One out of 10 people carrying an American Express (AmEx) card is carrying one from Costco. Approximately 8 percent of all money charged on American Express is currently charged at the membership-based stores. All that is going to change with the recently announced Costco VISA deal, but the key to whether the
deal work well for consumers will be the implementation plan.
Costco announced their new deal with Visa International, and with Citigroup as the branding partner, last week. Starting April 2016, Costco stores will only accept VISA, debit cards, checks and local currency. This is bound to create an upheaval at Costco stores, where AmEx has been the only credit card accepted and widely in use for 16 years.
AmEx and Costco had announced in February that they could not agree on terms to renew their long-standing partnership. AmEx traditionally caters to more affluent customers than other credit cards, so some wags suggested the lack of accord was about image and partnership with a discount warehouse store. However, it has been a long time and profitable for both. Others suggested Costco wanted to offer different rewards. It remains to be seen if they will.
One thing that has been announced is that, unlike AmEx, the new Citibank Costco card will have no annual fee. The current AmEx for Costco (as well as many normal ones) has annual fee of $55, with the $110 executive version.
The Costco AmEx has a popular cashback feature. Customers currently get 3 percent cash back on Costco fuel purchases, 2 percent on restaurant charges and some travel options, and a 1 percent cash return on back on all other purchases. The Cash is disbursed via check every February that can be cashed or used in the store, thereby ensuring the money is likely to spent at the store. Customers can use the check for goods at a Costco checkout line, or redeem it at the customer service desk for actual cash.
A similar program can probably be anticipated, but has yet to be announced. Citibank has had cashback programs on some of its other credit cards.
It also remains to be seen how current accounts will be handled. Citi is expected to purchase AmEx’s Costco card accounts outright, meaning current Costco AmEx cardholders might simply receive new Costco VISA cards. It is possible, however, that they might decide to collect the balances on the existing cards and make customers apply for the new Costco Citibank cards. That was the process Costco used in Canada when in replaced AmEx with a Capital One Mastercard in 2014. There were long lines in the stores with people applying, thwarted at the register if they had not reapplied, and customers staying away while waiting for their new cards in the mail.
While plans for the implementation are discussed, one key bonus the VISA deal gives Costco is access to many more charge card wielding customers. The retailer could gain access to 281 million VISA members worldwide. There were only 55 million AmEx “members.” Another major bonus is the savings Costco will get on transaction fees, which are lower on VISAs than American Express cards.
By Dyanne Weiss