As a savvy Costco shopper and Amex cardholder, you might be surprised to learn that Costco no longer accepts American Express credit cards at any of its locations. This change came as a shock to many loyal customers who had enjoyed the exclusive partnership between the two companies for over 16 years. In this article, we‘ll dive into the details of this surprising policy change and explore what it means for you as a consumer.
The History of Costco‘s Credit Card Partnerships
Costco‘s partnership with American Express began in 1999 when the two companies signed an exclusive agreement that made Amex the only credit card accepted at Costco locations. This partnership was a natural fit, as both companies catered to affluent customers who valued quality and service. The Costco-Amex partnership lasted for 16 years, during which time Costco members enjoyed the benefits of using their Amex cards, such as cashback rewards and purchase protection.
However, in 2015, Costco announced that it would be ending its partnership with American Express and transitioning to a new exclusive partnership with Visa. This move sent shockwaves through the retail and credit card industries, as it represented a significant shift in Costco‘s payment policies and a major blow to American Express, which had relied on Costco for a significant portion of its business.
According to a report by Bloomberg, the Costco portfolio represented 8% of Amex‘s worldwide billed business and 20% of its worldwide loans in 2015. The loss of the Costco partnership was expected to negatively impact Amex‘s earnings and revenue growth in the short term.
The Transition to Visa
In June 2016, Costco completed its transition to Visa, with the Costco Anywhere Visa Card by Citi becoming the exclusive credit card accepted at Costco locations. This new partnership brought several changes for Costco members, including new reward categories and a different fee structure for the Costco Anywhere Visa Card.
Under the new Visa partnership, Costco members could earn the following rewards:
- 4% cashback on eligible gas purchases (up to $7,000 per year)
- 3% cashback on restaurant and travel purchases
- 2% cashback on Costco purchases
- 1% cashback on all other purchases
In addition to the cashback rewards, the Costco Anywhere Visa Card also offered several other benefits, such as no annual fee with a paid Costco membership, no foreign transaction fees, and damage and theft protection for purchases.
The Financial Impact of the Costco-Amex Partnership Ending
The end of the Costco-Amex partnership had significant financial implications for both companies. For American Express, the loss of the Costco portfolio meant a substantial reduction in billed business and loans, as well as a hit to its earnings and revenue growth. In fact, Amex‘s stock price dropped by nearly 6% on the day the news of the partnership ending was announced.
On the other hand, Visa and Citi stood to benefit from the new partnership with Costco. Analysts estimated that the Costco portfolio could generate up to $100 billion in billed business for Visa and Citi over the course of the multi-year agreement. Additionally, the new Costco Anywhere Visa Card was expected to be a popular choice among Costco members, providing a boost to Citi‘s credit card business.
For consumers, the transition from Amex to Visa meant adapting to a new payment system and potentially missing out on rewards and benefits associated with their Amex cards. However, the new Costco Anywhere Visa Card offered competitive rewards and benefits, softening the blow for many Costco members.
Expert Insights on Costco‘s Decision to Switch to Visa
So why did Costco decide to end its long-standing partnership with American Express in favor of Visa? While the company has not disclosed the specific reasons behind the decision, industry experts have offered some insights.
One possible factor is the interchange fees charged by credit card companies. Interchange fees are the costs that merchants pay to credit card issuers for processing transactions, and they can vary significantly between different credit card networks. By partnering with Visa, Costco may have been able to negotiate more favorable interchange fees, which could ultimately result in cost savings for the company and its members.
Another potential reason for the switch is Visa‘s broader global acceptance compared to American Express. As Costco continues to expand internationally, partnering with a more widely accepted credit card network could make it easier for the company to attract and retain members in different countries.
According to retail industry analyst Chris Horvers, "Visa‘s global acceptance and scale, as well as its ability to drive value for Costco members, likely played a significant role in Costco‘s decision to transition to a new partnership."
Consumer Preferences and Spending Habits
To better understand the impact of Costco‘s credit card policies on consumers, it‘s helpful to examine data on consumer preferences and spending habits related to credit cards and warehouse club memberships.
A 2020 study by J.D. Power found that Costco ranked highest in customer satisfaction among mass merchandiser pharmacies, with a score of 904 out of 1,000. This high level of customer satisfaction suggests that Costco members are generally happy with the company‘s products, services, and policies, including its payment options.
In terms of credit card preferences, a 2019 survey by CreditCards.com found that cashback rewards were the most popular type of credit card reward, with 49% of respondents indicating a preference for cashback. This bodes well for the Costco Anywhere Visa Card, which offers competitive cashback rewards in several categories.
However, the same survey also found that 17% of respondents preferred credit cards with no annual fee, which could be a drawback for some consumers considering the Costco Anywhere Visa Card, as it requires a paid Costco membership.
How Costco‘s Credit Card Policies Compare to Competitors
To put Costco‘s credit card policies in context, it‘s helpful to examine how they compare to those of the company‘s main competitors, such as Sam‘s Club and BJ‘s Wholesale Club.
