February 17, 2026

• Working Papers
• Publication
• Payments

Working Paper 2026-2

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.

JEL classification: E42

Key words: consumer payments, consumer payment preferences, merchant steering, discounts, surcharges

https://doi.org/10.29338/wp2026-02

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Claire Greene is a Center Director in the Payments Forum at the Federal Reserve Bank of Atlanta; Oz Shy is a Senior Policy Adviser and Economist at the Federal Reserve Bank of Atlanta; and Joanna Stavins is a Principal Economist and Policy Advisor at the Federal Reserve Bank of Boston. Liam Chentoufi and Julian Perry provided excellent research assistance. The views expressed here do not necessarily represent the views of the Federal Reserve Bank of Atlanta or Boston or the Federal Reserve System.

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