A few weeks ago it was announced that American Express and Costco will be terminating their relationship as of March 31, 2016:
“We are proud of the value created over many years for Costco, for our Card Members and for our shareholders,” said Kenneth I. Chenault, Chairman and Chief Executive Officer of American Express. “Taking a very disciplined approach, we began discussions on a possible renewal with Costco well in advance of the contract expiration. However, we were unable to reach terms that would have made economic sense for our Company and shareholders. Instead, we will focus on opportunities in other parts of our business where we see significant potential for growth and attractive returns over the moderate to long term.”
Co-brand credit card agreements are huge business, and that’s especially true for Costco. Not only do they exclusively have one issuer for their co-brand cards, but they only accept American Express cards in their US stores. That’s one way to create a captive audience.
While I’m not privy to the exact details of the negotiations, it does sort of amaze me that they couldn’t figure out something mutually beneficial.
Anyway, what’s interesting is that it has been announced today that Citi will be taking over the Costco contract from American Express as of April 1, 2016:
Costco Wholesale Corporation (“Costco”) (NASDAQ: COST) today announced it has entered into a new co-brand credit card program agreement with Citi and an acceptance and co-brand incentive agreement with Visa. The implementation of these agreements is subject to the purchase of the existing co-brand credit card portfolio by Citi.
Under the terms of the agreements, Citi, the world’s largest issuer of consumer credit cards, would become the exclusive issuer of Costco’s co-brand credit cards and Visa will replace American Express as the credit card network for Costco in the United States and Puerto Rico beginning April 1, 2016. Once issued, Costco’s co-brand Visa credit card would provide generous rewards to Costco members, serve as the Costco membership card, and would be accepted at Costco locations in the United States and Puerto Rico, as well as all merchants worldwide that accept Visa credit cards.
I have a few thoughts here:
- It’s interesting that Citi will apparently be purchasing the existing co-brand credit card portfolio from American Express (so existing cards will be converted into Costco Citi Visas, as opposed to other American Express products)
- It’ll be interesting to see what the rewards structure is like on the card, and how it compares to what American Express offered — I assume it will be similar, though at the same time Citi doesn’t have nearly as many “straight” cash back rewards credit cards as American Express
- I can’t emphasize enough how amazed I am that Costco and American Express couldn’t make it work; I know they generally charge higher merchant fees, but is their cost structure that much higher than the competition that they couldn’t make it mutually beneficial?
I don’t have a Costco Amex and don’t shop at Costco (buying in bulk probably isn’t a good idea when you live in hotels full time), though I do find this interesting in the context of our hobby, given that this was one of the strongest partnerships out there.
How do you feel about Costco switching from American Express to Citi, and what do you think the implications are?