Merchant steering of consumer payment choice: Evidence from a 2012 diary survey

• U.S. consumers are accustomed to see higher prices for paying with credit cards at gas stations.
• However, such practice is not the observed norm in other retailers.
• Recent regulatory changes and court settlements allow merchants more pricing flexibilities.
• We use survey data to learn whether and how merchants use these flexibilities.

This paper seeks to discover whether U.S. merchants are using their recently granted freedom to offer price discounts and other incentives to steer customers to pay with methods that are less costly to merchants. Using evidence of merchant steering based on the 2012 Diary of Consumer Payment Choice (DCPC), we find that only a very small fraction of transactions received a cash or debit card discount, and even fewer were subjected to a credit card surcharge. We attribute this finding in part to the merchants’ fear of alienating consumers, who may not view the steering attempts as an “acceptable norm.” Transactions at gasoline stations were more likely to receive either cash discounts or credit card surcharges than transactions in other sectors. Transactions over $20 were significantly more likely to receive a cash discount.