The long-awaited Costco-Visa switch took place on Monday. Starting June 20, Costco customers have been able to use their Costco Anywhere Visa Card as well as any other Visa credit or debit card at the wholesale retailer. Visa replaced American Express as Costco’s co-branded credit card and the retailer stopped accepting AmEx altogether on Monday when Costco opened its doors for business.
Rumors of the switch over surfaced in January of last year and were confirmed in February. Business Insider reported that American Express and Costco were unable to reach terms that would have made economic sense for the shareholders of both companies.
According to Costco CEO Craig Jelinek, the reason behind the switch was to continue to reward Costco customers for shopping and for using their co-branded card. “We have a strong relationship with our members and it’s important that we’re rewarding their loyalty to us,” Jelinek said. “Our new co-brand credit card agreement with Citi on the Visa network enables us to offer significant value and benefits for our members across 494 locations in the U.S. and Puerto Rico.”
The Street reported that the new card has significant rewards compared to the former Costco-AmEx credit card. Rewards include 4 percent cash back on gas purchases (up to $7,000 annually), 3 percent cash back on restaurant and travel purchases, 2 percent on Costco purchases and 1 percent on all other purchases.
These rewards are far better than the ones the Costco-American Express co-branded credit card offered. The AmEx card only offered 3 percent cash back on gas purchases (up to $4,000 annually), 2 percent on restaurants and travel and 1 percent everywhere else. The new Costco Anywhere Visa Card has some of the best cash back rewards of any other credit card on the market.
Costco credit card customers received their new Visa cards in May. If customers had rewards on their American Express credit cards, they transferred to the new Visa card on Monday. Costco credit card customers did lose one thing in the switch though. The new Costco Anywhere Visa will not offer roadside assistance like the old co-branded AmEx card did.
The switch from AmEx to Visa has opened up a lot of room for improvement for both companies though. Visa hopes to open more accounts by targeting Costco shoppers. Costco will also see a significant gain through the deal. Three times as many people will be able to use credit cards at Costco after the switch has been made. The company also expects to see an increase in membership signups as well as credit card signups as a result of the switch.
When Costco and AmEx announced the end of their 16-year business partnership, American Express’ stock fell. During the first six months of 2016, AmEx stock has continued to fall. As of June 21, the company’s stock has dropped 11 percent to $61.95. However, American Express officials say that the company expects to see a gain of $1 billion from the sale of its Costco accounts. That is only a fraction of the $10.5 billion credit card portfolio AmEx held with Costco though.
Citigroup received a smaller portfolio than originally expected. When the company received the deal with Costco last year, the portfolio was estimated to have been worth $14 billion. Since the beginning of the year, Citigroup has dropped 18 percent to $42.70. Visa has grown 0.04 percent to sell at $77.31. Citigroup officials have muted their expectations of the deal from the start. The company does not expect to see any significant growth in 2016 due to the deal with Costco.
Have you shopped at Costco with your new Visa card?
For more info on Costco check out these articles.
Is the Costco Membership Fee Worth it?
Is a Costco Executive Membership Worth the Price?
Costco Gas Calculator: Will I Save Money Buying a Membership if All I Buy is Fuel?
You can check out our articles for Target as well.
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Photo: Flickr: Mike Mozart
Good decision.
One unexpected positive side effect of the switch-over is that other banks have stepped up their game in terms of rebates for using their Visa card at Costco and other warehouse clubs. Chase is offering 5% back when you use their Freedom card (which happens to be a Visa) thru the end of the year. Bank of America has started including warehouse clubs in the 2% rebate tier on their Rewards card, which previously was only for supermarkets (and can be over 3% if you have other accounts at BofA/Merrill). While the 2% back at Costco on the Citi card is better than customers were getting with AMEX (unless you had the Fidelity AMEX from FIA, but that’s another story), the 5% from Chase is a much better deal.