American Express has experienced a small shakeup. The credit card company’s contract with warehouse retailer, Costco Wholesale Corp., is coming to an end. On Monday, Costco announced an agreement with Citigroup Inc. Costco also announced a companion agreement with Visa, which ensures that MasterCard Inc. cards will not be accepted at the retailer. This type of “non-dual” acceptance is rare in the United States, especially in a large retailer who would profit more from accepting all types of credit cards. This new agreement will force consumers to use Visa and Citi credit cards, or shop somewhere else.
Although strange, this isn’t the first time Costco has made exclusive contracts. For 16 years, Costco had a pact with AmEx which issued cobranded credit cards for U.S. customers – the exclusive credit card accepted at Costco. The agreement is set to expire this year. Once the contract with AmEx expires, the company could lose billions in charge volume, but representatives of AmEx note that the margins on Costco were lower than expected.
Visa representatives have stated that they are very pleased with the agreement with Costco and Citi. Every year, Visa pays billions of dollars to issue cards to merchants to boost network transaction volume. Costco owns 474 stores in the United States and Puerto Rico, this could mean major profits for the credit card processor. MasterCard has declined to discuss the end of their contract with Costco.
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