Amex Sells Costco Portfolio To Citi In Billion Dollar Deal

As we’ve known since early last year, Costco is replacing American Express with Citi for their exclusive credit card agreement. This is a huge loss for American Express, given that Costco represented roughly 10% of their US credit card business. With Citi taking over the contract, all Visa cards will eventually be accepted at Costco stores (however, there’s already a trick for using Visa cards at Costco stores).

Citi was supposed to be taking over the Costco contract from American Express on April 1, though a few weeks ago we learned that would be delayed, and that American Express cards would continue to be accepted at Costco stores until at least June. As I speculated at the time:

We don’t have the details of exactly what’s going on, though it seems that this is something between American Express and Citi, rather than something between Costco and one of the issuers. That leads me to believe that they may be trying to work out a deal to convert those with the Costco American Express to the equivalent Citi product.

Previously the assumption was that cardmembers would have their cards converted to another American Express product, though perhaps there’s a way they can make this mutually beneficial for both issuers (I assume it won’t be cheap for Citi, though).

It appears that’s exactly what was going on, as American Express and Citi were trying to come to an agreement over what to do with cardmembers. The default assumption was that those with Costco American Express cards could have their cards converted into other American Express cards, and then people would have to apply for a Citi Costco Visa, if they wanted that product.

But they came up with a better solution.

Through the deal, from which American Express is expecting to book a gain of about a billion dollars, those with the Costco American Express will have their cards converted into the Costco Citi Visa. While an exact date still hasn’t been set, the deal is expected to close in June.

To me this seems quite smart, from the perspective of American Express and Citi. If they could find a mutually beneficial way to do so, it was better for Citi to already take over the captive Costco customers, rather than paying to acquire them again. If American Express kept those customers, chances are many would have canceled their credit cards, and certainly wouldn’t have been as engaged as they were with their Costco cards.

Bottom line

If you have a Costco American Express, expect it to be converted into a Visa come June 2016. This also means you might not be eligible for the sign-up bonus again once the card converts, so if that’s a consideration, you might want to consider canceling it before the card converts to Citi in a few months.

What do you make of the Costco credit card automatically being converted from American Express to Citi?