Digital Transactions Authoritative, insightful and timely information for payments professionals
By Jim Daly
The big warehouse retailer Costco Wholesale Corp. announced Monday an agreement with Citigroup Inc. to replace its current cobranded card from American Express Co. next April with a Citi-issued Visa credit card. But Costco also announced a companion agreement with Visa Inc. under which other Visa-branded credit cards will be accepted at Costco, but not MasterCard Inc. cards.
So-called “non-dual” acceptance in which a merchant takes one of the bank card brands—Visa or MasterCard—but not the other is highly unusual in the United States because merchant acquirers typically sell Visa and MasterCard acceptance as a single package. Costco’s new arrangement, however, does have parallels with the 16-year pact with AmEx that will expire next year. Under that agreement, AmEx issued a cobranded credit card for Costco’s U.S. customers—a card with about 13 million cardholders—and AmEx-branded cards were the exclusive credit cards accepted at Costco.
The retailer, which is picky about payment card acceptance costs so that it can keep its prices low, also accepts PIN-debit cards and its private-label credit card. AmEx could lose billions in charge volume with the impending loss of Costco, but the company has said the margins on Costco acceptance were lower than average.
Neither Visa nor Costco would tell Digital Transactions News financial terms of their contract. But in a news release, Issaquah, Wash.-based Costco said that in addition to the cobranded-card program with Citi, it has entered into “an acceptance and cobrand incentive agreement with Visa.”
Both Visa and MasterCard pay billions of dollars a year to issuers to pump out cards with their brands and to merchants and acquirers to boost network transaction volume. Visa paid $2.6 billion in so-called client incentives in fiscal 2014 ended last Sept. 30, according to its fourth-quarter financial report.
“We are very pleased to have been selected by Costco as the credit card network for its U.S. warehouse clubs and gas locations, and are excited to be partnering with Citi on the new Costco Visa card,” Visa said in an e-mailed statement. “Visa has long been committed to partnering with merchants to enable consumers to use their Visa cards in new places and in new ways. We believe there is significant, strategic value in this deal for all of our clients as a result of bringing one of the largest and most reputable merchants in the world into the Visa network.”
Costco has 474 stores in the United States and Puerto Rico. “Hopefully we’re going have a very competitive offering for customers,” Costco head of investor relations Bob Nelson tells Digital Transactions News. Details about the new cobranded card will be announced later. The new network agreement with Visa, he adds, will “hopefully allow us to price as competitively as we can.”
A MasterCard spokesperson declined to comment. MasterCard is the network brand for Costco’s five-month old credit card in Canada, where the retailer has 88 stores.
A Citi spokesperson did not respond to Digital Transactions News inquiries. Both of Costco’s new agreements are subject to Citi’s purchase of the existing AmEx-Costco card portfolio, the companies said.
