Journal of Financial Market Infrastructures

Wait a minute: the efficacy of discounting versus nonpecuniary payment steering

Angelika Welte

  • Credit cards are the costliest method of payment for merchant.
  • Payment network rules imply merchants cannot surcharge to steer consumers away from credit cards.
  • Discounts subsidize cash users and are unprofitable for the merchants.
  • Non-pecuniary steering can be an effective strategy for transactions above $25.


Merchants who accept credit cards face payment-processing fees. In most countries, the no-surcharge rule prohibits them from using surcharges to pass these fees on to customers. However, merchants are allowed to steer consumers toward less costly payment methods by offering discounts or using nonpecuniary incentives such as convenience and speed. Drawing upon microdata from a survey of Canadian households, I estimate a discrete choice model of consumers' payment methods to establish merchant costs for both of these strategies. I find that, while discounts are unprofitable because they subsidize a large portion of consumers who are already using cash and debit cards, nonpecuniary steering can be an effective strategy for transactions above $25.

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