A newly launched service that allows you to prepay for gas at today’s prices, then fill up your car using the MyGallons debit card at your locked-in price. You pay an annual membership fee ranging between $30-$40, and $1.95 every time you reload the card.
Jeff Nolan looks at how this might (or not) work from the consumer / small business side, and concludes:
For this to work for consumers the bar is steep. First and foremost, you have to consume enough fuel to make the incremental cost savings exceed the fees you are paying, and because the savings you can achieve are a function of the time between when you load the card and then use it, well you have to pre-purchase a hell of a lot of fuel to get to the point where the price differential naturally widens.
I’m more in the other side, how is this to become a sustainable business? After all, you’re locked-in price and debit card is only worth anything as long as the company that backs it up is still in business.
I could see the model work in a “normal” fluctuating market, where the price fluctuation, along with the membership fees and one-time charges all work out to the company’s benefit. But in the current market with steadily climbing prices, their core business, “betting” on the gas price is a losing proposition, except for the membership fees, so they need a lot of longevity to stay solvent until they see gas prices decline. They are either “loaded” and have huge credit, which I doubt, or will have to be very smart putting the upfront customer payments to work: they have to find very lucrative short-term investments that grow faster than the gasoline index.
And when they see relief – i.e. gas prices start to drop – they will profit on existing deposits, but it’s also the end game: new deposits will dry up, as they have no business model for a declining market (customers can’t short the market).
But that’s long-term speculation, let’s focus on the immediate issues. MyGallons does not have a banking partner payment network to support their debit cards. The Launch press release stated a week ago:
…the gas redemption program uses the Voyager fleet network, owned by US Bank, which is accepted at over 95% of gas stations nationwide.
As it turns out, they were only in negotiations with US Bank, which decided to pull out. For this very reason the Better Business Bureau assigned MyGallons an F, their worst rating. Not having a financial network has not stopped MyGallons from signing up new users, in fact, according to Founder, President Steve Verona, over 6,000 signed up in the first week. Will the company be able to issue the debit cards? The promise 4-6 weeks delivery, so that buys them some time. The information on the website is still misleading:
MyGallons has learned that its prior vendor, GoGas Fleet, the reselling partner for US Bank’s Voyager Network, is no longer able to honor our agreement [ there was no agreement! ] to provide its services to our members. MyGallons is currently in negotiations to team with one of the competing national payment networks to support our exciting program to ease the pain of rising gas prices.
Talk about Mr. Verona, different sources know his background quite differently. The Miami Herald, his home paper:
“A former consultant for technology companies, Verona has been trading commodities and currencies since he was 13.”
The Los Angeles Times:
Verona, 39, has been involved in a string of companies including DB Net Ventures Inc. in Upper Darby, Pa.; Jewish Jeans Clothing in Columbus, Ohio; and an online store called Pursue Peace Clothing. Verona confirmed that he filed for personal bankruptcy in Ohio in 2001.
Oh, well, at least he gas relevant experience: bankruptcy proceedings.