Costco Strikes Deal With Visa, Citigroup After Dropping AmEx

by Mercator Advisory Group 0

Money withdrawal on the ATM

Just one week after announcing that the co-branded cardprogram would not be renewed, Costco announced that the program wouldtransition to Citibank and Visa as of 4/1/16. This large program sets upa major shift in US card issuing.

Transactionswill be processed by Visa Inc. beginning April 1, 2016, the Issaquah,Washington-based retailer said Monday in a statement. New York-based AmEx saidFeb. 12 that it will end its exclusive U.S. partnership with Costco next yearafter the companies failed to reach a deal to renew it.

Losingthe U.S. Costco business, which accounts for about 20 percent of AmEx’s loansand 10 percent of its cards, is among the biggest challenges AmEx ChiefExecutive Officer Kenneth I. Chenault has faced since he steered the companythrough the financial crisis. The lender also disclosed in February the end ofa decade-long tie with JetBlue Airways Corp.

Citibank,of course, operates many major co-brand programs (e.g. American Airlines,Sears, Macy’s (through Department Stores National Bank joint venture)). This multi-faceted program also serves as a Costco membership card and thepayment network (transitioning to Visa) serves as the exclusive acceptancenetwork for credit cards. The card networks are playing an increasinglyimportant role in pitching co-brand programs with their issuing partnersthrough participating in marketing funding and potentially negotiatedinterchange/discount rates. Attractive partners like Costco attract majorattention from issuers and networks when their partner agreement come upfor renewal/re-bidding.

Overview by Ken Paterson, VP Research Operations for Mercator Advisory Group

Read full story at Bloomberg

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