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Costco Shift Shows It’s Not Just Prepaid Having Problems with Change

By Ben Jackson
June 27, 2016
in Analysts Coverage
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The New York Times is reporting that Costco’s change over from American Express to Visa has turned into a “customer service fiasco.”

Costco’s social media pages are filled with thousands of scathing complaints. Many customers say their new cards have not yet arrived, and some report problems activating or using their cards or getting access to their accounts online.

The deluge of complaints swamped Citigroup’s call center, leaving some people waiting for more than an hour or unable to connect at all. A note on Citigroup’s website warns of high call volume and apologizes for “the long wait time that you may encounter.”

What this shows is that card portfolio conversions are difficult, and the lesson here for the CFPB and consumer advocates is that it is not a plot by prepaid card companies when there is an outage. The article attempts to sum up the scale of the conversion.

Citigroup spent last weekend feverishly working to convert the millions of new cardholders it inherited onto its system.

“Citi completed one of the single largest portfolio conversions in history,” Ms. Bombardier said. “We sincerely apologize to those who have been inconvenienced.”

Now, this may or may not be one of the largest scale conversions in history, but many prepaid card portfolios also number in the millions. So, we see that prepaid portfolios are facing the same risks and challenges as credit card and debit card conversions, and that there is nothing fundamentally wrong with prepaid card portfolios or their service providers.

It is worth noting that prepaid card holders may face bigger disruptions in their lives than just not being able to shop for large quantities of household items if their cards have problems. But that problem is one that can be guarded against operationally, and does not need to be regulated. It also should not be an excuse for painting prepaid card providers as bad actors. The program managers, processors, and issuers or prepaid cards do want an outage. They have nothing to gain by customers not being able to use their cards.

What the Costco disruptions should teach us is that all payment types face the risk of disruption in portfolio conversions.

Overview by Ben Jackson Director, Prepaid Advisory Service at Mercator Advisory Group

Read the full story here

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