David Rosenthal: belief

Transcript context

…It keeps you in the Amazon ecosystem, and it makes sure that you're buying more stuff. Amazon makes money on the stuff, Costco makes money on the membership, but at the end of the day, it is nice to retain a loyal customer. To contextualize the 93% member retention, again, that's just all members. That's not even the executive members or the credit card owners. Subscriptions to streaming services renew half of their customers every year. Consumer subscriptions retaining at 93%-plus is nuts. That's the monthly retention of most streaming services. It's crazy. On top of all of this, I'm pretty sure that this has never been disclosed, and I haven't asked anyone about it. But if you read trade publications, people seem pretty convinced that Costco is making money, which of course they are, on the deal that they caught with Citi and Visa, in order to have the Costco card be the Citi Visa card. Most of the time, when you are processing payments, you owe 2%–3% of each transaction to the issuer of the card. I think the dynamics are actually the opposite way with Costco, where Costco gets to hold an auction and say, we have an enormous amount of payment volume with enormously good customers with good credit. Would you like to do business with us? And who would like to pay us for the privilege of being the Costco card rails? I imagine there are not a lot of defaults in the Costco customer segment base. There's also some fun history to all this, too. That deal, as you may know, Ben, used to be with American Express. And then they essentially held an auction as you say. I think the origins of this though start all the way back with the original Price Club business plan. Not to offer credit, but specifically not to offer credit. Another one of the big benefits of moving to this business wholesale model was they could get out of the credit card game that they had to play at FedMart. When they were only selling to businesses, when that was the plan, it was like, hey, cash or check? That's it. No credit card exchange fees that we're going to have to bear. When they opened to consumers in the group model, they kept that. For a long, long, long time, you couldn't use credit cards at all in Price Club Costcos. That's the importance of doing the hard thing first. By proving that they could exist and set customer expectations around where only cash and check, it meant that they never had some scary moment, where if credit card companies were putting the screws to him, they had a bunch of fear around, well, customers not shop here. They were, just from the very beginning, getting 100% of the dollars rolling in. They knew the counterfactual. They knew customers are going to shop with us no matter what. Credit card companies, if you want to work with us, you're welcome to, but we do not need to pay for the privilege, because we know that our customers are not going to leave us for a fact.…

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