Like Costco, Sam‘s Club has an exclusive partnership with a single credit card provider, Mastercard. The Sam‘s Club Mastercard offers cashback rewards of up to 5% on select purchases, as well as no annual fee with a paid Sam‘s Club membership. However, unlike Costco, Sam‘s Club also accepts other forms of payment, such as Visa and American Express cards.
BJ‘s Wholesale Club, on the other hand, accepts all major credit cards, including Visa, Mastercard, American Express, and Discover. BJ‘s also offers its own branded credit card, the BJ‘s Perks Elite Mastercard, which provides cashback rewards of up to 5% on BJ‘s purchases and 2% on dining and non-BJ‘s gas purchases.
These differences in credit card policies among warehouse clubs highlight the importance of considering payment options when choosing a membership. For consumers who value the flexibility to use different credit cards, Sam‘s Club or BJ‘s may be a better choice than Costco. However, for those who prioritize competitive rewards and don‘t mind the exclusivity of Costco‘s Visa partnership, the Costco Anywhere Visa Card could be a strong contender.
Future Developments in Retailer-Credit Card Partnerships
As the retail landscape continues to evolve, it‘s likely that we‘ll see further changes and developments in the relationships between retailers and credit card companies. One potential trend to watch is the growth of mobile payment options and digital wallets, which could alter the dynamics of retailer-credit card partnerships.
For example, in 2021, Costco began accepting Apple Pay and Google Pay at its U.S. locations, providing members with additional contactless payment options. As more consumers adopt mobile payment technologies, retailers may need to adapt their payment policies to keep up with changing preferences.
Another factor that could impact retailer-credit card partnerships is the ongoing consolidation in the retail industry. As larger retailers acquire smaller competitors or merge with other companies, their credit card partnerships may also be subject to change or renegotiation.
Despite these potential shifts, it‘s clear that credit card partnerships will remain an important consideration for retailers looking to attract and retain customers. By offering competitive rewards, benefits, and payment options, retailers can differentiate themselves in a crowded market and build loyalty among their members.
Maximizing Rewards and Savings at Costco
For Costco members looking to maximize their rewards and savings, there are several strategies to consider beyond just using the Costco Anywhere Visa Card. Here are a few tips:
- Take advantage of Costco‘s Executive Membership, which offers 2% cashback on eligible purchases (up to $1,000 per year) in addition to other perks like discounts on select Costco services.
- Shop during promotional events and take advantage of limited-time offers and discounts, such as Costco‘s annual Holiday Savings Event.
- Compare prices and products with other retailers to ensure you‘re getting the best value for your money. While Costco often offers competitive prices, it‘s always a good idea to shop around and compare options.
- Consider using a rewards credit card in addition to your Costco Anywhere Visa Card for purchases outside of Costco. By strategically using different cards for different types of purchases, you can maximize your overall rewards earnings.
- Keep an eye out for special promotions and bonus reward offers from Citi and Visa. Occasionally, these companies may offer additional incentives for using the Costco Anywhere Visa Card or other Visa credit cards.
The Impact of COVID-19 on Consumer Shopping Behaviors
The COVID-19 pandemic has had a significant impact on consumer shopping behaviors, including credit card usage and preferences for contactless payment options. As more consumers have turned to online shopping and curbside pickup to avoid in-person interactions, retailers like Costco have had to adapt their strategies to meet changing demands.
One notable trend has been the accelerated adoption of contactless payment methods, such as mobile wallets and tap-to-pay credit cards. According to a 2020 survey by Mastercard, 79% of respondents worldwide reported using contactless payments, citing safety and cleanliness as key drivers.
For Costco, the pandemic has also highlighted the importance of its e-commerce capabilities. While the company has traditionally focused on its in-store shopping experience, the surge in online shopping has prompted Costco to invest more heavily in its digital infrastructure and delivery services.
As the post-pandemic retail landscape continues to take shape, it will be interesting to see how consumer preferences and behaviors evolve and how retailers like Costco adapt their strategies to stay competitive.
Conclusion
The end of the partnership between Costco and American Express may have come as a surprise to many loyal customers, but it‘s important to remember that change is a natural part of the retail landscape. By understanding the current payment policies at Costco and exploring alternative options, you can continue to enjoy the benefits of shopping at this popular warehouse club while making the most of your rewards and benefits.
As a picky shopper and retail industry expert, it‘s clear that Costco‘s credit card policies have significant implications for both consumers and the broader retail landscape. By examining the history of Costco‘s credit card partnerships, analyzing consumer preferences and spending habits, and exploring future trends in the industry, we can gain valuable insights into how these policies impact the shopping experience and the bottom line for retailers.
Ultimately, whether you‘re a die-hard Costco fan or simply looking for the best value and rewards for your shopping needs, staying informed and adaptable is key to navigating the ever-changing world of retail and credit card partnerships.
