Yes, it is bad. You are charging more to those who can't commit money upfront - just like pre-pay electric meters charge people more when they recharge them via paypoint.
Many big employers offer interest free loans for annual season tickets, so you get the benefit of an annual season ticket spread across 12 months, rather than having to pay for it all in one go. Unfortunately, unlike the cycle to work scheme the government doesn't allow payments to be deducted from the pre-tax income.
Even if your employer doesn't offer that you can buy a monthly season ticket on a credit card and pay it off when you get paid, unless your credit rating is very bad or your credit card is already maxed out.
Why would you want to charge people who don't use your service a lot more? Sky for example offer discounts to new customers, then increase the prices until they threaten to leave, then give them a massive discount.
Sky is a different scenario as it's a luxury you can remove from your budget if it costs too much.
Why should a train company give a discounted fare to those who want to occasionally use the service at the busiest time of the day? Train operators don't want people travelling at peak times unless they are regular commuters, they try to encourage the irregular travellers to travel on quieter trains.
Just charge £3.50 return instead, save the expense of all this carnet enforcement and training, and attract even more people to the railway.
Offering a cheap return instead of season tickets would mean someone who usually buys around 11 monthly season tickets a year will instead buy around 230 return tickets. How much would it cost to install 19 additional ticket machines at a station which currently only has 1 to cope with the extra demand? As @Haywain says it costs more to take lots of little payments.
And @miami why do you want a £3.50 return and not a £1.75 single?