Costco Says Dumping American Express Was About “Saving Money For Customers”

(photographybynatalia)

Yesterday, American Express announced the impending end of its monogamous relationship with Costco, meaning that not only will AmEx cards no longer be accepted at the popular warehouse store but that co-branded AmEx/Costco credit cards will be useless after March 31, 2016. Now Costco is breaking its silence on the split, saying it was all done in the best interest of Costco shoppers.

“Everything comes down to cost and saving money for our members, and that’s what it’s all about,” the Costco VP of investor relations tells the Wall Street Journal. “In general, things come down to economics.”

It also comes down to a chance for Costco to make a few billion more in credit card sales. Even though it only currently accepts AmEx cards, the company manages to bring in more than $100 billion in revenue.

Since most AmEx cardholders also have credit cards for the larger MasterCard or Visa payment networks, Costco can increase the number of customers it reaches.

Some Costco customers who didn’t want to sign up for an AmEx account and didn’t want to be burdened with carrying around wads of cash go through the process of buying Costco cash cards through the company’s website (which already accepts cards other than AmEx) and then use those cash cards when shopping at their local Costco. Depending on which card network Costco ultimately goes with, some of these customers will be able to use their plastic directly at the store without the intermediate cash card step.

In addition to seeking out a larger base of credit card users, Costco may end up getting better terms from whichever network it ends up in bed with. The store had reportedly been seeking improved terms with AmEx but the two parties couldn’t agree.

As Reuters points out, there may be an incentive for a banking partner to make a sweetheart deal with Costco. In addition to making money off of Costco transactions, the card-issuing bank would see income related to other purchases of co-branded cards. And since a card on the MasterCard or Visa network is going to be accepted at more retailers, the bank has more opportunities to earn.

by Chris Morran via Consumerist