Costco Dumps AmEx and Signs Deal with Citi

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Updated on Monday, March 2, 2015

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Today Costco announced that it has signed a deal with Citibank, replacing American Express, to issue the Costco co-brand credit card. This deal was signed in conjunction with Visa.

The deal will go into effect from April 2016, and this is what it will likely mean:

  • Citibank will be purchasing the accounts of existing cardholders who are with American Express. Although more details will be coming soon, we expect that existing Costco American Express cards will likely be migrated to a Citibank credit card. Those balances represent 10% of American Express’ total global balances
  • Citibank will start issuing new Costco credit cards, from April 2015. Although the details of the rewards proposition are not yet announced, we can expect a very rich reward scheme to continue. We do not believe Costco would sign a deal that made its customers worse off
  • Costco will now accept Visa credit cards. They will not be accepting MasterCard or Discover.

The financial terms were not disclosed. However, Citi was bidding against American Express (who was trying to renew) and Chase (who partnered with MasterCard). Bidding wars for large partnerships can become extremely expensive. Costco, a very customer-focused business, would not want the disruption of a migration unless the terms are incredibly sweet. Given Citibank’s focus on expanding its credit card business, we can imagine they gave an incredibly lucrative offer. Given that the CEO of the Citi Cards business used to work at American Express, he understands the value of the franchise.

For now, nothing changes. However, we can expect to hear the terms of the agreement over the coming years. American Express will clearly lose money as a result. We don’t know how much Citibank paid for this deal, so we will have to see if Citi makes money over time.

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