When Will Costco Accept Visa Cards?

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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.

Bottom line

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)

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Comments

  1. well that’s good for me, at least. The other day I started an application for the AMEX Everyday card for my wife, expecting the Costco AMEX to go away soon. The signup bonus was 25k points. The AMEX website flaked and the app was never finished and I had to walk away from a computer for the night. Next day I started the signup process but now the signup bonus was only 10k points. Multiple requests for AMEX customer support to honor the 25k bonus were, of course, rejected, even when I mentioned there’d be little reason for me to stay an AMEX customer. This delay buys me a few months to wait for a better signup bonus now.

  2. The key question here is: When will Citi start to offer Visa cards? This is something that has intrigued me since the announcement of the Costco/Citi/Visa deal. When I applied to the Citi Prestige and Premier cards I specifically asked Citi to have those cards issued by Visa but I was told that was not possible and that 95% of the cards issues by Citi are Mastercard. My goal was to have the card with Visa so I could use get 3x points when using at Costco gas stations (not sure if it will work but purchases at Costco gas stations show as Costco gas and not warehouse purchases on my SPG AMex). Thus, as of today all my Citi cards are Mastercard so useless for Costco purchases when the deal with Visa starts.

  3. I dont know but my guess is that its caused by the banks.Costco is very aggressive in making deals etc so its probably Amex dragging their feet

  4. That’s too bad for people using their AmEx and hoping for the cashback on it. Costco’s cashback is only available on the February statement (this month) for the previous year’s purchases. Anybody still using their card after this month needs to find out if their cashback is going to evaporate, or if they will get whatever they have accrued when the card is over. If you have another AmEx you should start using that one, otherwise the best idea might be Travis’s with the giftcards.

  5. I heard March 1st last time I was in Costco. Maybe there will be some lap over where they take both AMEX and Visa until they have everything settled.

  6. I was just there the other day and asked and the checker told us they were just told that day June or July. She was just as confused about the delay too.

  7. When this happened in Canada in 2014 (Costco switched from AmEx to MC here), some sneaky people found that MC was working a few weeks before it was supposed to (I guess because the technology had to be updated in advance) and even though Costco said MC wouldn’t be accepted yet, the credit card authorizations went through.

  8. “the terms of the agreement would have been such that American Express would be losing money”

    That’s a lot of speculation with no real proof of the what their agreements actually state.

  9. quote: Rand says: …Costco is very aggressive in making deals …quote

    That is an understatement. They are brutal in their deals with suppliers. Product representatives will fall to their knees to get their product into Costco, even losing money to do so. Later when they try to increase their unit price to Costco to become profitable and stay in business they are dropped. Costco’s excuse will always be they look for the best deals for their customers but this is why so often you can find something in the store. The main goal for any company should always be to maximise profits. It sounds brutal but that is reality. Above all else this is Costco ethos.
    The deal American Express had with Costco was crushingly bad. They tried over and over to negotiate more favorable contracts but in the end Costco’s reaction was to dropped them opening the door now for Citi to come in.
    heads bowed

  10. @CT – I was told in store that anything spent on the AMEX card would pay out the cash back. If I remember right it was in the notification sent out about the change as well.

  11. @jackc: Costco is amazing. My favorite place to shop. I usually go there without needing to buy anything but just o see what new products they have in the stores. Their customer service and return policy is top notch and it should be followed by other retailers.

  12. I can clarify at least some of this based on a conversation w/ AmEx last week. The January statement was the cutoff for this current cash back check, but Costco card members will continue to receive their cash back reward until the card can no longer be used. At this point, however, AmEx isn’t sure how that cash back will be issued — whether it’ll be another Costco check, a statement credit, or something else.

  13. It should be noted that one could always pay for Costco Travel using a Visa Card. I often prefer to book cruises through Costco Travel because all of their agents are full time employees (with full benefits) unlike almost all other travel agents whose reliance on supplier commissions makes them more motivated to maximize the cost of each sale than represent the interests of their clients (that is particularly true of the big cruise agencies that advertise on Cruise Critic).

  14. I was at a Costco in Ohio today, Feb 8. They told me any visa will will be accepted on April 1, 2016. AmEx would also overlap for a month or two.

  15. The cause for delay is ongoing negotiations between Citi and AmEx as to the purchase price that Citi will pay to AmEx for the ~$14 billion worth of loans to Costco cardholders (loans currently held on the AmEx balance sheet). AmEx stated in Q4 earnings call that they expect the sale to close by the end of Q2, and that they will likely realize a gain on the sale of about $1 billion.

  16. If Costco was really making that many millions on credit card signups, then they made a big mistake ditching Amex. Since American Express is a minority card, I think it was easy to find people without an Amex and get them to sign up for a card. But a lot of people already have Visa cards, and there there are a lot of different cards out there. I think that is going to make getting people to sign up for a Costco Citi Visa much harder.

  17. Any rewards earned after February 2016 will be included in the reward paid by Citi next February 2017.
    The fine points of the transition are available on Costco’s website under the Customer Service heading, Credit Card Transition, with links to both American Express and Citibank. They cover all the details.

  18. Is this conversion overwhelming the visa network? It is very slow right now to get a new card-3 to4 months

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