Everyone loves to save, shoppers and retailers alike. While inflation rates and prices have come down somewhat, consumers still prioritize discounts and ways to save money. Merchants are also continuously looking for ways to reduce payment processing costs.
From small local businesses to large retail brands, merchants are finding innovative ways to incentivize customers to use alternative, lower-cost payment methods to credit cards, such as cash, debit cards, and pay-by-bank.
Payment Preferences
Merchants tend to have a love-hate relationship with payment cards. Consumers prefer credit card payments because they are convenient to use, universally accepted, and often come with generous rewards. Studies show that shoppers also tend to spend more with cards than cash. However, swipe fees amounting to 2% to 4% per transaction have long been contentious for merchants and retailers.
More merchants are offering lower prices to customers who use cash rather than credit cards for purchases. Some businesses market the savings as a cash discount, while others charge a card service fee. Regardless of terminology, the cash discounts typically run about 2% to 4% on purchases. Nonetheless, the share of cash payments with a discount is still low—only about 3% of all cash payments in 2022, according to data from the Federal Reserve Bank of Atlanta. Additionally, there are costs and risks associated with accepting and processing cash for merchants.
Increased Debit Usage
Shoppers are increasingly using credit and debit cards and mobile payments for in-person transactions at grocery and convenience stores, restaurants, gas stations, and general merchandise locations. Many consumers do not even carry cash anymore. According to the Federal Reserve’s 2024 Findings from the Diary of Consumer Payment Choice, debit cards are now used as often as cash for in-person payments under $25.
The largest U.S. mobile carriers, T-Mobile, AT&T, and Verizon use discounts to steer customers toward using their debit card or bank account (ACH) to pay their monthly bills automatically. T-Mobile’s approach removes the $25 monthly autopay discount entirely if a customer does not use a debit card or bank account. AT&T, instead, reduces the monthly discount from $10 per line to $5 per line if the customer continues to use a credit card for autopay. “Like others in the industry, we are making this change in response to credit card fees,” an AT&T spokesperson said. Verizon requires customers to enroll in autopay and paper-free billing using their bank account or Verizon Visa card to qualify for the $10 per month discount.
For most Americans, gas is a regular and necessary purchase, and consumers tend to be sensitive to gas prices. According to a GasBuddy survey, 92% of consumers reported shopping around for the best gasoline price before filling up. Many fuel retailers offer mobile payment apps with exclusive discounts for ACH payments. Cumberland Farms, Chevron-Texaco, Circle K, Exxon Mobil, and Valero all provide discounts for ACH mobile payments. Discounts range from 5 cents to 10 cents per gallon. Some merchants also offer bonus savings for enrolling in their mobile payment/loyalty program and other discounts for in-store purchases.
With cash usage in decline, merchants and retailers can encourage shoppers to use convenient debit cards, ACH, and mobile payment options with discounts. Given many consumers do not carry cash, having to go out of their way to withdraw cash or pay out-of-network ATM fees, could mean the cash discount would not be worth the savings.
A Look Ahead
Growing adoption of real-time payments and open banking in the U.S. could enhance the pay-by-bank customer experience and help merchants bypass card payments and swipe fees. Several retailers are exploring real-time pay-by-bank payment options using FedNow and RTP. Fiserv is lining up clients, including Walmart, Kroger, and Sunoco, who want to add a pay-by-bank option for consumer payments.
Visa is also preparing to offer pay-by-bank services in the U.S. following its extension of such services in Europe via its acquisition of the open banking firm Tink, which enables banks, merchants, and fintechs to move money. J.P. Morgan Payments’ pay-by-bank solution leverages Mastercard’s open banking technology to allow billers to let their customers to pay bills directly from their bank account. Verizon plans to pilot J.P. Morgan Payments’ offering with U.S. customers.