The incentive is the exact thing you're worried about: merchants get to avoid fees. If Nano ever takes off as a payment method, then you'd probably see e.g. large grocery chains operating Nano nodes to avoid fees.

It looks to me like Nano will suffer from the free-rider problem.

If Nano becomes an established currency, then a grocery chain can just rely on the existing Nano nodes to process its transactions (which will still be free), they don't need to run their own node for it.

They can publicize their brand with a node. Moreover, if they want special functionality they may have to run their own node. In general, running nodes is so cheap that is not prohibitive to wider audiences. Today there are easily more than a hundred nodes running, exchanges, services, etc. The number is bound to increase as the ecosystem grows.

Cool. But why not just use the nano technology with a USD-backed currency instead?

Cut out all of the alternative currency speculation and just let the technology do the work on people's money.

Like USDC.