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

ABSTRACT 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.