Costco Switches from American Express to Visa

June 21, 2016

Millions of Costco members are finally ready to get rid of their American Express credit cards (aka Amex cards) to shop at Costco, the giant Seattle based Wholesale warehouse. Costco has about 81 million members worldwide, and the company has recently started accepting Visa cards instead of Amex cards. The move is a major advantage for customers who use any Visa-branded credit cards. Costco members are free to use their own Visa cards or use the newly issued Visa branded Costco store card, which will replace its existing TrueEarnings Amex branded store card.

Costco allows other forms of payments such as cash, ATM Cards and Electronic Benefits Transfer Cards. The move is expected to create competition among card issuing banks such as JP Morgan Chase, Bank of America, Citi and many others. Most of these issuers of Visa-branded cards have already started offering cash back on purchases at Costco and other warehouse stores. Consumers have the freedom to choose the best Visa-branded card that will work at Costco as well as other places such as gas stations, grocery stores and online stores.

The Costco Anywhere card issued by Citi offers 2% cash back on all purchases at Costco stores. The card also offers 1 to 4% cash back at other places such as gas stations and restaurants. The cash back amount is redeemable only at Costco stores. The issuance of the new Costco Anywhere card will not affect the customer’s credit scores, as Citi will not check customers’ credit reports. Another option is to use a Chase Freedom card, which offers 5% cash back at Costco, Sam’s and BJ’s through the end of this year.

American Express is expected to lose significant market share from the termination of its partnership with Costco. Most Costco members signed up for an Amex card to make purchases at Costco. These customers are likely to abandon their Amex cards, with the switch to the new cards now in place. Customers are free to use the Amex card at other stores where American Express cards are accepted. Amex charges applicable interest rates on any unpaid balances.

The business of credit card processing is highly competitive. The fortunes of credit card companies such as Amex are tied to the brand loyalty garnered from their partnership with companies such as Costco. Smaller credit card companies are badly affected if they lose a major partnership, such as Amex did with Costco. Visa is expected to get a significant boost from the changes made by Costco. The impact to other card issuers is unknown at this time. The merchant services segment is facing tough competition, and deals such as Costco’s certainly throws a monkey wrench into the entire business model.

Clearly, customers benefit more than anyone else in Costco’s decision to replace Amex. Customers can immediately benefit from a new Costco membership if they already own a Visa card.

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