subject, Mastercard said that paying for fuel at the pump with a payment card offered convenience, choice and security for today’s consumer, who was increasingly seeking safer and touchless alternatives to cash. Visa said that it would not be able to speak on this subject.
BUSINESS REPORT ONLINE