Payment Discounts and Surcharges: The Role of Consumer Preferences

38 Pages Posted: 4 Jul 2017

See all articles by Joanna Stavins

Joanna Stavins

Federal Reserve Bank of Boston

Huijia Wu

Harvard University - Department of Economics

Date Written: 2017-02-14

Abstract

We use new data from the 2015 Diary of Consumer Payment Choice to analyze price discounts and surcharges based on the payment method used for transactions. We examine consumer preferences for specific payment instruments and test whether consumer demand for payment instruments is price elastic. Specifically, we test whether consumers are likely to deviate from their preferred methods in order to get a discount or to avoid a surcharge. We find that the occurrence of price incentives is low, but consumers who preferred other payment methods had an 11.7 percent probability of switching to cash because of cash discounts, after controlling for merchant category and dollar value of the transaction. Payment method choice is affected very strongly by consumer individual preferences, but steering by merchants may be effective under some circumstances. Both merchants’ reluctance to offer price discounts and consumers’ limited response to them lead to the low observed occurrences of such incentives.

Keywords: consumer payments, consumer preferences, merchant steering, discounts, surcharges

JEL Classification: D03, D14, G02

Suggested Citation

Stavins, Joanna and Wu, Huijia, Payment Discounts and Surcharges: The Role of Consumer Preferences (2017-02-14). FRB of Boston Working Paper No. 17-4. Available at SSRN: https://ssrn.com/abstract=2995874

Joanna Stavins (Contact Author)

Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States
617-973-4217 (Phone)
617-973-4218 (Fax)

Huijia Wu

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
35
Abstract Views
237
PlumX Metrics