Costco Opens 730,000 New Visa Accounts

by Raymond Pucci 0

After stumbling out of the gate in its Amex to Visa credit card conversion, Costco is hitting some pay dirt. Since June, they have opened 730,000 new Visa accounts according to the following article.

Costco said customers opened 730,000 new credit card accounts since the launch of its new Visa cards in June.

“The big hit (of customers) will be in the first three or four months,” Chief Financial Officer Richard Galanti said during a call with analysts to discuss the retailer’s fourth-quarter and full fiscal year financial results.

Sign ups will probably stay strong through Christmas as people hadn’t been able to sign up for a co-branded credit card for the previous nine months, Galanti said. The new cards will drive sales for Costco and lower the cost of accepting credit and debit cards, he said.

But because the data “is all of 14 weeks old,” it is too early to jump to conclusions about the full revenue impact.

The new Citigroup (NYSE: C) Visa cards went live in June after Costco (Nasdaq: COST) ended a decades-long relationship with American Express. Switching almost 12 million accounts from American Express to Visa was not a smooth process for Issaquah-based Costco. Members reported customer service holding times of more than an hour as Citigroup transitioned the co-branded credit card portfolio.

The company is past the worst of it, Galanti said, noting more color will be available on the new card next quarter.

Costco reported a $2.35 billion profit for the year ended August 28. While that beat analyst expectations, it was equal to a 0.6 percent decrease, the company’s first decline since fiscal year 2009.

A big driver of the credit card switch by Costco related to getting a sweetened transaction fee deal from Citi Visa, drastically undercutting American Express. Citi is betting that they will make up in volume and customer interest charges what they lose in POS transaction fees. Now that the transition missteps have been corrected, Citi is starting to see some big numbers on new account sign-ups. If this continues, both Costco and Visa will be getting an early Christmas present.

Overview by Raymond Pucci, Associate Director, Research Service at Mercator Advisory Group

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