Fuel card

A fuel card is a payment card for petrol, diesel and other fuels at filling stations. Account balances are cleared in full when due and payment terms vary depending on the supplier and can be anything from weekly to monthly. One of the main reasons fuel cards are popular is due to the elimination of cash required at filling stations and hence the increased security.

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Origins

In its infancy, fuel cards were only printed with the company name, vehicle registration and a signature strip on the reverse. No electronic data was stored. Fuelling sites would verify the company, vehicle registration (on the forecourt) against the card and also the signature written on the back. The site would allow access to the fuel once the retailer's receipt had been signed for and cross checked against the signature written on the back of the card.

Initially, fuel card networks were very small and based around trunk roads and main haulage routes. For example, in 1983, the Keyfuels site network consisted of only seven stations. Therefore, they were initially targeted at haulage or delivery companies. A few years later, cards became embossed rather than printed. This was due to provide the cards with a greater longevity — frequent use would rub off the printed information.

Due to the lack of electronic data on the fuel cards at this stage, transactions would be recorded by the card being 'stamped' onto a manual transaction sheet. Further details detailing date, time, volume, grade of fuel and registration would be hand-written.

During the mid to late 1980s, fuel cards began to use magnetic strip technology. This meant fuel cards could be processed by a retailer electronically and reduced the risk of human error when recording transaction details.

Magnetic strips also enabled fuel card providers to increase fuel card security by ensuring PINs were encoded into the card. Although it should be noted that when the magnetic strip is swiped though a fuel card reader, the transaction is still only verified by checking signatories to this day.

In the advent of outdoor terminals, these PINs became compulsory in order to re-fuel.

The reasoning behind moving from the magnetic strip to smartchip technology was down to the fact that the magnetic strip could be cloned and the data written onto a dummy card. Also, the use of fuel cards was far heavier than that of debit or credit cards, and therefore it became apparent that the magnetic strip began to wear out far quicker.

Smartchip technology (similar to Chip and PIN) is the largest development in the fuel card industry in recent years. (See Smartchip benefits)

Fuel and credit card comparison

There are many reasons for/against the use of a fuel card over a credit card, which are outlined below:

Pros:

• Discount fuel prices (i.e. wholesale prices)
• Need for carrying cash (or giving cash to drivers) eliminated
• Invoicing with VAT (Tax) shown separately often permits commercial organisations ability to recover VAT
• Increased security ^[1]
• Filling patterns can be customised by Smartchip technology ^[2]
• Fleet efficiency & MPG reporting ^[3]
• Reduced administration via management tools ^[4]
• Points/reward schemes ^[5]

Cons:

• Card stopping/cancellation periods can sometimes be longer
• Greater liability for fraudulent transactions often placed on customer
• Credit periods typically shorter
• Retail cards typically offer pump prices (usually higher than wholesale) and occasionally additional surcharge
• Annual or monthly card provision charge sometimes applied (usually bunkered)

Neither:

• Typically, bunkered cards can only be used at certain branded sites:

Pro - could potentially restrict theft Con - site locations less readily available

• Bunkered cards sometimes run on advance payment (e.g. stock holding/bunkering):

Pro - buying in bulk potentially provides further savings Con - cash sum must be provided on regular basis

Misconceptions

Although fuel cards effectively 'look' like credit cards and use very similar technology, their use and implementation is significantly dissimilar enough to differentiate them as an alternate payment method. The main differences from credit cards are:

• Payment terms often shorter
• No rolling-balance is cleared (or partially cleared) each month
• Transactions can be customised allowing only certain grades of fuel e.g. petrol, petrol & diesel, petrol & gas oil, etc.
• Fuelling transaction limits can be applied using Smartchip technology
• Liability for fraudulent transactions usually remains with user (depending upon agreement with card provider)
• Card 'hotlists' (a.k.a. 'authorisation' or 'onstop' lists) received via different providers
• Interim period after stop/hotlist request and card denied at fuelling station can be longer (although Online Authorisation networks are increasing)
• Payment terminals separate to those used for credit/debit cards (bunkered cards only)
• Fuel not technically paid at point of sale - simply allocated on account for payment at later date (bunkered only)

Security

Smartchip benefits

Fuel card providers realised there were many benefits from moving over to the smartcard from the magnetic strip:

• Smartchips cannot be cloned ^[6]
• Fuelling limits can be enforced (see Smartchip technology) ^[7]
• Far more durable than magnetic strips, therefore cards last longer
• Need for cards to be re-created reduced due to longevity
• Smartchip cannot be damaged by electro-magnetic radiation e.g. mobile phones, magnets, speakers, etc.

As of 2007, only 50% or so of fuel cards on offer utilise the smartchip technology.

