Merchant Steering of Consumer Payment Choice 
This paper analyzes data from a consumer payment survey and diary to identify reasons why consumers often deviate from their preferred payment method when making in-person purchases. In particular, it investigates the degree to which merchants influence consumers’ payment choice—cash, debit, or credit card—and whether they are able to steer consumers from their preferred payment method.
Key Findings
- Consumers typically use their preferred payment method. This is especially true for consumers who prefer to pay with credit cards.
- Lower-income, less educated, male, and unemployed consumers tend to favor cash, whereas higher-income, more educated, Asian, and retired consumers are more likely to prefer credit cards.
- Merchants’ refusal to accept a payment method is not the major reason consumers deviate from their preference, but it does play a role.
- Gas stations and food and beverage establishments are more likely than other merchants to impose surcharges on credit card purchases.
- Large-value purchases are more likely than smaller-value purchases to include discounts when they are paid for with cash.
- Consumers are less likely to shift from using cards to using cash for large-value transactions and for purchases at gas stations, grocery and convenience stores, and other food establishments.
- Consumers are more likely to use the same payment method for consecutive purchases. This inertia effect is stronger for debit and credit card purchases than for cash purchases.
Implications
Analysis of the survey and diary data indicate that in some circumstances, merchants’ efforts to steer consumers to pay with merchants’ preferred methods may affect consumers’ payment choice and whether they deviate from their preferred method. However, a consumer’s income and educational level, the size of a transaction, the type of merchant involved, and the payment method a consumer used for their previous purchase play a larger role in influencing payment behavior.
Abstract
This paper investigates the degree to which merchants influence consumers’ choice of how they pay for purchases. Using data from the Survey and Diary of Consumer Payments Choice, we examine consumers’ adherence to their preferred payment method when making in-person transactions. We also investigate whether merchants are able to steer consumers away from their preferred payment method. We characterize preferences for paying with cash or cards according to consumers’ income, level of education, and employment status. We find that consumers make most payments with their preferred method. When consumers pay with a non-preferred method, it is due only in small part to merchants’ refusal to accept that payment method. If a merchant accepts card payments, consumers who prefer paying with cards are not likely to pay with cash for large-value transactions or for gas or groceries. Discounts on cash purchases do not affect the probability of consumers deviating from using cards and paying with cash. Finally, the paper identifies “inertia” effects, which lead consumers to use the same payment method for consecutive purchases.