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As Travis first wrote about last March, Costco is replacing American Express with Citi for their exclusive agreement. Costco has a ton of volume, so this is a huge loss for American Express, given that it represents about 10% of their US credit card business. At the same time, the terms of the agreement would have been such that American Express was losing money on the deal, so it just wasn’t worth it.
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).
Wondering which Visa to use at Costco?
We like the Chase Freedom for 5% back on purchases at warehouse stores this year!
Citi was supposed to be taking over the Costco contract from American Express on April 1, though it looks like that’s now delayed.
American Express cards will continue to be accepted at Costco stores until June, or perhaps mid-summer, when the contract will be switched to Citi. Per The Seattle Times:
Costco’s switch from American Express to Visa is being pushed back to this summer.
It’s now saying that transition will happen in June or by midsummer.
The original contract with Amex ends March 31 this year but “our plan is to extend that” by a few months until the Citigroup deal kicks in, said Richard Galanti, Costco’s chief financial officer, in an interview.
The timing of the transition is “fluid,” Galanti said. “It’s between Amex and Citi — negotiating and completing the agreements to do that transition.”
For customers, he said, “There won’t be any gap in the middle.”
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).
Whatever the delay is, it’s costing Costco a lot of money. Costco’s fourth quarter earnings were reduced by $15 million due to a reduction in customer sign-ups of their credit (credit cards are big business for Costco!). Presumably the transition being pushed back even further will cost Costco even more, as it further delays when people can sign-up for a Costco Visa credit card.
I’m curious what’s causing the delay in this transition, as it’s costing Costco quite a large amount in affiliate revenue. As I said above, I suspect Citi might be trying to work out a deal with American Express to take over their cardmembers, though that’s just speculation. Or perhaps the amount of work which needs to be done on the back-end just can’t be completed in the next couple of months.
In the meantime, expect you’ll be able to continue using American Express cards at Costco through at least June 2016, if not longer. And if you want to use a Visa card in the meantime, there’s always this workaround.
(Tip of the hat to Doctor Of Credit)