Added features of smartchip technology

Fuelling limits can also be programmed into a fuel card using smartchip technology to specify the following:

• Volume allowed per transaction
• Volume allowed per day
• Volume allowed per week
• Number of transactions allowed per day
• Number of transactions allowed per week
• Days of the week card can be used
• Times of the day card can be used
• Number of incorrect PIN entries allowed
• Card lock-out period after incorrect PINs

Fuel card re-fuelling procedure

The general procedure for using a fuel card at stations is as follows:

Outdoor terminals (pump operated):

1. Insert fuel card
2. Remove fuel card
3. Enter PIN
4. Enter mileage
5. Enter registration (if requested)
6. Select pump number
7. Remove pump / draw fuel
8. Return pump into holder
9. Insert & remove fuel card (print sometimes needed to be pressed)
10. Collect printed receipt

Indoor terminals (cashier):

1. Give fuel card to cashier to validate prior to fuelling
2. Fill at pump on forecourt
3. Return to kiosk
4. Inform cashier of pump number & give fuel card
5. Verify fuel transaction details correct
6. Sign fuel receipt
7. Retain copy of receipt & fuel card

Commercial use in business

Typically, the majority of businesses using fuel cards are those which heavily rely on motor vehicles on a day-to-day basis e.g. transport, haulage, courier services. One of the primary reasons a business will use a fuel card is to obtain (potentially) significant savings on the current price of fuel.

In most cases, fuel cards can provide fuel at a wholesale price as opposed to standard retail. This way, discount fuel can be purchased without needing to buy in bulk.

Furthermore, the management and security concerning fuel purchases is greatly improved via the use of fuel cards. These features often prove themselves attractive to businesses, especially with those operating large fleets which can sometimes be in the 1000s of vehicles.

For example, a business may obtain anything from a one to four pence per litre reduction (PPL) on diesel, which in real terms can be translated into the following (UK based) example:

Potential Cost Saving Example (for small fleet)

International fuel cards

While most fuel cards are for use in a particular country, there are some companies who offer international fuel cards themselves and some via a third party. International site networks often use fully automatic fuel pumps to avoid possible language difficulties and are specially designed to account for different taxation regimes e.g. producing separate invoices for each country which fuel was purchased in a particular month to account for different rates of VAT charged. These site networks sometimes offer the ability to reclaim VAT paid in each country, for a small percentage of the amount reclaimed.

Bunkering versus retail

Bunkered fuel cards

Fuel cards providers which operate on a bunkering basis aim to achieve a fuel reserve on a particular network in order to achieve a discounted price, therefore taking advantage of economies of scale.

For example, a company may purchase one million litres of diesel at 72.50 and aim to sell this on to the customer with a mark up of 2.5 pence per litre — 75.00 PPL.

Examples of fuel card providers working on a bunkered basis are Smart Diesel or Keyfuels etc.

Bunkered fuel card companies sometimes also offer customers their own fuel bunker to under the premise of further benefiting from a discounted price. Furthermore, a customer can also hope to achieve a saving by way of avoiding any market increases in the standard market price for that particular fuel. In short, customer fuel bunkering has many pros & cons:

Pros:

• new-start businesses given a vital boost by using fuel cards if credit insurance cannot be obtained (due to lack of company history)
• if the market for that particular fuel rises immediately after a purchase — the customer has potentially made a saving

Cons:

• a healthy cash flow is required to sustain the lump sum payment for their fuel purchase — often difficult for new businesses
• if the market for that particular fuel falls immediately after a purchase — the customer has potentially lost out on a saving opportunity

Retail fuel cards

In contrast to bunkered, retail fuel cards operate by way of allowing the customer to draw fuel at almost any fuelling station (in same method as credit card). Often the provider will levy a surcharge on top of the retail price as advertised at the fuelling station. The retail price given is often considerably higher than that of the bunkered.

Although retail is generally more expensive, there are a number of exceptions depending on the region, particular brand/site and timing of fuel purchased. Retail fuel can be cheaper in certain regions, particularly those near to a major port. Further reasons for the difference in price may be due to local economy (e.g. north / south of England) and whether the site is close to any main transport links i.e. the fuel costs more to deliver into the site. As for timing, the supermarkets or large providers often have a great deal of fuel in their stock reserves, so if the market increases rapidly, they would generally take longer than smaller providers to reflect this change.

Furthermore, retail fuel prices have decreased over the past 15 or so years largely due to supermarkets providing fuel at their superstores at hugely discounted prices in order to entice users to the store.

For example, at the time of writing (March 2007), according to Petrol Prices the cheapest diesel is 77.31 PPL (plus VAT). Most bunkered fuel card companies are also offering around 78 PPL, which indicates that bunkered fuel cards are not always the best choice financially.

Those which operate on a retail basis are for example: Overdrive, Allstar, Shell.

Fuel card providers

Examples of fuel card providers are Shell, Total, BP.

References