Merchant Steering of Consumer Payment Choice

Claire Greene, Oz Shy and Joanna Stavins

No 2026-2, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: This paper investigates the degree to which merchants influence consumers' choice of how they pay for transactions. 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 nonpreferred 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.

Keywords: consumer payments; consumer payment preferences; merchant steering; discounts; surcharges (search for similar items in EconPapers)
JEL-codes: E42 (search for similar items in EconPapers)
Pages: 34
Date: 2026-02-17
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Published in 2026

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Working Paper: Merchant Steering of Consumer Payment Choice (2026)
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DOI: 10.29338/wp2026-02

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