American Express lost 10% of its card business when they lost the Costco deal. Here’s an inside account of how American Express lost the business. As costly as it was for American Express to lose Costco, it would have been more costly to retain Costco.
Details of what were expected to be the new Citibank Costco card were leaked in a regulatory filing, and we were led to believe it was basically the same product offer as the American Express Costco card — only a Visa rather than an American Express. It turns out that’s wrong, and the new Citi card is better.
Costco’s switch to Visa though was delayed. This is a complicated transition for the merchant and for the banks, especially with Citibank picking up American Express’ “back book” (Citibank bought the existing card accounts from Amex).
- know the transition timeline from American Express to Visa at Costco as well as for new Costco Visas to become available.
- Know the final details of the Costco Visa and it’s better than expected
American Express will continue to be accepted at Costco through June 19. Starting June 20, Costco will accept only Visa, cash, checks, debit cards, and Costco cash cards.
Current Costco cardholders will receive new Citibank Visas in May or early June.
The no annual fee card (that requires Costco membership) will offer:
- 4% rebate on gas on up to $7000 in spend per year (then 1% back)
- 3% rebate on restaurant and travel
- 2% on Costco and at Costco.com
- 1% on everything else
Citi basically increases cash back in each category by 1% compared to the American Express cobrand Costco card, with some minor differences (for instance the American Express business card had a higher gas allowance than the personal card, while Citi has the same benefits across personal and business).
PenFed’s premium card offers 5% back on gas. So does the co-brand Sam’s Club card. So 4% isn’t revolutionary here, though it’s good. Sam’s Club also gives 3% back on restaurants, and the Chase Ink Cash and Sapphire Preferred earn double points at restaurants (and I value each point at more than 1.5 cents apiece). Plus of course there are 2% rebate cards on everything not just Costco.
So this is a solid card, an improvement over the Aemrican Express offering that was a huge part of its consumer portfolio, despite the low merchant fees Costco pays. Folks who liked the Costco card will like this but it’s not super exciting for me.