Costco moves exclusively from Amex to a Citi Visa
Company promises new card will give loyalty rewards
Costco has struck a new exclusive credit card deal which ousts American Express in 2016 to be replaced by a Citi Visa card. Reward points will remain a fundamental part of the consumer offering.
This is a highly sought after contract, as Costco is the second largest retailer in the US, but commentators have said that Visa paid a high price to secure it. Other competitors included MasterCard with JP Morgan Chase.
Still to be decided is the level of loyalty rewards the Citi Visa Costco card will give loyalty rewards as its Amex predecessor.
For Amex the loss is major. Costco represented one of every 10 of its cards in circulation and 8% of its spending.
Costco sells everything from bulk-rate bathroom supplies to big-screen televisions. It is moving credit card partner after 16 years of being restricted to cards issued by American Express. The deal will begin on April 1, 2016.
In addition, Costco will partner with Citi to issue a new co-branded card to replace an existing Amex-Costco card.
Costco stores will continue to accept Visa and MasterCard debit cards but there remains no acceptance for a MasterCard credit card, and in future, no acceptance for American Express either.
Costco started business in 1983 in Seattle, now has 671 locations around the world and a customer base that is loyal and affluent: Costco customer households in the US had an average income of US$91,862 in January, compared with an average US household income of US$68,664. More than 90% of its customers renewed membership last year.
Citi is already a large issuer of co-branded plastic, providing cards for the likes of hotel chain Hilton Worldwide Holdings Inc. and Home Depot Inc.
AmEx shares took a dive when the company announced the partnership would end, but the news had less impact on the new partners. Citi gained 2% to US$53.49, while Visa climbed 2.6% to US$278.29.
Analyst say that Citi’s challenge will be to persuade Costco customers to use its new co-branded credit card instead of any other Visa card that may be in their wallets. They are expected to have to offer loyalty rewards to achieve this.
Costco has confirmed that the new Citi card “would provide generous rewards to Costco members.”
Citi’s card business is run by Jud Linville, a former top Amex executive.