Giant Update as of March 2016
So details on how Costco, American Express, Citibank and Visa will handle the split are now available. Here are the basics of what you need to know. We also updated the story below to be consistent with these new facts.
First, Costco will continue to accept American Express cards through June 19, 2016. This includes your True Earnings cards – and your rewards there will roll over to your new Costco Anywhere Card by Citi.
Starting June 20, 2016, you will be able to use any Visa card at Costco – including the new Anywhere Card. (We’ll get the perks of this card momentarily.)
Citibank will begin shipping new Anywhere Cards in May to existing True Earnings cardholders. If you are not an existing cardholder, and are interested in the new Citi card, you will be able to sign up in your local warehouse.
Second, the details on the new Costco Anywhere Visa are now available, and they are awesome*:
- 4% cash back on gasoline on your first $7,000, and 1% thereafter.
- 3% cash back on dining and travel.
- 2% cash back at Costco warehouses and at Costco.com.
- 1% on everything else.
So no only will Costco be saving money on credit card processing, they convinced Citibank to throw some better perks your way as well. This is what is so great about Costco: they really are looking out to pass savings on to their customers.
The Rest of the Story
In early March, 2015, Costco announced it has entered into new agreements with Visa and Citigroup for co-branded credit cards. Citi will now be the exclusive issuer of Costco credit cards, while Visa will replace American Express as the card network Costco uses in the U.S.
Why Did Costco Ditch American Express?
The long-standing partnership between American Express and Costco dissolved when the two failed to reach an agreement on the renewal terms of their contract. A few weeks ago, American Express said the 16-year relationship is due to expire on March 31, 2016.
It seems that American Express approached Costco months ago to renew their partnership, and the retailer decided to evaluate other potential partners when AmEx couldn’t offer better terms. Costco also considered partnerships with JP Morgan Chase and MasterCard.
Costco uses the exclusive deal with credit card companies to get lower credit card processing fees. Retailers are usually charged more for credit transactions than debit transactions, although processing fees depend on the risk of the business and the size of the company, among other factors.
Visa and Mastercard already charge lower processing fees for merchants compared to American Express, and Costco will most likely get an even better rate through the deal.
When Will I Be Able to Use a Visa Credit Card at Costco?
Citi, currently the world’s largest issuer of consumer credit cards, will become the exclusive issuer of Costco-brand credit cards and Visa will replace American Express as the card network starting on
April 1, 2016 June 20, 2016.
While Costco currently only accepts American Express credit cards, this deal means that soon Costco stores will only accept Visa credit cards.
You will be able to use any Visa cards, not just the Costco-branded cards which actually makes this a big win for many shoppers. You will still be able to use debit cards with other networks, such as Mastercard.
What About Costco TrueEarnings AmEx Cardholders?
In a recent interview, David Sherwood, Costco’s director of finance and investor relations, said that it’s still unknown if customers will need to reapply for a Costco rewards card. Costco has said that, when it is issued, Costco’s co-branded Visa card will offer rewards, work as the Costco membership card, and be accepted at all Costco locations in the U.S. and Puerto Rico.
The card will also be accepted at all merchants that accept Visa credit cards. This means the new co-branded Visa credit card will be very similar to the TrueEarnings card.
Editor’s Note: It appears that Citibank will issue their new Costco Anywhere Card by Citi to all current True Earnings cardholders in May. You will be able to use your existing cards through June 19th, and Visa cards (including both the new Costco card and any other Visa card). All True Earnings rewards earned thru June 19th will be rolled over to your new Citi card and be part of your annual rewards check issued with your February 2017 statement.
The Winner in the Deal? Costco
Many details are still unknown, and Costco has said it will fill customers in on details of the change in the coming months. What is certain, however, is the American Express Costco split has big ramifications for American Express.
Right now, Costco cards account for 10% of all American Express cards in circulation.
While American Express is much smaller than its rivals, its customers spend more than MasterCard and Discover cardholders. American Express has already been falling short on many sales targets lately, and the company’s chief executive said that the split will eat into AmEx’s results for at least two years.
Costco is definitely the winner in the new exclusivity deal, giving the wholesale giant access to 281 million Visa credit cards that can be used in its stores, versus the limited number of American Express card holders, estimated at around 55 million. Costco also stands to save a hefty amount on transaction fees.