Why fewer credit cards means lower prices

In response to the last post on Apple Pay - Michael Bishop tweeted the challenge:

@pencil_line do you really think retailers are going to pass the “savings” onto customers if they succeed in replacing CC transactions?

Good challenge and people are right to be cynical but weirdly the answer is - Yes, I do think those savings would be passed onto consumers.

Not because retailers are naturally altruistic and wonderful but because of competition.

If you give any retailer a 200 bps improvement in margin, it doesn't go to the bottom line - it gets competed away. If you look at the operating margin of major scale retailers such as CVS they are remarkably stable over time.

The pressure on retailers to grow or at least maintain market share means the reality is, if one player has a margin advantage, it gets invested in price (or occasionally other levers such as service) to drive volume and win share from competitors.

Retailers have an insatiable appetite for growth which is mainly fuelled by squeezing margins and offering better value for customers. Sometimes this causes a race to the bottom but, generally, it is aligned with customers interests.

Apple, which is intrinsically a high margin business, is not aligned with retailers in this respect. The credit card companies love Apple Pay for this reason.