The new long-term agreement with Citigroup and Visa will begin in June of this year after dealing with a significant amount of delays in the switch over process. However, it is clearly the right choice for Costco and the wholesale company’s customers. How will the switch over benefit the loyal customer base?
It has been clear that Citigroup and Visa will offer Costco and its base of loyal customers better terms than American Express has ever been able to. The biggest change will be that the new deal will cut Costco’s card acceptance fees to practically zero. However, with the inner workings of the deal have become public, the value of the switch over for consumers has become more clear.
Costco’s AmEx Card
The current co-branded card (through American Express) allows Costco cardholders to earn cash back rewards on purchases. The American Express TrueEarnings card offers about 3 percent cash back on $4,000 of annual gas purchases at Costco and a vast majority of other gas stations. The card also provides 2 percent back on travel purchases and restaurants throughout the United States. Everything else gets cardholders 1 percent cash back. Every February, cardholders receive the cash back in one lump sum (instead of over time). The cash back rewards bonus can be redeemed at Costco through merchandise or cash.
After the reward vouchers are sent out, Costco usually has an influx of customer traffic during February of each year. Although there are some members that get cash from the voucher, many of them end of sticking around the wholesale club to spend their money.
Costco Citi Visa Card
New co-branded cards will basically work the same way. Every February, Costco customers will receive their yearly cash back rewards voucher. The biggest difference will be the vouchers will have more cash value because the rewards program will be more, well, rewarding.
For starters, the new co-branded cards will have 4 percent cash back on gas purchases, which is a bump up from the AmEx cards. They will also raise the limit on gas purchases eligible for cash back to $7,000. Travel purchases and restaurant charges will receive 3 percent cash back. The restaurant list for cash back rewards has been extended outside of the U.S. as well.
The “everything else” category will remain at 1 percent cash back. However, purchases made at Costco that would normally be considered “everything else” will be upped to 2 percent cash back. This is great because many people swipe their co-branded cards at Costco for “everything else,” so the customers will be able to reap the benefits of swiping their card at the wholesale retailer.
Another great benefit of the Costco switch over to Visa is that Visa credit cards are accepted more places than American Express. Costco cardholders will be able to swipe their card in more places, essentially giving them more opportunity to get cash back.
The announcement regarding Costco’s switch from AmEx to Visa surprised many. The two huge companies had been in business for what seemed like forever. American Express needed the deal more than Costco did though. The Costco account made up 20 percent of the AmEx portfolio. However, the company simply wasn’t willing to do what Citigroup and Visa were willing to do for the wholesale company. The increase in rewards for customers is evidence of that.
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Photo: Flickr: Mike Mozart